The Department of Education and representatives from industry and higher ed wrapped up a second week of negotiated rule making last week, setting in motion significant changes in student borrowing rules that will have huge implications for students, institutions and the economy.
Among the negotiated points were directives in the One Big Beautiful Bill Act designed to address the $1.8 trillion student debt crisis by canceling Grad PLUS loans -- used by many students to pay for grad school -- and putting caps on the amount of money students can borrow: $200,000 for professional degrees, capped at $50,000 annually, and $100,000 for graduate programs, limited to $20,500 a year.
These caps target graduate borrowing specifically because graduate programs contribute more to student debt than undergraduate programs. According to the Education Data Initiative, the average undergraduate student loan debt is $29,550, while graduate students have $89,270 in graduate school debt alone.
The most contentious debates in the negotiations were on which programs are considered "professional." Sector representatives pushed for high-demand health-care professions, such as physician assistants, nurse practitioners and audiologists, as well as programs in architecture, accounting, education and social work to all be considered professional and thus eligible for the higher borrowing limits. But the committee adopted a much narrower definition of "professional" programs, consisting of medicine, pharmacy, dentistry, optometry, law, veterinary medicine, osteopathic medicine, podiatry, chiropractic, theology and clinical psychology.
The blanket caps ignore vast differences in program cost and institution type. The Education Data Initiative estimates the average tuition for law school -- not including fees -- is $46,400, just shy of the $50,000 yearly cap for a professional program. At $85,368, Columbia's tuition is close to double the average, while Southern University's $7,500 is a fraction of it. The caps will price out students who can't find alternative funds to plug the gaps between actual cost of attendance and borrowing limits.
The new borrowing caps create several troubling consequences that may undermine Congress's very good intention to tackle student debt. Students will turn to private lenders to fund graduate education likely taking on more debt at higher interest rates. The move also fails to address the fact that some graduates enter low-paying fields; a student can still be saddled with $100,000 in debt while not earning much in a special education or social work career.
Less certain is how the private loan sector and institutions will operate without billions of federal student loans in the system. The Postsecondary Education and Economic Research Center at American University estimates that $8 billion annually will no longer be available to students because of the loan caps. Currently, just 8 percent of student loan debt is private, which means private lenders would have to come up with billions of dollars to replace federal student borrowing. Institutions would also lose that revenue immediately with the new caps, but PEER points out that institutions stand to lose much more in lower enrollments over time.
The caps also block pathways to much-needed jobs in health care and education. There will be fewer students studying in graduate and professional programs, which means fewer architects, accountants, educators and nurse practitioners. There will also be fewer students getting the social mobility benefits of advanced degrees -- the median pay for people with graduate degrees is 20 percent higher than those with bachelor's degrees.
Low- and middle-income students with low or no credit and no readily available co-signers will struggle to secure a private sector loan and could opt out of an advanced degree entirely.
While the loan limits and program definitions are unlikely to change, institutions aren't powerless. They can lower tuition costs, expand scholarship programs and improve transparency so students know exactly how much they need to study and live. But these institutional fixes only go so far. Unless policymakers address the disconnect between borrowing limits and program costs -- or between debt caps and graduate salaries -- the borrower limits risk achieving debt reduction by simply blocking access to advanced degrees.