Day: 2011/08/04

The Debt Ceiling Bill Leaves Grad/Professional Borrowers No Worse Off

…Unless they’re ineligible for Income-Based Repayment (IBR).

I apologize to readers for not doodling more often. Been busier is all.

I’m not saying we should cheer it—I think the government shouldn’t play lender at all—but there are a few reasons to shrug our shoulders rather than explode with rage at the Budget Control Act of 2011 (BCA). First, here’s what the law does specifically.

The relevant text is at the bottom, §§ 501-504.

(1)  § 501 modifies 20 U.S.C. § 1070a(b)(7)(A)(iv), which as my best research shows, does not exist. 20 U.S.C. §1070a(b)(8)(A) does, and I’m guessing the law was meant to increase the Pell amounts listed. [UPDATE: Here’s the statute that changed the paragraphs.]

(2)  § 502 adds a third subparagraph to 20 U.S.C. § 1087e(a). It allows graduate and professional students to borrow the equivalent amount of Subsidized Stafford Direct Loans for which they were already eligible as Unsubsidized Stafford Direct Loans starting July 1, 2012.

(3)  § 503 alters 20 U.S.C. § 1087e(b)(8) by taking away the Secretary of Education’s power to create payment incentives for loans created after July 1, 2012.

(4)  § 504 excepts the BCA from the “Negotiated Rulemaking” requirements and “Master Calendar Exception,” which have to do with the BCA’s implementation, not its substance.

As to the Pell (7) vs. (8) typo, I don’t know if I’m missing a more recent version of the law that repealed one of subsections (1)-(7), but if not, whoops on Congress and sorry Pell recipients. There may be an administrative procedure that allows the intended law to be modified, particularly because the statute it cites doesn’t exist, leaving a patent error. Nevertheless, there are two things that the BCA doesn’t do:

(1)  Grad PLUS loans are intact (20 U.S.C. § 1078-2). These allow grad students and professional students to finance total cost of attendance (including living expenses) after whatever (now) Unsubsidized Direct Loans can get them. This means no one will be forced to take on private loans who didn’t have to already.

(2)  More importantly, IBR is untouched (20 U.S.C. § 1078-3, § 1087e(d)(1)(E), §1087e(m), and § 1098e). Even though interest will be capitalized on professionals’ and graduates’ Direct Loans while they’re still in school (Managing Partner calculates it at $3,628 by graduation for law students), they can still elect the IBR plan and have their loans forgiven after 25 years. Although, for those who are ineligible, the BCA makes them worse off with higher interest loans.

Congress may think it’s saving money, but it’s not. The net result is that ED is going to be canceling even larger amounts of graduate and professional student debt 25 years after everyone graduates. I’m more concerned that Congress picked out this one piece of discretionary spending out of the entire budget for austerity in the debt ceiling hostage-situation. Changing the law accomplishes nothing ($21.6 billion in savings is nothing to the federal government over ten years, and coupled with the additional Pell spending it saves only $4.6 billion by 2021), and thankfully Congress isn’t bright enough to know about IBR and PLUS loans. Logically, if many of the loans will never be paid back in full anyway, then lending more money today with more capitalized interest is just wishful thinking. Hopefully future battles over student debt won’t get any worse than this.