The Government Accountability Office (GAO) released a report this week, in response to an inquiry from a group of Republican senators, highlighting the characteristics of Grad PLUS Loan borrowers, as well as the potential implications of instituting annual and aggregate loan limits on Grad PLUS Loans. This report comes out as House Republicans are awaiting a vote on their bill to reauthorize the Higher Education Act (HEA), which includes a proposal to eliminate Grad PLUS Loans, and the Senate is working to release its legislation.
Addressed to three members of the Joint Economic Committee — Sens. Mike Lee (R-UT), vice chairman of the committee, Bill Cassidy (R-LA), and Tom Cotton (R-AR) — GAO’s report found that as of June 30, 2017, the Department of Education (ED) disbursed $71 billion in Grad PLUS Loans to 1.7 million borrowers. GAO reported that ED disbursed an average of $41,530 per borrower and a median of $26,863, and that borrowing amounts ranged from $5,000 at the 10th percentile to $98,554 at the 90th percentile.
GAO also discovered that the majority of Grad PLUS Loan borrowers were enrolled in a standard, 10-year repayment plan as of the end of June. Additionally, 36 percent of borrowers had participated in an income-driven repayment (IDR) plan, and 11 percent of those in repayment status had been certified as eligible for the Public Service Loan Forgiveness (PSLF) program. As of March 2017, 2 percent of borrowers defaulted on at least one Grad PLUS Loan.
In response to questions from lawmakers as to how the addition of loan limits might affect the number of borrowers and the amount of aid ED disburses in the form of Grad PLUS Loans, GAO modeled annual and aggregate loan limits at several different points and determined what the effects would have been from 2007 to 2017.
Currently, graduate and professional degree students can borrow from the Grad PLUS Loan program up to their cost of attendance (COA) per academic year, with no lifetime limit.
Under an annual loan limit of $10,000, GAO found that ED would have reduced overall federal loan disbursements by $41.6 billion, a 58.6 percent decrease. With a yearly limit of $25,000, GAO determined that ED would have reduced disbursement by $16.5 billion, a 23.2 percent decrease.
If the government instituted an aggregate loan limit of $50,000, GAO found that ED would have decreased award amounts by $22.4 billion, a 31.5 percent drop. And if a $125,000 lifetime loan limit was put in place, ED would have reduced award amounts by $4 billion, a 5.6 percent decrease. Ninety-thousand borrowers — over 5 percent of all Grad PLUS borrowers — would be above this limit.
In anticipation of the HEA reauthorization process, NASFAA convened a task force of members last year to inform policymakers about the financial needs of graduate and professional degree students. Task force members recommended eliminating the Grad PLUS Loan program in support of creating a one-loan system for graduates and professional degree students that would combine aspects of unsubsidized Federal Direct Loans and Grad PLUS Loans. They suggested instituting a base limit loan of $30,000, and any additional borrowing (up to cost of attendance) would be subject to underwriting.
“While the introduction of the Graduate PLUS Loan has been helpful, it comes with higher interest rates and fees. The task force advocates for one loan program for graduate and professional students for simplicity’s sake, with options for qualified applicants to borrow up to the full cost of attendance, while giving financial aid administrators the authority to set lower annual and aggregate limits at their schools for certain programs or groups of students as they deem appropriate,” the task force wrote.
The House Republicans’ bill to reauthorize the Higher Education Act, the PROSPER Act, proposed eliminating the Grad PLUS Loan program with only modest increases in annual and aggregate caps for graduate unsubsidized loans from $20,500 to $28,500 in annual caps, and from $138,500 to $150,000 in aggregate caps. While NASFAA supports simplifying the federal student aid system, it expressed concern about eliminating this program, among others, without plans to invest the funds into other student aid programs. The Senate has yet to release its bill.
In addition to analyzing the implications of instituting loan limits for Grad PLUS Loans, GAO reported that borrowers in doctoral professional practice programs (law and health-related fields) would be the most affected by loan limits. That’s because while 49 percent of Grad PLUS Loans are taken out by master’s degree students (a plurality), 96 percent of those with over $100,000 in Grad PLUS loans are doctoral professional practice degree students, and 77 percent studied Legal Professions and Studies.
Publication Date: 4/19/2018