President-elect Donald Trump and his top advisors have announced plans to create a Department of Government Efficiency (DOGE), a commission tasked with slashing wasteful spending throughout the federal budget. One place they could start is the federal student loan program. The federal government loses tens of billions of dollars per year on lending to graduate students, a task which the private sector is far better equipped to handle.

The federal government is set to originate around $1 trillion in new student loans over the coming decade, according to the Congressional Budget Office (CBO). Around half of that (some $511 billion) will be from loans to graduate students, who represent a minority of borrowers overall but can take out effectively unlimited loans from the federal government. Graduate borrowers can then take advantage of generous income-driven repayment plans, which forgive unpaid balances after a set period of time.

As a result, CBO expects that taxpayers will lose 25 cents on every dollar they lend to graduate students over the coming decade, according to the agency’s fair-value cost estimates. That equates to $130 billion in taxpayer losses, or around seven percent of the $2 trillion that DOGE leader Elon Musk says he wants to cut from the federal budget.

In a new issue brief for AEI and Education Counsel, I explore the benefits of abolishing federal lending to graduate students. In addition to imposing significant costs on taxpayers, federal student loans distort the market for graduate education. Studies have found that graduate loan availability increases tuition. Moreover, the easy availability of graduate loans subsidizes thousands of master’s degree programs that do not increase students’ earnings enough to justify their costs.

Abolishing federal lending for graduate school would likely bring down the cost of tuition, and force universities to reconsider whether offering cash-cow master’s degree programs with little to no return on investment is a financially viable proposition. Low-value master’s degree programs might close, but that is little tragedy if their shuttering saves students from making financially dubious educational choices.

Of course, federal student loans do support some worthwhile graduate programs, particularly in law and medicine. But since reputable law schools and medical schools typically prepare students for lucrative careers, private lenders would be more than willing to step in and help these students pay for their educations. Indeed, a thriving private market for graduate student loans existed before Congress removed limits on federal lending.

But if policymakers worry about graduate students’ access to credit, they can take steps to enhance the private sector’s capacity to provide loans. The current regulatory structure for private student loans encourages lenders to rely on traditional measures of creditworthiness, such as a student’s FICO score, and discourages innovative methods of underwriting that consider expected return on investment. Especially for high-value degrees, the tendency to use only metrics about past credit history to gauge the likelihood of future repayment is backwards. Since the main point of graduate education is to enhance students’ earnings potential, we should want private lenders to make decisions based on forward-looking metrics such as program completion rates and expected earnings after graduation. However, regulators have previously frowned on lenders who use similar metrics. Reformers should consider creating protections for private student lenders to employ such underwriting practices, which would encourage the market to grow.

With the national debt standing at nearly $36 trillion, deficit reduction ought to be a priority for the next administration and Congress. Eliminating graduate student loans offers taxpayers $130 billion in savings the next decade and should be a top target for any government efficiency commission. The private sector is well-positioned to handle graduate students’ need for credit, provided they pursue degrees with a high expected return on investment. In this area, the overstretched federal government should step aside.