Federal Issue Brief

 Retain In-School Interest Subsidy on Federal Student Loan

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AVMA Position:

Support

Summary:

  • As part of an effort to reduce the federal deficit by $4 trillion by 2020, the deficit-reduction package being debated in Washington includes a proposal to end the in-school subsidy for graduate-professional students.
  • The subsidy uses federal funding to cover the interest on certain federal student loans while a borrower is enrolled full-time in college. The Congressional Budget Office projected savings are outlined below:
Proposals to End Stafford Loan In-School Interest Subsidy (in billions)
Proposal 5-year 10-year
2003 CBO Budget Options 4.6 10
2005 CBO Budget Options 3.7 7.7
2007 CBO Budget Options 8.2 18.1
2009 CBO Budget Options 10.4 10.4
All proposals end the in-school interest subsidy for graduate-professional students only.

Background:

  • In June 2010, all higher education student-loan debt (all levels) totaled approximately $830 billion, exceeding credit card debt for the first time. Ending the subsidy will cause this situation to worsen. The projected savings transfer as a cost to student borrowers.
  • Current interest rates for Federal Graduate-Professional Stafford Loans disbursed on or after July 1, 2006 is 6.8% fixed; for Grad PLUS Loans Direct Loans is 7.9% fixed

Justification:

  • The subsidy is important because it reduces the barriers faced by students who are talented, disciplined and intellectually capable of fulfilling their dreams of becoming a veterinarian, a dentist, or a physician.
  • Losing the subsidy will increase the cost of professional education and drive graduates further into debt. In 2010 the average graduating education debt for veterinary school graduates was $133,783; allopathic medical school graduates averaged $160,000; and dental school graduates averaged $177,144.
  • In 2010, veterinary school tuition costs ranged from approximately $10,000 to $60,000.
  • In 2010, an AVMA survey found that the mean full-time starting salary for new veterinarians entering private practice was $67,548.
  • Other possible consequences of increased costs in veterinary education may lead to:
    • Sectors such as livestock medicine and public health, which are already under-served due to lower salaries and geographic issues, will become more so.
    • Veterinarians burdened by educational loans will be reluctant to go further into debt to buy their own practices.
    • Only students from wealthy families will be able to afford professional schools of veterinary medicine, dentistry, and osteopathic/allopathic medicine.

AVMA Contact: Gina Luke, Assistant Director Governmental Relations Division, 202-289-3204.