Most of us have heard a lot, and maybe too much, about the pluses and minuses of the budget bill that was just passed and signed into law on July 4th. What many families may not know, however, is the impact this law has on loans and financial aid for undergraduate students (and grad students as well).

One provision of this new law is the elimination of subsidized loans for undergraduates. Until July 3rd, undergrads had available to them loans at low interest rates that did NOT accrue interest during college and did not accrue interest during a “grace” period after college or after graduate education. These subsidized loans have been eliminated by this law. All loans are now unsubsidized, meaning the interest rate is higher, accruing interest immediately, and the grace period is eliminated.

The repayment options for these loans have also changed. There were previously three repayment options; there are now two, and a CNBC analysis estimated that monthly payments would increase for all borrowers.

Also, this law puts a lifetime cap on Parent Plus loans of $65,000. Parent Plus loans is a way to help families finance college for their kids. It appears this is $65,000 per child, but certainly, this will limit the borrowing power of the family.

Another provision of this law is the lifetime borrowing cap for each student. Students that want to attend graduate school now must consider their borrowing options, as the lifetime cap is $100,000 for non-professional studies or $200,000 for professional studies.  The maximum a student can borrow for undergraduate is now approximately $20,000, and it is unclear if it included in the lifetime cap. (For those not familiar with the cost of medical school, this lifetime cap will make paying for this professional program virtually unreachable through loan programs.)

And finally, the increase in the tax on college endowments is significant. College endowments are used to fund many aspects of a college’s operations, including funding merit and financial aid, research, and professorships. Several colleges, most notably Duke, have already published statements regarding the impact of this law on their operations in the foreseeable future. It is clear less meritand financial aid will be available for students. Look out for fewer colleges to meet all demonstrated need for families.

As we learn more about the impact of this new law on colleges and financial aid, we will keep our families informed. There have been many policies in the past few months that will certainly impact college admissions, college majors which are available at specific colleges, and many other new aspects to consider when thinking about colleges. When we understand more, we will let you know as well!

Marjorie Licht
Director of College Advising
Milestone College Prep