Student-Loan Support Cut in the Debt-Ceiling Deal

The debt-ceiling debacle had Democrats and Republicans arguing over tax breaks and spending cuts on social programs like Medicare and Social Security. But, under the radar, both parties put higher education on the chopping block once again.

As part of the budget deal, starting June 1 next year, the government will stop paying interest on subsidized loans for graduate or professional students while they're in school. Typically, the government pays the interest on undergraduate school loan debt up to $8,500 per year as long as students remain enrolled. With the new rules in place, graduate students will no longer be able to defer payment without accruing interest. As a result, the unpaid interest rate will increase loan balances by nearly 16 percent, and the average debt at the start of repayment by about 6 percent. It will save the government $18.1 billion over 10 years. The plan did, however, pump $17 billion into the Pell Grant program, which benefits undergraduates.

With Sallie Mae, the largest U.S. student-loan provider, reporting a 45 percent increase in profits, making $447 million in the fourth quarter alone, this deal is another way to keep boosting the private sector while bringing down the majority of lower-income students who could not afford college educations otherwise.*

The true cost of this deal will most likely do more harm than good. With the long-term benefits of strengthening intellectual capital, this is one sector in which the government should be investing, not cutting.

*CORRECTION: Starting July 1, 2010, all student loans are made through the Department of Education; the cuts in the budget deal will have no financial impact on Sallie Mae or any other private lender.