WASHINGTON — As talks continue and the deadline approaches on increasing the federal debt limit, the federal government’s subsidy for undergraduate student loans is now on the table.

S. hits its borrowing limit on Aug. 2 and risks default, have looked at entitlements and other federal programs as possible sources of savings. During talks Monday, Rep. Eric Cantor, the Republican majority leader, reportedly proposed making students responsible for paying the interest their loans accrue while they’re enrolled in college, a change that would save the government $40 billion over 10 years.

The proposal would end the subsidized Stafford loan program, in which the federal government pays the interest that accrues while students are enrolled in school. It’s an idea that has gained some traction: it was previously embraced by the bipartisan federal debt commission, the College Board’s Rethinking Student Aid panel, and even (in a limited way) by President Obama, who, in his 2012 budget proposal, called for ending subsidized interest payments on graduate student loans and need-based Perkins loans. But Obama and the College Board panel recommended using the savings from the subsidies to expand financial aid for needy students, rather than to pay down the deficit as Cantor’s plan and the debt commission’s would.

The elimination of the subsidy, combined with the fact that the interest rate on federal student loans is slated to double next year — to 6

Whether the proposal, which was first reported Tuesday by the news website The Daily Beast, will make it into the final compromise is still unclear; President Obama reportedly opposed it, and there’s no evidence that a consensus will emerge any time soon.Continue reading→