Trump Proposal to Eliminate Subsidized Loans Would Increase the Cost of College by Thousands of Dollars
The Washington Post reports that the Trump Administration’s FY2018 budget proposal would eliminate subsidized Stafford loans that go to students with financial need. With subsidized loans, interest does not accrue while students are in school, for six months after they leave school, during active-duty military service, and for up to three years of unemployment or other economic hardship. The billions of dollars in savings from ending subsidized loans for new students would not be used to make college more affordable. Instead, this proposed rollback would be exacerbated by other dramatic cuts to programs that help students afford college and repay their loans.
Eliminating subsidized loans would increase the cost of college by thousands of dollars for many of the six million undergraduates who receive those loans each year. The Congressional Budget Office recently estimated that eliminating subsidized loans would add $26.8 billion in costs to students over 10 years.
The charts below illustrate how much more a student would have to pay if subsidized loans are eliminated and the student borrows the same amount in unsubsidized loans instead. The calculations assume the student starts school in 2018-19, borrows the maximum subsidized student loan amount ($23,000), and graduates in five years.
Using current CBO interest rate projections, eliminating subsidized loans would cause this student to enter repayment with $3,400 in additional debt due to accrued interest charges. As a result, she would end up paying $4,350 (15%) more over 10 years and $5,950 (15%) more if she repaid over 25 years.
The added costs to students would be even higher if interest rates increase faster than current projections. If the undergraduate Stafford loan interest rate hits the statutory cap of 8.25%, eliminating subsidized loans would cause this student to enter repayment with $5,700 in additional debt due to accrued interest charges. As a result, she would end up paying $8,350 (25%) more over 10 years and $13,450 (25%) more if she repaid over 25 years.
At a time where there is growing public concern about rising student debt and broad consensus on the importance of higher education and postsecondary training to the US economy, we need to be doing more, not less, to keep college within reach for all Americans. For more information on TICAS’ proposals to streamline and improve federal student loans, see our summary of recommendations and our new report, Make it Simple, Keep it Fair: A Proposal to Streamline and Improve Income-Driven Repayment of Federal Student Loans.
Note: This borrower would only be eligible for a 25-year repayment plan if she borrowed unsubsidized Stafford loans in addition to subsidized Stafford loans and entered repayment with more than $30,000 in debt. The most recent data show that almost four in five (79%) undergraduates with subsidized loans also have unsubsidized loans.