Tuesday, August 2, 2011

No More Subsidized Stafford Loans - Debt Bill

I just wanted to call attention to this aspect that was part of the Debt Ceiling Bill that has now been signed into law - and as reported by AboveTheLaw - no more subsidized interest for grad student loans after July 2012.
For law students, the big one here is probably the Subsidized Stafford Loan - which usually makes up $8,500/year of the typical loan package.  You used to have the interest subsidized while you were in school - and for 6 months afterword.  Now the interest subsidization is gone, gone gone.

What's the impact going to be on law students?  Well, the Stafford Loan rate is currently 6.8%, and loan disbursements take place at the start of the year.  Consequently, by the September after graduation, the accumulated principal and interest would be: 8.5K *(1.068)^3 + 8.5K *(1.068)^2 + 8.5K *(1.068) = 10355+9695+9078= $29,128.  Subtracting out the $25,500 in principle, we get $3,628

Consequently, for almost all students, law school just got $3,628 more expensive.

Here's another thing that is interesting and illustrates the declining support for education in the U.S. (before the subsidized interest loan was eliminated) the $8,500 limit had remained unchanged since at least 1995 - I still remember $8,500 being my subsidized amount at that time.  This is in spite of the cost of going to law school literally TRIPLING (taking inflation into account) over that time period.  Thus, the subsidized part has become a lesser and lesser percentage of the loan burden over that time.

If it wasn't already apparent, going to law school AT THIS TIME is a truly rotten deal for almost all law studentsOnly about 1 in 20 really make it work.  It used to be a pretty decent deal, but the economics of the situation have truly changed.  It may change back some day, but it won't for at least several years.


  1. where'd you reference 8,500 from?

  2. I found it at these two links:


    Do you have contrary info? Recall that we are talking about indpendent grad students - not undergrads that have a different limit.

  3. Most grad students are considered independent. Medical students are harder hit. We can borrow more subsidized loans, 12750.

    To quantify: 12,750 *(1.068)^4 + 12,750 *(1.068)^3 + 12,750*(1.068)^2 + 12,750 (1.068) = 60279. Subtract 51000 of principal= 9279. Thats $9k added onto the hundreds of thousands of dollars we already owe.

    Plus we dont make big bucks right away. We have to go through residency at least 3 years, most are longer, making $50k. $50k to support all our expenses of living at the age of late twenties or early thiries when some may have families. So interest will only continue to accrue. Another disincentive to not become a doctor, or a primary care doctor at least.

  4. 10:19 - Thanks for your comment. You're right that medical students are hit even harder by this. Also, as you allude, this will likely lead to a decrease in the number of doctors - which is bad for the country.

    In terms of overall economic outlook for med school grads, some may argue that the supply of new doctors is not as far out of whack as the supply of new lawyers and thus doctors have a greater probability of being employed - I understand that the number and entry class size of most med schools has not expanded as greatly as law schools. Still, it's a tough market and this move by the government will make it even harder to pay off medical school loans.

  5. It seem that it is really low and its not even an half to old one.Very big differences.

  6. They are giving a great deal to borrowers. This could also help in avoiding the borrowers from failing on repaying the loan as much as possible. I think removing such subsidized interest makes the borrower repay with ease.

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