Government Shutdowns and Debt Limits Impact on Student Loans

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Here we go again…government shutdowns and defaults.  We hear these trigger words quite often these days, but what could a government shutdown and/or government default mean for students?
An agreement for a funding bill (legislation that describes how government money shall be allocated and spent) was not reached, causing a government shutdown on October 21, 2013.  Some agencies will suspend functions, some government employees will be furloughed (temporary unpaid leave) and others that are exempt from furlough and have to continue to work (i.e. the President) will receive a delayed pay for that time.  The last government shutdown in the mid-90s lasted for 21 days.
What does a shutdown mean for students?  If the shutdown lasts long enough, student loan processing can be delayed.  Disbursements for the spring semester could be affected.  Students who receive campus-based program awards such as work study payment and Federal Perkins Loans will have delayed payment as schools will not be able to disburse the funds.
To avoid a default on the national debt (the government can’t pay bills), an agreement to raise the debt ceiling (the amount we are allowed to borrow) must be reached by October 18, 2013.  If this were to happen, it may not really matter what they decided for the funding bill (if an agreement has been reached by then) as many programs may be cut and discretionary spending prioritized.  For students, a default could mean student loan disbursements are delayed, reduced, or eliminated.
Is there a silver lining?  Sure; an unfortunate silver lining. If a shutdown or debt default were to occur, the market will tank again, but that would mean interest rates on federal direct loans will be low for those making repayments, but will likely affect employment options upon graduation.  Alternatively, try to reduce your reliance on student loans to finance your education, by budgeting and increasing scholarship aid.

Check out my earlier post related to this topic:

Until Next Wednesday,
Jenny L. Maxey

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