Mandatory Spending
Function 500 - Education, Training, Employment, and Social Services
Reduce or Eliminate Subsidized Loans for Undergraduate Students
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of Dollars | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2021– 2025 |
2021– 2030 |
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| Savings Estimated Using the Method Established in the Federal Credit Reform Act | |||||||||||||
| Change in Outlays | |||||||||||||
| Restrict access to subsidized loans to students eligible for Pell grants | -0.1 | -0.3 | -0.4 | -0.5 | -0.6 | -0.8 | -0.9 | -1.0 | -1.1 | -1.1 | -1.8 | -6.7 | |
| Eliminate subsidized loans altogether | -0.2 | -0.7 | -1.1 | -1.4 | -1.7 | -2.2 | -2.6 | -2.8 | -3.0 | -3.1 | -5.2 | -18.9 | |
| Savings Estimated Using the Fair-Value Method | |||||||||||||
| Change in Outlays | |||||||||||||
| Restrict access to subsidized loans to students eligible for Pell grants | -0.1 | -0.2 | -0.3 | -0.4 | -0.5 | -0.6 | -0.7 | -0.8 | -0.8 | -0.8 | -1.4 | -5.2 | |
| Eliminate subsidized loans altogether | -0.2 | -0.6 | -0.9 | -1.1 | -1.4 | -1.7 | -2.0 | -2.2 | -2.3 | -2.4 | -4.1 | -14.7 | |
This option would take effect in July 2021.
By law, the costs of federal student loan programs are measured in the budget according to the method established in the Federal Credit Reform Act. The fair-value method is an alternative approach that more fully accounts for market risk; it is included in this table for informational purposes.
Through the William D. Ford Federal Direct Loan Program, the federal government lends money directly to students and their parents to help finance postsecondary education. Two types of loans are offered to undergraduate students: subsidized loans, which are available only to undergraduates who demonstrate financial need, and unsubsidized loans, which are available to undergraduates regardless of need (and to graduate students as well).
For undergraduates, the interest rates on the two types of loans are the same, but the periods during which interest accrues differ. Subsidized loans do not accrue interest while students are enrolled at least half time, for six months after they leave school or drop below half-time status, and during certain other periods when they may defer making repayments. Unsubsidized loans accrue interest from the date of disbursement. The program’s rules cap the amount—per year and over a lifetime—that students may borrow in subsidized and unsubsidized loans.
This option includes two possible changes to subsidized loans for new borrowers. In the first alternative, only students who are eligible for Pell grants would have access to subsidized loans. (Pell grants are provided to students who can demonstrate financial need, but the eligibility criteria are more stringent than those for subsidized loans, so some students are eligible for subsidized loans but not for Pell grants.) In the second alternative, subsidized loans would be eliminated altogether. In both alternatives, the total amount a student may borrow from the program would remain unchanged.