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Stafford grad student loans to be cut

BY JORDYN REILAND | OCTOBER 07, 2011 7:20 AM

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A change in federal student aid could cost a group of University of Iowa students $2 million a year.

Starting July 2012, students with federal Stafford Loans will have to start paying interest while they're still in school. Officials say those savings will help keep Pell Grant funding in place.

The change will likely affect more than 4,000 UI graduate students who received approximately $28.5 million in direct subsidized Stafford Loans during the 2009-10 school year.

When students have subsidized loans, the government pays the interest incurred while the student is attending school. The subsidized loans cut will be replaced with unsubsidized loans. Unsubsidized loans require students to pay off the interest while attending school.

The goal of the Pell Grant Protection Act is to fund the Pell Grant maximum — a financial award for financially needy students — of $5,550.

While this could add a possible financial strain on graduate students having to pay interest while in school, Mark Warner, the UI director of Student Financial Aid, said the change was instrumental in maintaining the funding of the Pell Grant, a federal aid program for low-income students.

"It is exceptionally critical the maximum Pell Grant funding stays at $5,550," Warner said. "If not, the amount would plummet to $3,200, which would be devastating and unacceptable to the financially needy students not only at the UI, but across the country."

Students rely heavily on Pell Grants at the UI. Last school year, more than 4,300 UI students received almost $16 million in federal Pell Grants. This population of students is just over 20 percent of the UI undergraduate student population.

Graduate College Dean John Keller said even though it is unfortunate to have money taken away from a program, he's glad the funding will still go toward educational support.

"We need to try to make education as accessible as possible, and Pell Grants do so for students, for without them, many may not have the opportunity to go to a university such as the UI or university in general," he said.

With a current interest rate of 6.8 percent, the affected graduate students at the UI in 2009-2010 would incur a total of $1.9 million in interest. For each individual student, the total interest paid would estimate to be $500 annually.

U.S. Department of Education spokeswoman Sara Gast said graduate students have less need for subsidized loans because they are in specialized or higher-paying fields. Students may also benefit from participation in one of the several repayment and loan-forgiveness plans once they have completed their education.

Gast also said eliminating interest subsidies for graduate and professional students would save an estimated $2.2 billion in fiscal 2012 and $32 billion over the next 10 years.


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