College tuition has been the fastest growing household expense for decades. New caps on student loans could be the solution to saving students and taxpayers billions, but the results are hard to predict.
Tuition prices have skyrocketed since 2006 when the Grad PLUS loan program was introduced, allowing graduate students to borrow up to the full cost of attendance for graduate programs. The federal student loan portfolio was approximately $480 billion in 2006, and is now at nearly $1.7 trillion.
“For two decades, colleges and universities have been able to charge virtually unlimited tuition, even as many student loan borrowers see little to no return on their investment,” the Department of Education said in a statement to the Deseret News.
New caps on how much money graduate and professional students are allowed to borrow from the federal government were recently established by the One Big Beautiful Bill Act (OBBBA) in an effort to lower sticker prices for post-undergraduate programs.
Under conditions laid out in the OBBBA, graduate students are limited to $20,500 each year in loans with a $100,000 aggregate limit. Professional students are allowed to borrow up to $50,000 annually with a $200,000 aggregate limit.
“The Trump Administration is working to correct this longstanding imbalance by ending a system that pushed students into debt they often could not repay and by promoting access to high quality education that serves students, not institutional bottom lines,” the DOE said in a statement to the Deseret News.
The caps are intended to incentivize institutions to stop hiking their prices in an effort to capture federal dollars. The caps are already creating such an effect, and many institutions are lowering their prices.
Some experts, however, said the results of the caps are difficult to predict. And, the caps may disproportionately affect some graduate students based on their current income status and the program they are enrolled in.
Student loan caps predicted to save students and taxpayers billions of dollars
Over the past 20 years, tuition prices have grown “dollar for dollar” with increases in federal loans, according to a study published by the National Bureau of Economic Research, and because colleges were continually raising prices, simply increasing funding was not an effective solution.
“Aid increases always seem to fall behind tuition hikes,” said Preston Cooper, a senior fellow at the American Enterprise Institute, in a recent report. “Like the Red Queen’s warning to Alice, taxpayers are running faster just to stay in place.”
Instead of providing more funding to match climbing tuition rates, caps on borrowing limits are meant to “curb excessive borrowing and force institutions to evaluate their costs,” the DOE said.
Several schools have already made cuts. Neumann University reduced their tuition rate for three graduate programs and the University of California at Irvine cut tuition by more than 20% for its MBA program.
Other schools are offering more scholarship opportunities to decrease the burden of tuition felt by graduate students. The University of Kansas instituted a new loan program for the university’s law students, and the University of Santa Clara Law School will offer a $16,000 tuition scholarship to every full-time first year J.D. student.
Government budget estimates show that capping graduate loans will generate $51.8 billion in taxpayer savings over 10 years by “preventing borrowers from taking on excessive debts that would ultimately be paid by taxpayers under expensive forgiveness programs.”
Students may need to take out private loans to make up for smaller federal loans
Even with lowered tuition costs, however, economists at the Federal Reserve Bank of Philadelphia and American University estimate that the new limits could produce $12 billion in unmet financing demand.
Students in post-graduate programs that cannot cover tuition with loan caps in place will likely need to turn to private loans to subsidize their costs. This may disproportionately affect low-income students who struggle to qualify for personal loans, said Dr. Lesley J. Turner, an associate professor at the Harris School of Public Policy at the University of Chicago.
“If you just look at sort of what private lenders require in terms of credit scores, it’s clear that there will be some prospective students with sufficiently low credit scores who won’t be able to access private student loans,” Turner said. “For those students, this is a real constraint. They may need to find a more affordable program or sort of forego graduate education altogether.”
“It will change the compositions of students with advanced degrees,” Turner said.
Federal loan caps may disproportionately affect certain professions
Limited access to financial support could also disproportionately affect students in some health care professions.
The capped loans for “professional” students allow for borrowing of up to $200,000 total, but the “professional” label is limited to 10 programs: pharmacy, dentistry, veterinary medicine, chiropractic medicine, law, medicine, optometry, osteopathic medicine, podiatry and theology.
This means that nursing degrees, physician assistant programs, physical and occupational therapy and social work programs are classified as “graduate” degrees and have an aggregate loan cap only half of that allowed for professional degrees.
The American Hospital Association said the healthcare occupations excluded from the “professional” definition are “critically important health care professional degree programs” and that the definition provided for professional programs “fails to account for the significant education and training required to enter these professions and could deter prospective students from pursuing health care careers.”
Jeffrey Denning, an associate professor at the University of Texas at Austin LBJ School of Public Affairs and a research associate for the National Bureau of Economic Research, said it is important to recognize that the “professional” label is not meant to categorize some degrees as more valuable. Rather, the label simply allows more funding for specific programs.
The DOE said the loan limits will not restrict workforce access in critical industries.
“The vast majority of students are unaffected by the new borrowing limits, including 95% of students in nursing and education programs,” the DOE said in a release.
It is hard to predict exactly how — and how long — loan caps will affect tuition costs
The institution of Grad PLUS loans in 2006 was followed by a rise in tuition costs, but it is hard to predict exactly how and if the loan caps will lower tuition costs, and for how long.
Turner and Denning both studied the effects on tuition costs and students following the institution of Grad Plus, but the two said the economy is very different now, twenty years after Grad PLUS was instituted, meaning the effect of ending Grad PLUS will not necessarily be an exact reverse from when it was instituted.
And lowering the burden of higher education on students, Turner said, extends to issues “beyond just restricting the amount students can borrow,” like how to provide students with more up-front information about the costs of their education.
“I think if the goal is to make graduate education more affordable,” she said, “there needs to be more work done around providing additional information to students, making sure students have this information at hand.”