Grantee Research

Estimating the Effect of Losing the Federal Loan Subsidy on Debt Accumulation for Law and Professional Students in the United States: Evidence from a Natural Experiment

Document Type

Journal Article

Publication Date

12-2015

Keywords

federal financial aid policy, student loan interest subsidy, student loans, law schools, professional schools

Abstract

This study addresses this important gap in the literature by analyzing a recent policy change, the Budget Control Act of 2011, that eliminated the federal student loan interest subsidy. This change directly targeted the graduate and professional students who participated in the Stafford Loan program beginning July 1st, 2012. The loss of subsidized loan eligibility meant that professional and law students’ interest accrues on all Stafford loans while still in school, which we hypothesize will drastically increase their overall debt accumulation. This study is timely and relevant for the following reasons. The first is that today's college-goers are the most indebted students in the country’s history (Baum, 2015). Second, there is almost no evidence about determinants of debt levels for graduate or professional students (Belasco, Trivette & Webber, 2014). Related to this point, the role of federal policy in shaping graduate students’ debt accumulation remains an understudied topic. Results indicated that Law students may be the most negatively affected group among graduate and professional students as their reliance on Stafford support increase by more than $5000 dollars before the policy implementation took place. From this view, given that Law students are relying more heavily on Stafford loans, the loss of the federal subsidy will translate into greater debt burden due to the accrual of interest while still enrolled in graduate education. Accordingly, the analysis of the NPSAS:16 remains an important endeavor.

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