Student loan subsidy's end raises concerns

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Next year, the federal government will no longer subsidize the interest on Stafford student loans for graduate and professional students still in school.

U.S. Capitol BuildingThe Budget Control Act of 2011 that President Obama signed Aug. 2, just hours before the U.S. would have defaulted on its debt, raised the nation's debt ceiling by $2.4 trillion. The compromise legislation agreed to by the House and Senate contained a number of cost-cutting measures aimed at curbing federal spending over the long term and included a provision eliminating the student loan subsidy.

The subsidy meant students pursuing an advanced degree were not charged interest on the principal of their educational loans until six months after graduation. But starting July 1, 2012, the loans will begin accruing interest while the students are still in school. Students are not required to start making payments on the interest or the principal until after graduation.

The law also ended an incentive program for all students making on-time loan payments. According to the Congressional Budget Office, eliminating the graduate and professional in-school interest subsidy and direct loan repayment incentives would yield a total savings of $21.6 billion from 2012-2021. Of that, $17 billion is being redirected into the Pell Grant program, with the remainder going toward deficit reduction.

In a statement, the AVMA said the organization recognizes the need for reducing federal spending in light of the growing national debt but worries about the unintended consequences of ending the student loan subsidy.

"Eliminating educational financing for graduate and professional students who rely on student loans to fund their education, such as veterinary school, will ensure higher education is out of reach for many," said Dr. Mark Lutschaunig, director of the AVMA Governmental Relations Division.

The Student AVMA says the measure will make the already high cost of veterinary education even higher. "Without this financing, many veterinary students already faced with sky-rocketing tuition rates may find veterinary education out of reach. With average veterinary student loans greater than $130,000, and average salaries of $65,000, eliminating the in-school interest subsidy will result in thousands of dollars in extra costs to veterinary students," the SAVMA said in a statement.

Prior to the budget legislation's passage, the SAVMA joined the AVMA in a coalition of concerned organizations writing members of the bipartisan congressional group overseen by Vice President Joe Biden and charged with striking a comprehensive deficit-reduction deal. They asked that the group's proposal not cut the in-school loan interest subsidy.

In the letters, the two veterinary associations noted how graduate and professional students receiving subsidized Stafford loans are already required to pay more interest than undergraduates receiving subsidized Stafford loans—6.8 percent versus 4.5 percent.

"Current student loan policies for graduate and professional students are not the cause of the deficit we are facing today," the AVMA and SAVMA stated. "Increasing the costs of graduate and professional education will harm our nation's ability to cultivate and develop highly skilled individuals who would be future leaders in business, government, medicine, science, and technology."

The AVMA and SAVMA are now working with members of Congress to restore the loan subsidy.