The National Commission on Fiscal accountability and Reform has issued a narrative that recommends the elimination of subsidized federal student loans in order to cut federal spending. The hint is one of 50 that the bipartisan panel, which was created by President Obama and expensed with seeing ways to cut 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. During 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 essential or interest payments on his or her federal college loans.
Obama Commission Recommends End to Subsidized pupil Loans
Subsidized student loans, awarded on the basis of financial need, are available 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 program altogether. Federally funded loans are also available 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 number of policy groups hold 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 preliminary draft of the college loan reforms that were enacted in 2009. The provision was dropped after student advocates and higher education lobbyists successfully persuaded House Democrats to hold the student loan subsidies.
Supporters of dropping the subsidized interest benefit say that subsidized loans don't do anyone 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 hold the move to do away with subsidized loans argue that student borrowers shouldn't receive a benefit designed to cut 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 reimbursement plans like income-dependent payments, graduated payments, and reimbursement term extensions are more productive and fairer.
A new income-based repayment plan, instituted last year, is based on the student loan borrower's post-graduation income, a good portion of a borrower's long-term financial outlook.
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