Proposals to eliminate subsidized federal student loans could result in an increase of as much as nearly $13,500 in borrowing costs for students due to accrued interest, according to an analysis from the Institute for College Access and Success (TICAS).
There have been several proposals to eliminate subsidized loans in the Trump administration’s budget proposals and in the House Republicans’ fiscal year 2018 budget resolution, according to the report.
“Eliminating these loans leaves students who need to borrow with no option but to use unsubsidized loans, which begin accruing interest at the time they’re borrowed,” the report said. “While one single federal loan may be simpler, this kind of simplicity would come at the expense of college affordability and leave student loan borrowers with bigger bills for little to no gain because the savings generated from these proposals are not reinvested in students.”
Without subsidized loans, the report estimates, the average student would enter repayment with $3,900 more in debt due to accrued interest while in school. Assuming the borrower repaid the debt within 10 years, his or her total costs would increase by $5,100, and by $7,300 if repaid over 25 years.
That estimate doesn’t take into account if interest rates increase faster than current projections. According to the report, if the interest rate hits the 8.25% cap, a student would enter repayment with $5,700 in additional debt, and would pay 25% more over the life of the loan. If the debt is repaid over 10 years, the borrower would incur $8,350 more in costs, and $13,450 more if repaid over 25 years.
“As Congress considers ways to simplify student loans, it must take care to not increase the cost of college for borrowers currently benefiting from subsidized federal loans,” the report said. “In a time of 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 students.”
Publication Date: 4/29/2019