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Graduate Students May Face Higher Debt Under Obama's Budget Plan (VIDEO)

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OBAMA

WASHINGTON -- In his 2011 State of the Union address, President Obama promised that investment in education and getting the next generation of Americans ready to face their own "Sputnik" moment would be a focus of his administration. But at least one component of his FY 2012 budget, which will be released tomorrow, will likely pile more debt upon students who decide to pursue graduate school, potentially making the dream of higher education even more unattainable for many Americans. The move, say administration officials, is needed to ensure that a popular financial aid award stays available at current levels.

In an interview on CNN's "State of the Union" on Sunday, Office of Management and Budget Director Jacob Lew said that interest on graduate school loans will begin building up while students are still in school. Currently, interest does not begin compiling until after students graduate.

Host Candy Crowley questioned Lew about whether this would make graduate school less accessible for many Americans:

CROWLEY: Here's the problem, I guess. If you are a graduate -- let's take one of your examples. You're a graduate student; you are, right now, getting loans. You don't have to pay those loans or any interest on them until you graduate. But now you have to pay -- or it accumulates, I'm assuming -- you have to pay interest beginning on day one of grad school, and that makes it so that you can't go to grad school.

LEW: Well, let's just be clear. Interest will build up, but students won't have to pay until they graduate. So it will increase the burden for paying back the loans, but it will not reduce access to education. That's, I think, part of how you can responsibly have a plan that deals with the challenge of solving our fiscal crisis, getting out of the situation where the deficit is growing and growing, but also investing in the future.

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Lew's assurance that students still won't have to start paying back their debt until after they graduate might not offer much comfort to people who emerge from graduate school and face, on average, more than $40,000 in debt, according to FinAid.org. Students pursuing a medical degree can face more than $100,000 in debt.

Obama himself has acknowledged the burden of heavy student debt, saying in his 2010 State of the Union speech, "In the 21st century, the best anti-poverty program around is a world-class education. No one should go broke because they chose to go to college."

An administration official estimates that reducing loan subsidies for graduate students would save the government $2 billion next year and $29 billion over 10 years. The official added that "experts think the subsidy has failed to encourage more students to attend graduate school and it isn't well-matched to borrowers who have trouble repaying the loans."

The savings will go toward keeping the maximum Pell Grant award at $5,500. Additionally, Lew told CNN that the administration is proposing to end the "year-round Pell," which allows students to use the financial aid grant for summer school. An Obama administration official estimated that the change would save $8 billion next year and $60 billion over a decade.