Congress is on the verge of eliminating Grad PLUS—the program which extends effectively unlimited taxpayer-funded loans to graduate students—and imposing caps on graduate loans for the first time since 2006. On Tuesday, the Senate passed a budget reconciliation bill ending the program, which has fueled tuition hikes, exploded student debt, and padded the budgets of wealthy universities. Its demise is welcome.
Grad PLUS allows graduate students to borrow up to the cost of attendance for their programs. Since universities set their own cost of attendance, the loan program is effectively carte blanche for colleges to raise tuition and force taxpayers to front the money. Research has found that Grad PLUS’ creation in 2006 led to increases in borrowing and tuition rates.
The Senate bill eliminates Grad PLUS and sets new caps on borrowing for graduate students. Most graduate students will be allowed to borrow up to $20,500 per year, and $100,000 over the course of their academic careers. Students in professional programs such as medicine, dentistry, and law can borrow up to $50,000 per year, and $200,000 in aggregate.
The majority of students will still be able to access graduate education at those limits. About 20 percent of students in master’s degree programs currently borrow above the $20,500 cap. This share drops to just 10 percent at public institutions, which have lower tuition.
The new caps, however, will constrain borrowing and tuition rates at the most expensive universities. Many colleges have taken advantage of unlimited Grad PLUS loans to create high-cost graduate programs, which function as a piggy bank for the rest of the institution. Grad PLUS has funded a $115,000 online master’s in social work at the University of Southern California and a $181,000 master’s in film at Columbia University. Graduates of these programs are unlikely to earn enough to repay their debts in full—which means the costs will inevitably pass on to taxpayers.
Far from being a key funding source for the higher education system broadly, the benefits of Grad PLUS flow to just a handful of wealthy private institutions. Twenty universities receive more than $100 million apiece each year from Grad PLUS; all are private schools, and several are overseas. Just 75 institutions accounted for half of Grad PLUS loan disbursements in the 2023–24 academic year.
Aside from ultra-pricey master’s degree programs, the other category of graduate school that might feel the effects of the graduate loan cap is professional education. Though students in professional programs have higher loan limits than those pursuing master’s or doctoral degrees, one-third of professional students still borrow above the caps in the reconciliation bill.
However, these high levels of borrowing for professional school are a relatively new phenomenon. Before Congress created Grad PLUS in 2006, debt burdens for professional school were much lower. In 2004, medical students graduated with an average of $174,100 in debt (adjusting for inflation)—comfortably below the new proposed lifetime cap of $200,000. It was only after Congress removed loan limits that professional schools took advantage of Grad PLUS to raise tuition, forcing students to fund it through higher debt.
Professional schools made common-sense loan limits work in the past. They can do so again. And if professional students do need to borrow above the caps, they can turn to the private market. Private lenders will be more than happy to fund medical and dental students, as they are on course for high lifetime earnings and are likely to repay whatever they borrow.
The new caps on graduate loans will constrain universities’ ability to raise tuition going forward. But the caps will also make it harder for universities to create new graduate programs of questionable value in order to soak up more Grad PLUS funding. Just last year, Columbia University launched a new two-year master’s degree in “climate” where the total cost of attendance (i.e., the federal borrowing limit) runs $102,270 per year.
Grad PLUS is at the intersection of myriad problems in higher education: tuition inflation, excessive student debt, administrative bloat, high taxpayer costs, and degree programs with a pitiful value proposition. While capping federal lending to graduate students will not fully solve all these problems, it will remove a major contributing factor. By limiting graduate lending and removing Grad PLUS, Congress could at last restore a measure of common sense to the student loan system.