03.19.09 | Stafford Rate Cuts Won't Affect Graduate Students
Students obtaining their Bachelor’s degree will see rate cuts each year through 2013 on their Subsidized Stafford loans. Graduate students will see no such cuts. The current rates for Graduate Stafford loans, unsubsidized and subsidized is 6.8% fixed. Graduate students can borrow up to $22,500 a year in the Stafford loan; $12,500 of that is unsubsidized. Unsubsidized loans accrue interest from the time they are disbursed to the school.
Let’s say you borrow the full $12,500 in the unsubsidized loan for your first year of Grad school. You also borrow the full $10,500 in subsidized Stafford loans. You are not working, and therefore cannot afford to pay the interest that accrues monthly on the unsubsidized loans. You decide to pay it all when you are finished. With a 6.8% rate, your loan will accrue an average of $70 per month in interest. Your lender will capitalize that interest every 3 months if you do not pay it first. This means that every 3 months you are adding $210 to your loan balance, and then you are paying interest on that new balance. Paying interest on interest…..FUN! The end result is your loan balance when you graduate will be significantly larger than when you first borrowed it, which means you will have to pay more and over a longer period of time. Graduating with subsidized loans at a lower rate would help significantly with the affordability of your monthly payments.
To me, it seems like if graduate students are not going to get a break on the unsubsidized loans (undergraduate students don’t get any relief here either), then WHY can’t they lower the rates for the Subsidized portion, so that when you graduate with your MBA you aren’t financially crippled by your student loan payment. It just seems so hypocritical that there is all this talk in Washington about how we need more students to go to college, get degrees, further their education, yet we don’t give an equal break to all students. Graduate students need the help just as much as undergraduate students do. Why the discrimination? The Subsidized loan for undergraduate students is dropping to 5.60% in the 2009-2010 school year. After that it drops to 4.50% in 2011 and 3.40% in 2012. The Subsidized loan for graduate students will remain at 6.80% indefinitely.
People are graduating $50,000 in debt with their MBA and still can’t find a job. I guess the only good news is…all federal loans come with an unemployment deferment option. I have a sneaking suspicion there will be an influx in those applications in our near future.
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