• September 1, 2015

Deficit-Reduction Panel Proposes Ending In-School Interest Subsidy on Federal Student Loans

The chairmen of a fiscal commission appointed by President Obama are calling for ending the in-school interest subsidy on student loans as part of an effort to reduce the federal deficit by $4-trillion by 2020.

The proposal, which would save the government $43-billion over 10 years, is one of a dozen "options" for reducing mandatory spending contained in a draft report released on Wednesday. The report also recommends $200-billion in "illustrative" cuts to discretionary spending, including $16-billion from ending Congressional earmarks, the pet projects that lawmakers insert in spending bills.

Neither proposal is new, and both are certain to be controversial. Many lawmakers have called for wiping out earmarks, and Republicans proposed requiring students to pay interest on their loans while still in college as early as 1994, as part of their "Contract With America." In the end, the Republicans' plan failed and President Clinton was able to claim credit for saving student aid.

This time around, the proposals might not even make it into the deficit panel's final report. The bipartisan commission is scheduled to release that report by December 1, but many experts are skeptical that its 18 members, who include 12 current members of Congress, will be able to reach consensus on recommendations. For a proposal to be included in the report, 14 of the 18 members must support it.

Today's report, which proposes a broad range of spending cuts and tax increases, represents an agreement between the panel's two chairmen, Erskine B. Bowles, a Democrat who is a former White House chief of staff in the Clinton administration, and Alan K. Simpson, a Republican and former U.S. senator from Wyoming. If all the report's proposals were enacted, they would reduce the deficit to 2.2 percent of gross domestic product by 2015.


1. fiscalsense - November 11, 2010 at 11:05 am

Another way to reduce taxpayer liabilities would be to rethink the loose student loan awarding process and the income based repayment (IBR) plan. They need to stop allowing students to borrow over double the institutional cost of attending college. The way it is set up now allows grad students to borrow (e.g.) $100K for a $40K program, or an associates degree student to borrow $60K for a $30K program while attending online or once a week and pocketing the difference or paying non education related expenses, then enter a negatively amortized repayment plan under IBR, sticking the taxpayer with massive future losses.

2. 11223140 - November 11, 2010 at 02:29 pm

Another way to reduce taxpayer liabilities would be to rethink the decision-making process that led to an illegal, unilateral, unprovoked invasion of another soverign nation -- maybe go back in time, and in the process save 741 billion dollars. Or, we can alternatively revisit IBR loan repayment, and just deal with the crumbs left on the table after the feast.


3. finaidrep - November 12, 2010 at 02:27 pm

Working in financial aid for a Community College, I can attest that no student can have any aid, whether Federal and/or private, that can exceed the institution cost of attendence. Stafford loans have both a school year aggregate limit based on dependency status and academic level as well as a undergraduate lifetime aggregate limit. So a dependent student could receive no more than $5500 in a school year at Freshman level or $6500 at Sophomore level with a maximum $3500 subsidized based on Federal subsized need. An independent student can receive no more than $9500 at Freshman level or $10.5k at Sophmore level with the same maximum need of $3500 subsidized. An undergraduate dependent student has a maximum lifetime limit of $31.5k with $23k maximum subsidized. An undergraduate independent student has a lifetime limit of $57.5k with $23k maximum subsidized. So based on these figures there is no way an associate degree seeking student can borrow $60k in Federal loans. Also to receive Federal loans a student must be enrolled at least half-time.

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