One of the government's biggest initiatives to make it easier to take out student loans for grad school backfired and made tuition more expensive
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- Research released last month reveals that introducing unlimited graduate lending led universities to increase tuition.
- The Supreme Court is expected to issue a decision this month on eliminating President Biden's student-loan forgiveness program.
- Some administration officials are preparing for the possibility the Supreme Court will block the program, per the Wall Street Journal.
With a looming Supreme Court ruling on student-loan forgiveness, some researchers have questioned the utility of certain government-backed student loan programs.
Research by Sandra Black, Lesley Turner, and Jeffrey Dunning published last month reveals that introducing unlimited graduate lending led universities to increase graduate tuition. The study found postbaccalaureate programs increased tuition by a similar rate to the amount borrowing increased.
The authors found unlimited lending had no effect on graduate enrollment especially among underrepresented groups, degree completion rates, or annual earnings. There were small decreases in the percent of incoming Black and Hispanic students and small positive effects on incoming white and AAPI students.
Using data from Texas, the authors concluded that students impacted by the loan expansion borrowed $6,159 more than the reference group, which, when offset by a drop in private student lending, was an increase of $3,596 per student.
As a result, universities raised their prices — net prices increased 64 cents for every $1 increase in federal lending from Grad PLUS. However, additional revenue from these price hikes did not go toward expanding class sizes or improving educational outcomes of borrowers. Universities also increased grant aid, meaning net prices increased less than the listed price.
The Grad PLUS loans ultimately had little benefit for students in terms of human capital accumulation, the authors wrote, revealing few students faced binding credit constraints prior to Grad PLUS. This contrasts with large earnings and human capital returns for constrained undergraduates impacted by heightened loan limits.
Graduate student debt now accounts for 47% of new student loans, according to the Congressional Budget Office. Federal graduate student loans have no effective cap unlike undergraduate loans, which are capped at $57,500 in Federal Student Aid.
This has been the case since 2006, when federal graduate student loans were capped at $18,500. Congress launched the Grad PLUS loan program permitting students to borrow above the limit up to the university's total cost of attendance. This was created to help students, particularly those from disadvantaged backgrounds, finance their graduate education given the lack of private financing resources.
The CBO expects Grad PLUS loans to cost taxpayers $22 billion over the next decade, which does not factor in the Biden administration's plans for debt forgiveness.
Student debt levels have risen significantly over the last two decades. The average student debt for a master's degree for the 1999-2000 school year came in at $36,600, compared with $55,540 in 2016. These numbers jumped from $53,860 to $112,080 over the same period for a research doctorate.
The new research comes as a widely-awaited Supreme Court ruling about biden's broad student-debt relief is on the horizon.
This month, the Supreme Court is expected to issue a decision on two lawsuits currently blocking President Joe Biden's student-loan forgiveness program, which would forgive up to $20,000 in federal student debt for millions of borrowers. This would wipe out an estimated $430 billion in loans.
During oral arguments in February, some conservative justices appeared doubtful of Biden's authority to cancel student debt through the HEROES Act of 2003, which gives the Education Secretary power to waive or modify student-loan balances connected to a national emergency.
In March 2020, former President Donald Trump implemented a pause on student-loan payments to provide borrowers financial relief. Trump and Biden extended the pause multiple times, including in November for 60 days after June 30 or, if it happens first, 60 days after the Supreme Court decision.
In May, the House passed a bill to overturn Biden's debt relief plan and end the payment pause. Last Thursday, the Senate voted to pass the measure. Biden has promised to veto that bill.
The relief was halted last November after two conservative-backed lawsuits: Two borrowers sued since they did not quality for the full $20,000 of relief, while six Republican-led states sued arguing the relief would harm state tax revenues.
During this payment pause, the administration has made a dent in debt relief and borrower defense claims, some of which dated back to the Trump administration.
The Wall Street Journal reported that some Biden administration officials are preparing for the possibility that the Supreme Court's conservative majority will block the program. Some officials have discussed policy options that could still assist borrowers at risk of not receiving loan forgiveness. Some familiar with the situation told the Journal that the Biden administration is unlikely to create a new plan for widespread student debt cancellations.
The bipartisan debt-ceiling deal mandates student loan payments must resume by Aug. 30. In January, the White House proposed a plan for income-driven repayment plans for student-loan holders, providing them with more options for becoming debt-free. The administration plans to halve the amount of discretionary income borrowers must pay monthly on their undergraduate loans from 10% to 5%. The plan is set to be finalized later this year.
Documents obtained by Politico via a public records request reveal the Education Department has begun guiding student-loan companies to prepare to resume charging interest on borrowers' loans in September.
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