I really hate to do this. Lord knows I shouted at my radio enough times this summer over the debt ceiling debate, and I loathe bringing it up again…discussing any kind of ceiling these days induces in me a kind of subclinical PTSD. So my apologies, but there was a little-noticed special ingredient in that sausage making process that bears some discussion, particularly in the context of graduate students. (And to my young medical student colleagues, a double apology, because this has everything to do with you. So put down your books, or step away from rounds for a second, and pay attention.)
One of the cuts that made it through in the name of fiscal responsibility was a deal to end federally subsidized loans for graduate students as of July 1, 2012 (i.e. graduate students taking out Stafford loans after next summer, will be on the hook for interest accrued during their schooling). So while the government used to cover that interest, medical as well as all other stripes of graduate students will hereafter be responsible for that interest in the same way they are for the interest currently accruing on their many private loans while they go through school. To put this in real numbers, if you take out the maximum in federally subsidized loans ($65,000) you will pay an additional ~$24,000 over 10 years of loan repayment, on top of the interest and principle you were already going to be paying back.
Now, of course on the surface this seems foolish given how much higher education already costs and how little consumer spending there is and is projected to be in this economy in the near term. You could even charge that it’s unfair, given how most recent grads live hand-to-mouth for a long time after graduate school to get themselves established and begin paying off all their other interest accruing debts. This measure effectively takes an additional $200 per month out of the economy that each new graduate would have been spending on everything from rent and groceries to dinners out and new appliances. As a rule, we aren’t prodigious investors, and almost all of our expendable income goes back into the economy month by month.
But as to the issue of fairness, of the roughly $22 billion dollars saved through this measure over 10 years, the Department of Education gets back $17 billion to help shore up the Pell Grant budget. This is a laudable goal and a higher priority given the role Pell Grants have in getting poor students into undergraduate programs, an increasingly necessary investment for anyone looking for a good job nowadays. So albeit with much justified misgiving and grumbling, I hope my medical student colleagues can put this whole debacle on the altar of shared sacrifice. An extra $24,000 in debt shouldn’t have really dissuaded any of us from going to medical school given that our average debt is already in the 6-figures, but Pell Grants really are the difference between college and minimum wage for 8 million poor kids every year.
So then where does that leave us? Do we take our ball and go home, while the gazillionaires continue to count on their Tea Party friends in Congress to defend their tax breaks? Far from it! In March of 2010, back before we elected this worthless Congress, President Obama signed into law the Health Care and Education Reconciliation Act. Apart from modifying the health care overhaul in some broadly helpful ways, it also ended the practice of paying private lenders to administer federally backed student loans. With this law, starting on July 1, 2014, these loans will come directly from the federal government itself. Loan repayments following graduation will be capped at 10 percent of a student’s disposable income annually (down from the current 15 percent) and any debt remaining after 20 years will be forgiven (down from the current threshold of 25 years) if you’ve been making on-time payments. These are genuinely good, common sense ways for the government to make education more affordable and leave more consumer money in the economy, while also saving the tax payer $68 billion in the first 11 years following implementation.
Therefore, if the debt ceiling deal for its part works against these reforms, then it’s time for us to insist that the implementation of the Reconciliation Act be moved forward to coincide with the end of subsidized Stafford loans. I’ll take my loan directly from Washington this coming July, thank you very much. And while they’re at it, how about lowering the interest rate? Currently Stafford interest rates are fixed at 6.8%, but with good credit you can get most other kinds of loans these days for less than 3.25% percent. A loan from Uncle Sam really ought to be more like a loan from your uncle Sam, or Grandpa, or mom, with little-to-no interest expected, since the federal government, like your family, has a stake in your financial stability and educational achievement. Indeed, these reforms really ought to apply for ALL student loans (federal and private), especially since the banks haven’t seen fit to properly serve their function in small business/individual lending.
We have a pro-education President, and a Congress hell-bent on cutting spending and taxes at all cost. Thus, there really is broad room for agreement here toward accelerating the implementation of these already ratified reforms to save both our beleaguered graduate students and federal government a lot of money. Ok… I’m done…no more rehashing the debt ceiling…exceedingly sorry to have brought it up again.