The landscape of graduate education financing is about to change significantly, as new federal loan caps are set to take effect next summer. This shift could compel a substantial number of students to turn to private loans, which often come with higher interest rates, to cover their educational expenses. Recent studies indicate that at least 25% of students in various graduate and professional programs may find themselves in this predicament, raising concerns about the affordability of advanced degrees.
Currently, students enrolled in graduate programs can access federal loans that cover the full cost of attendance through a program known as Grad PLUS. However, starting July 1, these students will face new borrowing limits: $20,500 for graduate programs and $50,000 for professional programs annually. Additionally, cumulative borrowing will be capped at $100,000 for graduate students and $200,000 for those in professional fields. These changes were enacted as part of recent legislation aimed at reforming higher education financing.
As a result of these caps, many students in four of the nine largest professional programs may need to seek alternative funding sources to meet their tuition obligations. A recent analysis from a research center indicates that borrowers in the 75th percentile will exceed these new limits in six out of nine fields of study.
Interestingly, the challenge of financing education is not limited to the most expensive doctoral programs, such as medicine and dentistry. In fact, among the 30 master’s degree programs with the highest loan volumes, nearly half of the students in 50% of these programs are expected to exceed the new borrowing limits.
Finding a private lender to cover the financial gap may prove difficult for many students, potentially leading to increased dropout rates or deterring prospective students from enrolling altogether. Even if students manage to secure private loans, they may face exorbitant interest rates that can take decades to repay. Research indicates that low-income individuals often struggle to obtain private financing due to factors such as low credit scores and inconsistent income.
Prior to the implementation of these new caps, students could easily complete their FAFSA applications and secure loans from the Department of Education to cover their full educational costs. However, for a significant portion of graduate students, this process is about to become much more complicated.
“This change will likely catch many by surprise,” noted an expert in the field.
Will Private Lenders Be Able to Bridge the Gap?
Other research organizations have also analyzed the implications of the new loan caps and reached similar conclusions. A recent report estimated that if these limits had been in place for the 2019-20 graduating class, approximately 38% of graduate borrowers would have needed additional loans beyond the cap. This would have resulted in a reduction of $9.7 billion in federal loans issued, representing a 28% decrease.
When examining the data by program, it was found that dentistry would have the highest percentage of students exceeding the cap, with 56% surpassing the annual limit and 58% exceeding the total cap. Other programs facing similar challenges include medicine, public health, and fine arts, with significant portions of students likely to seek private financing.
While there is a consensus among policymakers that the student debt crisis must be addressed, opinions diverge on the best approach. Some believe that these caps are necessary to mitigate student debt and encourage institutions to lower their costs. In contrast, others argue that the limits are overly stringent and fail to consider the return on investment for various programs.
“The pain inflicted by these caps may be more severe than necessary to address the most significant issues in the system,” said a policy expert. “A more effective strategy would involve tailored limits based on the specific fields of study and borrowers’ repayment capabilities.”
As the Education Department begins the rule-making process to implement these changes, questions remain about how the loan limits will be applied and which programs will qualify for higher caps. Representatives from various fields, including nursing and social work, are advocating for their programs to be recognized as professional degrees eligible for increased borrowing limits.
“In today’s job market, most graduate education is designed to align with workforce needs, preparing students for careers in healthcare, education, and technology,” stated a representative from a higher education association. “A narrow definition of professional degrees risks excluding essential programs that serve communities and employers.”
While some experts acknowledge the need to address high student debt levels, they suggest alternative methods to achieve this goal. One recommendation is to implement outcomes-based financing for private loans, which would tie repayment amounts to graduates’ earnings. This approach could help students with limited credit histories pursue lucrative degrees.
However, existing regulations that require lenders to disclose fixed annual percentage rates can hinder the adoption of innovative financing models. If the government were to amend these regulations, it could pave the way for more student-friendly private loan options.
“The federal government is simultaneously encouraging private market involvement while also imposing barriers that prevent lenders from offering more favorable terms,” one expert remarked. “The challenge lies in whether the private sector can effectively fill the void left by these new caps and how quickly they can adapt to meet the needs of borrowers.”