Report Urges Policymakers to Limit Amount Graduate Students Can Borrow

By Joelle Fredman, NASFAA Staff Reporter

Graduate borrowers have historically been considered a less risky population in terms of debt repayment and loan default than undergraduates, which has led the government to relax policies aimed at curbing borrowing for these students, according to the Brookings Institution. However, in a new report the think tank highlights concerning trends among graduate student borrowers and urges policymakers to limit the credit available to these students as well as hold institutions accountable for poor graduate student outcomes.

Since the establishment of the Grad PLUS Loan program 12 years ago, graduate students have been able to take out federal loans up to the cost of attendance at their institution. The authors of the report, Vivien Lee and Adam Looney, wrote that this policy, as well as other factors such as in increase in enrollment in income-driven repayment (IDR) plans, have led to “a worrisome increase in loan burdens, the entry of new institutions and graduate offerings, and worsening repayment outcomes.”

The authors wrote that over the last 30 years, annual borrowing amounts among graduate students have doubled—from $11,900 in 1990 to $23,900 in 2014. This phenomenon has also led to a large increase in federal loan borrowers with large balances, because, according to the authors, they are “almost exclusively students with some graduate debt.” While in 2000, 8 percent of graduate borrowers who entered into repayment owed more than $100,000, that figure jumped to 20 percent in 2014.

The authors also found that the default rate for graduate students rose from 3 percent in 2000 to 5 percent in 2009, and that repayment rates for these students appear to be dropping. While graduate students who left school in 2000 paid back 16 percent of their loan balances after five years, that figure was only 11.5 percent for those who graduated in 2009, which the authors attributed to an increase in popularity of IDR plans.

A Government Accountability Office (GAO) report from April found that as of June 2017, the majority of Grad PLUS Loan borrowers were enrolled in standard 10-year repayment plans. It reported that 36 percent of these borrowers had participated in an 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 addition to trends involving borrowers, the authors also noted that institutions that have weak repayment outcomes for undergraduates tend to show the same results for their graduate population.

“This is important because it means that some institutions are systematically producing graduate borrowers who are unable to make progress on repaying their loans,” they wrote. “Ultimately these programs are being subsidized by other programs (whose graduates are more successful) or by taxpayers.”

The authors wrote that these trends are the result of increases in graduate loan limits, as well as a rise in IDR plan enrollment and policies such as loan forgiveness that make students less concerned about “the cost or value of the education they are pursuing.” They also argued that the ability for more institutions to accept federal funds due to the cancellation of the 50 percent distance learning limit, which prohibited schools that offered more than half of courses online from qualifying for Title IV funds, and the change from the 85/15 rule to 90/10, which means that for-profit institutions can now receive up to 90 percent of their revenue from federal funds, has also contributed. At the same time, the authors wrote, these changes occurred “in the absence of a federal system of accountability relevant for graduate borrowers, like that which applies to undergraduates (cohort default rate rules).”

“...These changes have also had indirect effects,” they added. “The expansion of graduate PLUS loans replaced private sector loans (where lenders scrutinized borrowers’ ability to repay), and thereby expanded credit to institutions and programs that would not have been financed by the private sector.”

The authors of the report called on policymakers to limit borrowing amounts for graduate students and require those earning higher incomes to repay more of their loan balances, as well as establish a system to flag institutions leaving borrowers with high debt and poor job prospects.

“In essence, there has been a dramatic increase in the number of borrowers leaving college with high debt and low earnings over the past decade. ...Although good data on graduate borrowers is not available, the same is likely true among graduate students,” they wrote. “The fact that we are seeing similar trends in the composition of graduate borrowers is troubling, not only because of the sheer dollar amounts involved, but also because there is relatively less publicity and thus pressure to address these group of borrowers.”

In anticipation of the reauthorization of the Higher Education Act (HEA), 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 graduate 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 HEA, 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 House Democrats’ bill to reauthorize the HEA, the Aim Higher Act (AHA), does not propose any changes for the Grad PLUS program, and the Senate has yet to release its bill.

Earlier this month, NASFAA members representing graduate/professional (G/P) institutions met with congressional staff as part of NASFAA’s ongoing Advocacy Pipeline, where they urged policymakers to retain the Graduate PLUS Loan Program.

“Most of the education policies are based on our undergraduate students and tend to forget about our graduate students—and we seem to keep taking money away from our graduate population instead of supporting them,” one participant said. “They are our future. If we aren't going to invest in them, then shame on us.”


Publication Date: 10/26/2018

John G | 10/26/2018 11:49:10 AM

I have had a number of situations where I would have liked to limit a student's borrowing of federal loans. At the same time I am not sure how I can, in the end, judge who should receive loans and who should not. I already have these conversations, and sometimes confrontations, with students about the COA and why their loans are limited. I also fear the potential backlash from other offices like Admissions if they want to admit someone who I think should have less loan than another student.

David S | 10/26/2018 10:58:35 AM

First of all, don't say that an increase in IDR popularity is making the world come to an end while only 36% of borrowers are using them. Secondly, IDR does not mean people are unable to repay their loans. This is how all student loans are repaid in the UK, and it works just fine.

But more importantly, our economy needs people with advanced degrees more than ever. While I am sure that private lenders are eager to see Grad PLUS loans go away, they won't be available to everyone...those in important but not very high paying fields will be left without options. This means fewer/less educated teachers, social workers, artists, librarians, counselors, public advocacy attorneys or public defenders, doctors in clinics in low-income areas, and many other important jobs that every community in the country relies on. If there truly are problematic schools, address them. Don't throw the baby out with the bathwater.

Dolly D | 10/26/2018 10:55:23 AM

I wonder if sometimes the thought of those making decisions are not looking at the medical schools and are thinking of someone completing their MBA? Many can keep working while going to school. The studies for medical, dental , pharmacy, etc do not allow for self-support. Schools do recognize the debt level and many of us council about the amount they are borrowing. We all are preaching about budgeting and future outcomes if they are not cautious. Health care is vital to our future. Increase the Unsub, cut down on those fees instead.

James H | 10/26/2018 9:43:00 AM

I would think we should have a level for Graduate Students and a higher level for Medical students. We have had looked back 10 years recently for a handful of medical students and found surprisingly some medical students 10 years out from graduation having almost the same level of loans from the day they graduated. They moved in and out of forbearance after residency and choose the smallest payments they could. So even for medical students we are seeing them over borrow compared to the salary they make as doctors later on. When we make suggestions while they are in medical school they often feel overconfident in their future ability to repay. It was not everyone but we only looked at a few and found a few. Maybe their is some benefit to having a medical school cap?

Jose E | 10/26/2018 9:19:51 AM

It is one thing to view old statistics and data and push forward recommendations versus being on the ground working with Graduate and professional students. Yes, there a few that take advantage of the system, but the majority are making ends meet. The Cost of Attendance is there for a reason and it governs what a student can borrow, so a graduate and professional student cannot borrow more than is necessary to meet the cost. When I look at students in medical school who come from disadvantaged backgrounds there are often the ones who lose when there is policy suggestions such as these. Yes, the amount has doubled since 1990, but tuition and other costs have quadrupled. Before putting forth this type of information look at what is really happening instead of using data to support unneeded stress for graduate and professional students. Limiting, federal loan opportunities only shifts the burden on private loans further complicating the repayment and management of student loans beyond school.

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