Looking for ways to address issues with student debt, some lawmakers and policymakers have suggested making changes to the Grad PLUS loan program. While some have said the loan program has contributed to high levels of student loan debt among graduate and professional students, the AccessLex Institute has questioned the validity of those claims.
In a new report released last week, the second of two focusing on how scaling back or eliminating the program could cause problems for borrowers, the institute said that limiting access to the program could negatively impact underrepresented student populations, especially among black students.
"We neither seek to shield federal lending programs or graduate borrowing from criticism nor suggest there are no potential issues on the horizon," the authors wrote. "Rather, we aim to shed light on the negative consequences that would result from reducing the lending cap or eliminating federal graduate loans altogether, specifically hindering access to graduate education, especially among black students."
The first report on the topic, published in April, found that limiting or eliminating the Grad PLUS program would go against the core principle of the Higher Education Act (HEA): expanding access to higher education. Additionally, the report found that less than 9% of the more than 810,000 graduate degree recipients in 2015-16 took out a Grad PLUS loan and had a high debt load of more than $100,000.
In the new report, the authors note that one proposal some critics of the program have suggested is to allow graduate and professional students to turn toward private loans to finance their programs. Because the private student loan market has some competition and underwriting practices, the report said, those factors could theoretically improve borrower outcomes or lower prices.
"Unfortunately, advocates for privatizing all graduate student lending do not adequately wrestle with how this policy might work in the present day," the report said. "More specifically, proponents of a private student lending takeover do not address the effects, especially unintentional ones, wholesale privatization of graduate loans would have on institutions and certain populations."
Today’s increased costs for a higher education and tighter credit market, the authors wrote, would make it difficult to return to private lending, especially for a student population that is more diverse and includes more low-income students.
Even when private lending played more of a role in financing higher education, in 2007-08 for example, just 11% of graduate education costs were financed with private loans, the report found. But today, because employers are seeking a more diverse workforce with higher levels of education beyond high school, the report said, "private student loan lenders would need to serve most, if not all, of the students who currently rely on federal loans to maintain the current level of access to graduate education."
"However, advocates of private lending have not explained how the private sector would be able to generate the capital to support the private student loan risk attached to such an access-driven pool of borrowers," the report continues. "The answer is that this capital would be unavailable and would cause irreparable disruption to advanced education and the American workforce."
Meanwhile, the authors wrote, credit has gotten tighter over time and underwriting standards for private loans may not be in line with the access goals of the federal government. By examining data from the National Postsecondary Student Aid Study (NPSAS), the report found that black student loan borrowers could be most negatively impacted. In 2016, for example, 80% of black students took out federal loans to pay for their graduate education, compared with 72% of Hispanic/Latino students, 57% of white students, and 43% of Asian students.
That reliance on federal loans has increased over time for certain student groups. Between 2000 and 2016, the percentage of black and Hispanic/Latino students who took out federal loans for their graduate education increased by 12 and 23 percentage points, respectively. Black borrowers also represented the highest percentage of "high-debt" borrowers, with more than $100,000 in cumulative federal loan debt.
And while repayment data specific to black graduate students is limited, the authors said there is "likely cause for concern" because data on borrower populations at the undergraduate level shows repayment disparities by race. Black bachelor’s degree recipients, for example, were nearly four times more likely to default on their loans than their white peers.
"Some scholars have highlighted underlying factors like familial resources ... and labor market outcome disparities to provide proper context for poor repayment rates among black borrowers," the authors wrote. "But private lenders make lending decisions based mostly on data and would not take into account the reasons undergirding the data. If the undergraduate repayment trend data is consistent at the graduate level, using an ability to repay underwriting criteria may preclude large numbers of black graduate students from accessing the necessary capital to advance their education and careers."
Rather than entirely turning away from graduate student federal lending, the government could focus on reforms such as institutional accountability and accreditation that could help improve outcomes, the report said.
"If the goals are to improve institutional and programmatic outcomes and potentially lower cost, then policy proposals should be squarely focused on those goals," the authors wrote. "Lawmakers should not be enticed by wholesale student loan privatization as an end-run to student or institutional accountability metrics. Given that HEA reauthorizations are infrequent at best, America cannot afford to lose an entire generation of students as the result of policy changes that do not address the stated problem."
Publication Date: 6/18/2019