Graduate School Loan Borrowers May Face Reduced Forgiveness Options

The release of President Barack Obama’s budget last month sparked growing concerns that student loan forgiveness – specifically for graduate school student debt – will cost taxpayers much more than originally estimated.
As the Student Loan Ranger discussed previously, the president’s budget shows a shortfall of approximately $ 21 billion for the federal student loan programs, in large part due to a projection of more borrowers taking advantage of loan forgiveness after making 10 to 25 years of income-based payments.
According to the New America Foundation, as much as 40 percent of the nation’s recent federal loan disbursements are for graduate student debt. Graduate student borrowers are much more likely to have substantial loan amounts forgiven under the income-based repayment, Pay As You Earn and Public Service Loan Forgiveness programs.
That’s because dependent undergraduate borrowers cannot borrow more than $ 31,000 in federal student loans – independent students can borrow up to $ 57,500 – making it unlikely there would be any remaining balance after 10 or 20 years of payment unless the borrower made an unusually low income for a long time.
Graduate borrowers, on the other hand, can borrow up to the cost of attendance through the Grad PLUS program, up to $ 138,500 for their entire undergraduate and graduate study period.
In fact, according to the New America report, the median debt load for a graduate student upon completion of study in 2012 was $ 57,600. One in 4 graduate borrowers, meanwhile, owes nearly $ 100,000 or more and 1 in 10 owes $ 153,000 or more. This amount reflects private loans in addition to federal. Private loans are not eligible for federal loan forgiveness.
So graduate borrowers are much more likely to take advantage of loan forgiveness because they have a greater likelihood of having hefty balances owed even after years of making payments. And more borrowers are indeed starting to use income-based repayment, thanks to the Obama administration’s efforts in recent years to publicize the program.
The uptick in the use of income-based repayment, and the expected expansion of the program to more borrowers by year’s end, has lawmakers re-forecasting how much in federal student loans will be ultimately forgiven by the taxpayers.
While the Obama administration predicts this year’s $ 21 billion shortfall in the federal student loan program will not be repeated, it also seeks to reform loan forgiveness provisions to ensure that program benefits are targeted to the neediest borrowers and to safeguard the program for the future, as the budget states.
Some have argued that loan forgiveness currently helps graduate students, who hypothetically have higher potential for six-figure earnings, much more than the program’s intended target of low-income borrowers. So when policymakers consider instituting reforms to save money, they often look to scaling back benefits for graduate students rather than undergraduates.
The president’s budget, for example, is recommending that graduate student loan borrowers with balances of $ 57,500 and higher be eligible for forgiveness after 25 years of payment, not 20. Additionally, the budget calls for capping the amount eligible for Public Service Loan Forgiveness at $ 57,500.
In the past, other benefits for graduate student loan borrowers also have been slashed to reduce the loan program’s overall cost. Back in 2012, graduate students lost the ability to borrow subsidized Stafford loans, which offer government-paid interest while the borrower is in school.
Not everyone agrees that graduate borrowers should bear the brunt of cost-cutting reforms. Critics of the cuts point out that nearly 20 percent of new jobs by 2018 will require an advanced degree and we
shouldn’t assume that all graduate students earn six figures, as incomes for graduate degree holders vary widely by discipline.
While graduate students’ loss of the interest subsidy has already gone into effect, nothing has been set in stone yet regarding the future of loan forgiveness for graduate students. The president’s budget at this point is only a set of suggestions.
So, if you’re a current or recent graduate student who was counting on forgiveness down the road, don’t hit the panic button just yet. Even if eligible forgiveness amounts were reduced in the future, Congress is likely to grandfather in existing eligible borrowers any time a benefit is altered or phased out.
While nothing is for certain, the Student Loan Ranger expects similar treatment if this change is passed into law, meaning the change would only affect new borrowers who took out loans as of the rules’ effective date.
Of course, there aren’t any promises where Congress and taxpayer dollars are concerned! It behooves graduate borrowers to follow these Education loan proposals closely in the news and think about whether they could pay off their entire debt load without the benefit of forgiveness.
Source: (http://www.articles.seoforums.me.uk/Europe-UK-US-Article/graduate-school-loan-borrowers-may-face-reduced-forgiveness-options)