Your Subsidized Loans May Subsidize Colleges More

May 1, 2018
By: Mason Gallik

Last week we discussed how some colleges drop average grant aid offered after the first year of studies. This week we will discuss how it is made up for in extra federal loans. The previous article can be found here, but the gist of the article is that colleges on average drop grant aid by $1,308 between first year and later year students. This number is made up in additional federal loans offered, however. On average, between first year and later year federal student loans offered increase by $1,362. This increase offsets the decrease in grants, but you have to pay loans back!

This can be mainly attributed to the fact that you qualify for more Stafford subsidized loans in later years of studies. First year, first-time undergraduate students qualify for up to $3,500 in Stafford subsidized loans. This increases to $4,500 in the second year and peaks at $5,500 for the third year and after until you hit the threshold on total Stafford loans you can receive. This threshold is currently set at $31,000 for dependent students and $57,500 for independent students.

Loan increases on average offset the decrease in grants as you can see, but the variability of loan increases is much lower than the variability of grants lost. This means that there are certain colleges that significantly lower your grants and it is not offset by loan increases. Since Stafford loan offerings are based on already written laws, it appears that colleges may be taking advantage of the extra money offered by the government. If you are offered more loans and less grants your second year of studies, you may be less likely to notice because your out-of-pocket costs are staying roughly the same. It could be argued that the government is subsidizing the colleges more than they are subsidizing you with interest free loans.

This goes back to the point discussed previously, which is the importance of talking with financial aid offices to see if your grants will be offered in later years. Try to ensure that they will stay the same so that you do not get stuck taking out more loans than you would otherwise require. Even though Stafford subsidized loans do not accrue interest while in college, it would be better to receive grants that you do not have to pay back at all!