Do federally subsidized loans keep students in school -- and accumulating debt -- longer? Today, students who qualify for federally subsidized loans have an incentive to stay in school: Their loans don't accrue interest -- nor do they have to pay interest -- on their loans while they're enrolled. But that could change. In a draft report released last week, President Barack Obama's national deficit panel proposed ending the in-school interest subsidy on school loans.

The proposal would save an estimated $43 billion over a decade. Predictably, the higher-education lobbyists oppose ending the subsidy, and so do advocates for student borrowers.

While I consider myself an advocate for student borrowers, I wholeheartedly support ending the subsidy -- and even taking it a step further. I think that we should end in-school deferment periods on student loans and also require students to make full payments on their debt while they're still enrolled.

Here's why: Under the current system, students sign up for loans starting their freshman year, then don't give any thought to making payments on them for at least four years. That's not a recipe for prudent, long-term-oriented financial decisions. A delay of 1,500 days between borrowing the money and figuring out how to start paying it back makes it too easy to make repayment a "figure it out later" problem. That's why more than a third of student borrowers are struggling to make their payments and the long-term default rate on federal loans -- the least risky loans -- is more than 20%.

If the federal government starts requiring students to begin paying off their loans as soon as they borrow the money, we might see the birth of a newfound prudence in borrowing. Students might opt for cheaper schools, take part-time jobs to avoid loans and maybe even make more of an effort to graduate on time.

Zac Bissonnette'
s Debt-Free U: How I Paid For An Outstanding College Education Without Loans, Scholarships, Or Mooching Off My Parents was called the "best and most troubling book ever about the college admissions process" by The Washington Post.

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Sajila Wakas

Such a Nice Post.If any of Student looking for Loan for their studies then he/she can easily get from

May 30 2011 at 11:09 AM Report abuse rate up rate down Reply
Ramesh Pandey

Such a Nice Post.If any of Student looking for Loan for their studies then he/she can easily get from

February 07 2011 at 12:44 PM Report abuse rate up rate down Reply

Yeah easy for you to say as a college student that is lucky enough to be making well above minimum wage. I think you might be singing a different tune if you weren't as fortunate as you are.

December 03 2010 at 10:16 PM Report abuse rate up rate down Reply

interest on these loans become endless money for the gov. why would anybody think different.

November 20 2010 at 3:08 PM Report abuse rate up rate down Reply

This idea of making the students pay their loans while still in school is stupid. What little work they have time to perform while working part time after school hours is needed just to exist. When they graduated in 2010 they walked out into a market not hiring and their unemployment rate is about 25% compared to the national average of 9.7%. I agree students should pay more attention to the total amount they are borrowing, but the writer is nuts to think they can possibly pay their loans while in school working part time.

November 19 2010 at 3:55 PM Report abuse +1 rate up rate down Reply

This idea is ridiculous. As someone who could not have done grad school without subsidized loans, I would not have continued my education. The interest on my loans is high compared to what other products are in the marketplace. Therefore, getting rids of these subsidies will make it harder. Will the colleges ever cut tuition?

November 19 2010 at 11:33 AM Report abuse rate up rate down Reply

Funny that many of the most respected institutions of higher learning have turned student loans into grants to give their students the ability to focus on their education while they matriculate without financial concerns.... and ironic that our President preaches the importance of education, but for revenue, is willing to make policy that would seem to compromise his own priorities. Maybe its possible that so many students are having problems repaying loans and the default rates are so high now not because students are indifferent or undisciplined, but rather because in this economy, students that would be thrilled to repay loans are unable to find jobs to provide them the income to repay those loans? Hard to imagine any student's behavior is dramatially affected because they know that they have until they graduate to begin to repay loans.... Or that the deferral of those payments causes students to stay in school longer (and accrue more loans).... I think you've watched Van Wilder one time too many.... Let's face it - President Obama is in favor of changing the system because he's in the process of grabbing revenue wherever he can. And he probably figures that most of those loans are at least, partially repaid by parents that have the money - and we all know how intent he is on taking whatever he can from those that he has decided have "enough".... this is just another effort to redistribute wealth..... The high cost of college ought to be addressed with some serious conversation.... but this article is flimsy at best.... See full article from DailyFinance: Deferrment of student loan repaymentsi

November 19 2010 at 10:41 AM Report abuse rate up rate down Reply

Ahhh the next bubble.

November 19 2010 at 10:10 AM Report abuse +1 rate up rate down Reply