Debt Reduction Spells Good, Bad News For Education

From eSchool News, August 3, 2011 — After weeks of political posturing, the agreement reached by lawmakers to raise the nation’s debt ceiling contains some good news for low-income college students—and bad news for other education stakeholders.

The legislation pairs an increase in the government’s borrowing cap with promises of more than $2 trillion in budget cuts over the coming decade, including cuts to federal education spending. However, Pell Grants for low-income college students will receive $17 billion more in funding at no additional cost to taxpayers by eliminating the in-school interest subsidy on subsidized loans for graduate students.

That means graduate students would have to pay interest on their loans while still in school. The deal also eliminates the current student loan interest rate reduction for on-time loan payments. Together, these two changes are expected to generate $22 billion in savings, with $17 billion allocated for Pell Grants and the remaining $5 billion helping to reduce the deficit.

The details of the final bill were still sketchy as of press time. But a source on Capitol Hill said it was possible that, if the committee fails to reach agreement on the second wave of reductions and across-the-board cuts kick in, K-12 nondiscretionary education funding could be cut by as much as $3 billion each year from 2013 to 2021.

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