Unsubsidized graduate student loans a bad idea

Recent modifications to graduate student loans will save taxpayers $21.6 billion over the next decade, but those savings will create a financial burden that will be passed on to grad students for years to come.

The Congressional debt deal halts government subsidization of interest on some student loan payments starting in the summer of 2012.

Students can still wait until graduation to pay the extra interest – roughly $207 a month, adding up to an estimated $7,000 over a 10-year period. Or they can pay it while they are in school since the majority of graduate students work part-time.

Students have protested these changes, claiming that Congress, particularly Republicans, are choosing to cut the future. However, Senate Majority Leader Harry Reid suggested cutting grad school loan subsidies after the Republican House did.

Seventeen billion of the $21.6 billion in savings will help fund Pell Grants. These grants provide up to $5,500 per year to about 8 million underprivileged students. Pell Grants will lose less than $2 billion over the decade, a shortfall that is less than it could have been.

Protesting students ignore many fortunate facts. The availability of these loans are not changing; the maximum to borrow is not decreasing.

In short, the Pell Grants that may have kept students afloat through undergrad programs are not being scrapped.

Their maximum was recently raised, and House Majority Leader Eric Cantor admitted that the yielding of Republicans represented a necessary compromise. Students should not take this face-saving move for granted.

They will pay a bit more when they graduate, but purchasing a used car instead of a new one could take care of that increased expense. They could also apply to more schools, including more safety schools likely to hand them scholarships. They should also take advantage of the opportunity to apply for grants.

However, what is not certain is the economic consequences of taking money out of the pockets of students.

Higher costs might discourage students from pursuing graduate degrees at all. These young people may enter the job market prematurely and find nothing, thus increasing the unemployment rate.

Fewer applicants means less competition, which might decrease the overall pool of talent entering grad school and the professional world. However, having an overqualified population would probably be better than an underqualified one.

Maybe students will still go to grad school and just deal with the higher costs. Assuming that those who attend graduate school are tomorrow’s professionals and high-earners, they should be fine, right?

Higher loan payments could be an incentive to consume less. Graduates may find a job and do fine. They could tighten their budgets by purchasing less services, cheaper homes and cars, and through just scrimping in general.

Increasing consumption and investment are essential to economic recovery. Increased student loan interest might only be a slight blow, but as long as it stays in effect it will be continuous, hurting us over time.

This tightening affects a very small portion of the population, and it will take a few years for any changes to take place. Restricting access to education seems like the wrong direction for an economy that craves job growth and development. Then again, maybe a little added austerity would not ruin the lives of those lucky enough to attend graduate school.

Rachel Farhi is a senior English literature and political science double major and may be reached at [email protected].