History and Laws
The ability to take out student loans to attend graduate school is something that most of us take for granted. We have many options from which to borrow the money; banks and private firms, the government, or from your school directly. Only over the last 40 years has the government played a role in helping students subsidize their higher education and only for the last couple have the schools been the lender. The first milestone in government provided student financial aid was in 1965 when President Johnson passed the Higher Education Act (Higher Education Act). This act allowed the government to provide financial assistance to students for their tuition. The next law dealing with financial aid didn’t surface until 1993 under President Clinton. This Student Loan Reform Act allowed students to borrow federal student loans directly from the school. When a school was dubbed a direct lender it takes care of most of the paper work involved with the loans themselves. The school will originate the loan and process it electronically, as well as offering adjusted payments for your income level once you graduate.
One way to assist with financing an education at the graduate level is to offer tax breaks for those individuals paying their own tuition. In 1997, two such programs were enacted. The Lifetime Learning Tax Cut was passed to allow a 20% tax credit on education expenses covering up to $10,000 per family. In the same year, Congress also passed the HOPE Scholarship with the goal of making the first two years of college as universal as high school. This goal was achieved by offering up to $1,500 per student for individuals with incomes less than $40,000 and families with incomes less than $80,000 (The HOPE Scholarship and Lifetime Learning Credits).
Both the Higher Education Act and the Student Loan Reform Act paved the way for modern day student loans. The current system that most students assimilate with today was adopted in 1998, again under President Clinton. These amendments to the Higher Education Act created the Pell Grant, the Robert C. Byrd Honors Scholarship, Federal Family Education Loan Program, Federal Work Study Programs, Federal Direct Loan Program, the Perkins Loan, and the Free Application for Federal Student Aid (FAFSA)( 1998 Amendments to the Higher Education Act of 1965). One big part of these amendments was the Federal Family Education Loan Program. Any school that chooses to not be a direct lender or does not meet the direct lender criteria will be a part of this program and offer assistance with private loans. This program operates the Federal Stafford Loan, Federal PLUS Loan, and the Federal Consolidation Loan. The Federal Stafford Loan is available as either a subsidized or unsubsidized loan, and a student can borrow up to their eligibility limit. The Federal PLUS Loan is financial assistance available strictly to parents whose students are in need of additional financial assistance. Through the Federal Consolidation Loan, students can consolidate all student loans from any lender or program into one for easier repayment.
The College Opportunity Tax Cut was passed in 2000 and provides a tax credit of 28% for up to $10,000 in education expenses per family (College Opportunity Tax Cut). This saves a family with $10,000 or more a year in education expenses $2,800 in taxes. This tax cut also allows this credit to be taken for graduate course work, continuing education classes, or classes that enhance job skills. This credit is not available to individuals that make more than $50,000 a year or families with incomes over $100,000. Another act passed in 2005, called the College Access and Opportunity Act, moves all student loans to variable interest rates, reduces origination fees, increases annual limits, revises the campus based allocation methods, and increases accountability, transparency, and access to cost and consumer information.
As this year’s final session of Congress draws to a close there are well over a dozen bills on the table that reflect possible changes in school loans. All these bills are interconnected and possess the ability to benefit many students. Both houses budgets for 2006 include appropriations for these student financial aid bills. As new laws are passed and the complex nuances of student loans increase, it is important to ensure that the knowledge is reaching the students who are in fact the ones making the important decisions about borrowing money. Most states have their own Higher Education Assistance Authority to assist students in keeping up to date.
History of the Rising Cost of Education
While education costs are rising, the benefits of receiving a higher degree will pay off in the end. The U.S. Census Bureau stated in 2000, that a person with a master’s degree can expect to earn $55,300 per year, while someone with only a bachelor’s degree can expect to earn $46,000 per year. In addition, having a master’s degree can raise your income $225,000 over a 25-year career.
|
Graduate Education Debt |
All Education Debt |
||
Degree Programs |
Percent Borrowing |
Cumulative Debt |
Percent Borrowing |
Cumulative Debt |
|
|
|
|
|
Master's Degree |
58.4% |
$26,895 |
69.3% |
$32,858 |
Doctoral Degree |
51.0% |
$49,007 |
58.3% |
$53,405 |
Professional Degree |
86.5% |
$82,688 |
88.4% |
$93,134 |
MBA |
53.0% |
$35,525 |
63.6% |
$41,687 |
MSW |
76.5% |
$27,136 |
81.0% |
$37,029 |
PhD |
40.0% |
$36,917 |
46.8% |
$41,540 |
EdD |
53.4% |
$49,050 |
65.7% |
$47,725 |
Law (LLB or JD) |
87.7% |
$70,933 |
89.7% |
$80,754 |
Medicine |
95.0% |
$113,661 |
95.0% |
$125,819 |
Government Loan Programs
There are many programs set up by the federal government to aid graduate students to finance their education. In order to receive aid from the federal and state government, the student must fill out the Free Application for Federal Student Aid (FAFSA) to determine the level of need. The following is a list of programs and descriptions offered by the government:
- Work Study—This option is only available to undergraduate students on a need-basis. If a student meets this criteria the school will guarantee that student a job on campus where the student will receive minimum wage to put towards tuition.
Cooperative Education—This program combines academic study with an off-campus job relative to the student’s area of study. This program is also aimed at undergraduates and is only valid for participating colleges and employers.
- Federal Perkins Loan—This is a need-based program designed for graduate students. This program allows the student to borrow up to $40,000 assuming there are no undergraduate loans that need to be paid off. Repayment on this program begins nine-months post graduation at an interest rate of five percent.
- Subsidized Federal Stafford Loans—This is a need based loan where interest is paid by the federal government while the student is in school. Graduate student can borrow up to $8,900 per year and an overall total of $65,500. Repayment begins six months after graduation and the interest rate carries a cap of 8.25 percent.
- Unsubsidized Federal Stafford Loans—This program is available to all students although interest is not paid by the government while you are in school, which begins to accrue immediately. Graduate students may borrow up to $10,000 per year and a maximum total of $73,000. Repayment begins six months post graduation and the interest rate carries a cap of 8.25 percent
- Deduction for Student Loan Interest—Students who are in deep in debt may request a deduction in the repayment of their loans assuming it was a “qualified education loan.” The deduction begins at $1,000 and is only available during the first 60 months of repayment.
www.geteducated.com/articles/financialaidgradfaq.asp
Ibid.
www.finaid.org/loans/
Access Group, Inc. 2000-2005