Undergraduate and graduate student borrowers could be affected by changes to the loan program.
Currently, subsidized loans, which do not accrue interest while the borrower is in school, can be taken out by students in financial need.
Under a proposal by the Trump administration, new loans would be “unsubsidized,” which means interest would be accrued while the student is still in school.
Other proposed changes include loan forgiveness after 15 years for all federal loan borrowers and higher fees on defaulted student loan debt.
New interest rates rose by seven-tenths of a percentage point because of the Treasury Department’s auction of 10-year notes in early May.
The changes are expected to take effect July 1 for loans taken out in the 2017-18 academic year.
With the changes coming down the pipe, some argue this will hurt lower-income students who are trying to get an education.
Interest rates on student loans increased because of the current administration’s promise to cut taxes, said Lashon Williams, director of financial aid for the University of Houston-Victoria.
“The market reacted to promises,” Williams said. “I don’t think right now that will be a significant amount to panic.”
The difference in the old and new rates will not be noticeable to students, she said.
If the interest rates continue to increase each year, students and parents might consider postponing school, she said.
An impact could be seen in the total repayment and in monthly payments.
Williams advises students to monitor interest rates and encourages them to only borrow what they need to pay for education expenses.
Students would still benefit from choosing government loans over private loans because of the repayment options, she said.
College enrollment would not be immediately impacted by the change, she said.
“With newer incoming freshmen, we see a lot of them try not to get loans,” she said.
The budget at the state level provides a funding increase for the Toward Excellence, Access and Success Grant, or TEXAS Grant.
This would be good for any university that awards the minimum of $5,000 to students, Williams said.
Priority students are awarded first under categories that include participating in an advanced academic program, being in the top one-third of their class, having a “B” average and having taken an advanced math course beyond Algebra II.
“That’s good because it gives the students … academic-wise, a chance to be awarded that first,” she said.
Congressman Blake Farenthold recognizes the budget is subject to change, Stacey Daniels, press secretary in Farenthold’s office, wrote in an email.
“While the congressman generally supports the President’s plans, this budget is just a proposal,” Daniels wrote. “He expects the higher education budget to be much different than the current proposal.”
Con: Cuts in programs hurt low-income students
Undergraduates could pay interest that accumulates on loans taken out while they are still in school.
A proposal has been made to eliminate the in-school interest subsidy for the Stafford loans.
Currently, the government pays the interest for subsidized Stafford loans taken out by undergraduates in college, said Dan Madzelan, associate vice president of government relations at the American Council on Education.
For unsubsidized Stafford loans, students are responsible for all of the interest that accrues while the student is enrolled in school.
“The administration is proposing to have all Stafford loans unsubsidized,” Madzelan said.
New loans after July 2018 would be affected.
The change would not be made by the president alone but would have to have congressional approval.
The borrower has the financial benefit without the proposed change, Madzelan said. The elimination would require the student to pay more.
Drastic changes are proposed to student aid in the budget, said Clare McCann, senior policy analyst at New America’s education policy program.
Specific cuts can be seen for undergraduates and low-income students, she said.
Loans for low-income students would accrue more debt, she said.
“We are concerned about this because it’s targeting low-income (students) who do not have a degree,” McCann said. “If they are not finished, they are leaving with more debt than they otherwise would where they could repay that debt comfortably.”
Although the budget is saving money, those savings are not reinvested elsewhere in education, McCann said.
A work study program being cut in half limits the amount of money each school will receive, she said.
Although the federal work study money is not well targeted to the most needy students, schools focus on the program to help students pay for college.
“Research shows for low-income students, working 10 or 15 hours a week can provide financial and educational benefits,” she said.
A budget based on “cuts for the sake of cuts” is making the situation difficult for students paying for school, she said.