New Budget Will Make Life Worse for Student Loan Borrowers!
April 2, 2013

Right before the spring Congressional recess, the House passed a budget plan sponsored by former VP candidate and Budget Committee Chairman Representative Paul Ryan (R-WI). It’s good news – in light of the whole sequestration fiasco – that we’ve got a budget plan approved by the House. But it’s bad news for federal employees currently enjoying the student loan repayment program as a benefit of their public service employment and for many other Americans coping with educational debt.

The student loan repayment plan is an important perk for many federal employees and one that may make their personal finances more challenging as they struggle to repay student loans on what are, no doubt, modest salaries of the public servant. The 2014 Budget Resolution says, “The budget assumes discretionary savings by eliminating the repayment by the government of student loans for federal employees.”

Under the current program – which is an important tool for both recruitment and retention – employees with student loans can receive up to $10,000 per year up to a lifetime $60,000 maximum for achieving specific length of service agreements. In 2011, the Federal Student Loan Repayment Program dished out $71.8 million to 10,134 recipients – averaging about $7,100 per participating employee.

You can see from the chart above that this program has been declining marginally in recent years due to hiring and budget constraints. Most recipients are in engineering, contracting, intelligence and nursing working for the Department of Defense, State Department and Justice Department.

Along with the sudden loss of a benefit these employees were promised, they’ll be taking an additional 5.5% hit from a change in the way contributions to their retirement plans are calculated. The government will pay this percentage less and federal employees will have to assume the responsibility. Cutting student loan benefits represents an average $592 loss in monthly benefits and the retirement cut represents an even bigger hit.

And if this education benefit hit wasn’t bad enough, there’s more bad news in the House budget bill. The Pell Grant Program will lose $86 billion over the next decade and would also allow federal student loans to accumulate interest while borrowers are still in school. Also hit by the proposed budget are income based repayment options. The only admirable thing that Congress has done recently with regard to affordable education is voting to mandate that the military can’t cut tuition assistance.

This whole debacle makes me nostalgic for the days when people who made the sacrifice to choose public service careers over more profitable private sector work could at least count on benefits to cushion the blow of the comparatively lower salary. Back when Massachusett’s Paragon Park closed in 1984, student loans weren’t at a crisis point, college graduates could still get jobs and we weren’t all coming out of school with a Bachelor’s that had been pre-mortgaged to cumbersome debt.

While President Obama has promised to do more to help make education more affordable, it seems Congress is headed in the diametrically opposite direction. We know that the trillion dollar student loan bubble is poised to burst, but it makes no sense that Congress seems to be running at it with the sharp implement of their 2014 budget.

The only glimmer of good news is that the Senate bill doesn’t contain these measures and there’s still time to raise our voices. Contact your Senator and contact your Representative and let them know that you don’t want student loan affordability sacrificed in the 2014 budget! And for help getting into an affordable federal repayment loan plan before this option disappears, try’s free student loan management tool to see repayment plans, contact your lender and optimize your debt!