URBANA — You're contemplating graduate school at the University of Illinois, maybe an MBA, but the $20,000 annual tuition sends you into a bit of sticker shock.
Add in annual fees ($3,400), books ($2,400), and the estimated $12,000 to $15,000 in living costs — for two or more years — and you're talking big bucks.
Loans are always an option. But in its deficit-reduction mode, Congress just eliminated a subsidy that has helped millions of graduate students lower their borrowing costs.
As of July 1, 2012, federal Stafford loans for graduate and professional students will no longer include an interest subsidy, which kept interest from accumulating while they were in school. Students can still defer paying interest until after they graduate, but it will accumulate in the meantime.
The change is estimated to save the federal government $18 billion over the next 10 years. It could also cost individual students several thousand dollars, depending on how long their graduate studies last.
Just ask Aleem Zafar, a second-year UI medical student from Elgin, who estimates he will pay at least another $5,000 because of the change.
He's been frugal, avoiding loans as a UI undergraduate because his mom scrimped and saved, and carefully calculating the long-term costs of his medical education. He estimates he'll borrow at least $160,000, in all which he'll be repaying into his 40s.
"I think it will put a little bit more burden on me," Zafar said of the extra interest. "It starts accumulating really fast."
The congressional action won't affect current students unless they take out more loans next year, said Dan Mann, UI director of financial aid. The impact will be felt by students starting in fall 2012.
About 30 percent of the University of Illinois' graduate and professional students borrow money through the federal loan program, Mann said.
His most recent data show 3,552 of the 12,207 graduate and professional students at the UI took out $72.5 million in loans during the 12 months covering fall 2009 through summer 2010. The other 8,655 were presumably able to get by on tuition and fee waivers and teaching or research assistantships provided by the university, and family support.
The 3,552 borrowers used three types of federal loans: subsidized Stafford loans ($24.9 million), unsubsidized Stafford loans ($32.5 million), and Graduate Plus loans ($15.1 million).
The recent change affects only the subsidized Stafford loans, Mann said.
"Not all of the students have a subsidized loan, although most of them do," Mann said. "We're unhappy that we've lost this (subsidy), but it's not as bad as it sounds. It's a smaller piece of the total loan volume."
Graduate students are allowed to borrow up to $8,500 annually through a subsidized Stafford loan, and another $12,000 in unsubsidized loans. After that they can get Graduate Plus loans — which carry a 7.9 percent interest rate vs. 6.8 percent for Stafford loans — up to the cost of their attendance. Medical students can borrow more in Stafford loans — up to $40,000.
Students can defer paying interest on the unsubsidized loans until six months after they graduate, but it continues to accumulate while they are in school. Repayment on Graduate Plus loans begins 60 days after the loan is taken out.
Graduate students at the UI don't borrow as much as those at other schools because the university provides so many tuition waivers and assistantships, Mann said. And many students are already paying interest on their unsubsidized loans anyway, he noted.
But he acknowledged that college costs are getting harder for families to pay.
"Obviously, the more students have to take out in student loans, the more it has long-term impact on their life," Mann said.
The exact cost will depend on how much students borrow, for how long, and what repayment plan they choose. Students can pay some interest while they're still in school, and can choose a standard 10-year repayment plan or other options.
According to the National Association of Student Financial Aid Administrators, a graduate student who borrows $8,500 a year for four years, or $34,000, would accumulate $4,624 in interest during that time. Under the standard 10-year repayment plan, he would pay a total of $46,953 for that $34,000 loan if the interest were subsidized; if not, the loan would cost $53,338, or a difference of $6,385.
Under data from the Association of American Medical Colleges, the difference would be $8,829.
Jim Hall, associate dean for student affairs at the UI College of Medicine in Urbana, said UI medical students borrow $180,000 on average, and this just adds to their increasing debt load.
"Medical schools and the public should be concerned that graduates with such a great deal of debt are making decisions based on that debt, rather than their true interests," perhaps choosing higher-paid specialties like surgery or radiology rather than primary care, he said.
Zafar read a book about debt management before he started medical school to find out "what I was getting into," so he's prepared.
"I wanted to be a doctor for a whole lot of other reasons," he said. "The only things I can control are my expectations and my lifestyle."
Derek Attig, president of the History Graduate Students Association, said the change presents one more obstacle to graduate students from working-class backgrounds or first-generation graduate students.
"I think it's going to disproportionately affect people who otherwise can't afford to cover that interest," he said.
Earning potential for students with doctorates in history and the humanities is lower than for those with business, law or medical degrees.
"Most of us don't exactly go into history or English or comparative literature to make millions of dollars. But particularly for students who don't come from affluent backgrounds, money is a factor," Attig said. "It's a life of the mind, but we also have to pay rent and buy food."
The UI history department guarantees all of its graduate students tuition waivers, which lessens the need for loans, said Attig, a fifth-year graduate student who's been able to get by so far without loans.
But that isn't true in all departments, he said.
The history department also has cut the number of graduate students it admits, partly in response to market demand but also because financial aid is limited and it wants to be able to support students with assistantships or fellowships, said Diane Koenker, chair of the department.
Those awards often don't cover all their expenses, so increasing the cost of loans means that "students whose families are able to support them are going to be the ones who go to graduate school," she said.
"It's clearly going to be a hardship," Koenker said of the subsidy loss. "It's a continuation of a transformation of public policy that favors the rich. Education is one way to level the playing field and to allow for social mobility. And as a nation, we ought to be subsidizing education for precisely that reason, as well as create knowledge."
Mann doesn't expect the change to affect UI admissions relative to other schools, as the impact will be nationwide.
"It's going to be the same no matter where they go," he said.
The UI College of Business MBA program hasn't seen a drop of applicants because of rising costs, with a 24 percent increase this year, according to Associate Dean Stig Lanesskog. That's partly due to aggressive marketing efforts, he said, but the college also provides merit- and need-based scholarships to help offset costs, he said.
"Obviously anything that impacts a student's ability to access the financial resources is likely to have some impact at some time," Lanesskog said.
So far, Congress has not eliminated the interest subsidy for undergraduates, but Mann and other financial aid administrators are keeping a close eye on proceedings in Washington.
"I think anything's possible," Mann said. "Obviously with debt reduction they're looking at places to cut."
Speaking in Urbana on Thursday, Senate Majority Leader Richard Durbin of Illinois said he's disturbed by rising college costs and skyrocketing student debt. Last fall, for the first time in history, he said, student loan debt overtook credit card debt.
"I think we have to work overtime to keep student loans affordable, and pressure colleges and universities not to raise costs out of sight," he said.