The National Commission on Fiscal responsibility and Reform has issued a report that recommends the elimination of subsidized federal student loans in order to sacrifice federal spending. The hint is one of 50 that the bipartisan panel, which was created by President Obama and charged with looking ways to sacrifice the federal deficit, brought forward.
Federal subsidized student loans are government-issued college loans on which the government pays -subsidizes - the interest while a student is in school or in an approved deferment period. While deferment periods, which are granted on a case-by-case basis when a student loan borrower is experiencing financial hardship or other extenuating circumstances, the borrower isn't required to make valuable or interest payments on his or her federal college loans.
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Obama Commission Recommends End to Subsidized pupil Loans
Subsidized student loans, awarded on the basis of financial need, are ready to low-income students and students from low-income families. The President's fiscal commission estimates that eliminating the federal interest payments on these subsidized college loans would save about billion annually.
The proposal to eliminate subsidized federal college loans isn't a hint to shutter the federal student loan agenda altogether. Federally funded loans are also ready in an unsubsidized form, and these unsubsidized student loans are awarded to eligible students, regardless of earnings bracket, who qualify for federal college financial aid to help them pay for college.
Do Student Loan Subsidies benefit Students?
A growing estimate of policy groups withhold dispensing with federally subsidized college loans. The College Board recommended the same move in 2008, and some Democratic lawmakers also included the elimination of subsidized student loans in the initial draft of the college loan reforms that were enacted in 2009. The provision was dropped after student advocates and higher study lobbyists successfully persuaded House Democrats to withhold the student loan subsidies.
Supporters of dropping the subsidized interest benefit say that subsidized loans don't do whatever to make college more accessible to the low-income students to whom the loans are awarded, since borrowers don't reap the benefit of the subsidy until after they've graduated.
Others who withhold the move to do away with subsidized loans argue that student borrowers shouldn't receive a benefit designed to sacrifice student loan debt that's based on what the borrower's family earnings was 10 or 20 years earlier.
Instead, proponents contend, already-available flexible loan refund plans like income-dependent payments, graduated payments, and refund term extensions are more efficient and fairer.
A new income-based repayment plan, instituted last year, is based on the student loan borrower's post-graduation income, a good measure of a borrower's long-term financial outlook.
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