U.S. Congress debt deal may hit some student borrowers

WASHINGTON Mon Aug 1, 2011 5:21pm EDT

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WASHINGTON Aug 1 (Reuters) - Some student loan subsidies may take a hit in the big debt deal working its way towards a vote in the U.S. Congress on Monday.

The White House and congressional leaders scrambled for enough support from skeptical lawmakers on Monday to push through an 11th-hour deal to cut the fiscal deficit and raise the U.S. borrowing limit to avert a debt default.

In one of its few explicit sections, the proposed legislation preserves Pell grants for low income students. To come up with the income to do that, it reduces some other benefits that have lowered the cost of student loans for graduate and undergraduate students.

The bill eliminates interest subsidies on loans for graduate students and professional students, beginning on July 1, 2012.

That means that interest will accrue on those loans (currently charging 6.8 percent) while the student is still in school. Currently, the government pays the interest portion on as much as $8,500 annually in subsidized loans while the student is still enrolled and for six months afterward.

Graduate students can currently borrow as much as $20,500 a year in federal Stafford loans. That level will be raised to make up for the extra amount students will have to spend to make up for the subsidies, according to a Congressional Budget Office analysis of the bill.

The legislation would also eliminate a special rebate that student loan borrowers get when they make their payments on time for a full year. It still will allow the Department of Education to offer a discount to borrowers who set up an automatic debit program to repay their loans.

(Reporting by Linda Stern; Editing by Beth Gladstone)

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