This Season On the “Walking Dead”- The Return of Subsidized Loans For Graduate Students
In a prior blog post I formally laid to rest the federal Perkins Loan when it seemed after years of life support, Congress finally pulled the plug on this loan program. But wait… in a “zombie- esque “ moment the Perkins Loan seems to have risen from the grave (though not completely in its former iteration).
On December 18th, President Obama signed into law the Perkins Loan Program Extension Act of 2015 extending the authorization of the Perkins Loan Program for another two years . However (as with all zombies) the Program will not 100% look like it did before. Going forward “new “ Graduate students will not be eligible for Perkins Loan support (so only prior recipients of Perkins Loans will have the ability to receive additional support). This is slightly problematic for YLS given that we have always allotted Perkins Loans to our 1Ls exclusively so that they could take advantage of the “subsidized” (no interest building) aspect of the Perkins loan over their full three years of enrollment. So, depending on what allotment of Perkins Loan funds we receive from central Yale Student Financial Services, it looks like it’s the 2Ls (Class of 2018) who will have eligibility for and will benefit from continued Perkins support.
But in an even more shocking “zombie” move… another long dead loan program benefitting Graduate Student is also trying to rise from grave- the Direct Subsidized Stafford Loan. This loan program was killed in 2011 by the Budget Control Act of 2011, ostensibly to reduce the federal budget deficit, and it was a significant blow to Graduate students who had been able to borrow up to $8,500 (with no interest building all through enrollment and the post-graduation six month grace period) through this loan. But, just when you thought the Direct Subsidized Stafford was only a distant memory, last month Rep. Judy Chu (D-CA) introduced the Protecting Our Students by Terminating Graduate Rates that Add to Debt (POST GRAD) Act which would restore eligibility for Graduate students to receive a subsidized Stafford loan. Unfortunately, because the bill would not be budget neutral, it’s very unlikely that Congress will take action on it in this current session. It is however a tremendously positive sign that the need for a subsidized loan vehicle for Graduate students is even being discussed or on Congress’ radar.
Why is subsidized interest so important? Look at it this way… if you borrowed that $8,500 in your 1L year in a Direct Unsubsidized Loan at the current 5.84% interest – you would accrue an additional $1,591 in interest by the time the loan goes into repayment. Then it gets worse… when the loan does go into repayment that in school interest gets “capitalized”(or added ) into the total loan principal… so now you are paying interest on that interest. Ultimately on a 10 year repayment that $1,591 of interest now costs you $2,119 (and at a 25 year repayment its $3,075).
Bottom line… getting any type of subsidized loan vehicle (Perkins or Stafford) for Graduate students at any amount is a” win” in loan repayment.