If you have clients or clients’ children who are considering attending a graduate or professional school, you should be aware of potential changes to the federal Direct PLUS loan for graduate students that could dramatically disrupt the landscape of this lending program and who can afford to earn these degrees.
The Trump administration is considering whether to eliminate or reduce the federal PLUS program for grad and professional students, which has allowed students to borrow whatever money they needed to obtain post-baccalaureate degrees.
As I will outline, abolishing or limiting the amount students can federally borrow would have significant ramifications for students and schools, as well as the future salaries for those who earn professional and graduate degrees.
Here are seven things you (and your clients) need to know:
1. The Grad Plus Loan program, which was launched in 2006, has allowed students to borrow stunning amounts of money for graduate school. Students turn to the PLUS Loan after they have exhausted the federal Direct Unsubsidized Loan for graduate students.
2. The Direct Unsubsidized Loan’s annual limit for graduate students is $20,500 for a maximum total of $138,500. The annual limit for medical and dental students is $47,167 with a ceiling of $224,000.
3. When the yearly Direct Loan cap is exhausted, students can turn to the Plus Loan where they may borrow up to the cost of attendance minus their Direct Unsubsidized Loan.
Here’s an example of how this works:
The cost of attendance for the 9.5-month program for a journalism master’s degree at Columbia University is $120,000. After tapping the $20,500 Direct Loan, a student could borrow $99,500 via the PLUS Loan.
4. The ability to attend the most expensive grad programs by borrowing huge amounts of money obviously has its pros and cons. As a positive, costs have not been an impediment to obtaining advanced degrees. For nearly 20 years, students who were accepted into any professional or graduate program could attend by borrowing.
On the other hand, the price of graduate schools has soared since the PLUS Loan arrived on the scene. This has impacted many students, who have been saddled with tremendous debt. This financial burden has extended to plenty of parents who believe their children need graduate degrees to boost their chances of financially succeeding in life and have sacrificed to help cover some or all of the costs.
5. The free flow of borrowed money not only encouraged schools to boost their prices, but to also create new graduate programs to cash in on a revenue bonanza. Student Loan Planner, an excellent resource for student loan issues, recently shared the following figures illustrating the dramatic rise of programs.
Twenty-five years ago, there were 27 physical therapy programs in the country, but today there are 335. During the same period, the number of medical schools jumped from 125 to nearly 200, and pharmacy schools grew from 80 programs to more than 140.
Beyond professional programs, many universities saw expensive graduate degrees as a meal ticket since high prices wouldn’t lock out students, unlike bachelor’s degree programs. I can only imagine how many more programs in fields like social work, communications, education, psychology, and STEM were rolled out.
6. Limiting or eliminating Grad PLUS loans could certainly be disruptive to the higher-ed world, but it could benefit some grad students financially.
Who would be the winners? Students who don’t need to borrow money for graduate school could get by relying on the Federal Direct Unsubsidized Loan. Since many students wouldn’t be able to afford graduate programs, those who could would enjoy an easier time getting accepted.
In addition, people currently with graduate degrees, and those who will be able to afford these diplomas in the future, might end up enjoying higher incomes. This could happen as the number of new graduates declines, while the demand for such professionals as physicians, therapists, lawyers, chiropractors, dentists, and veterinarians remains steady or rises.
Also, the number of graduate programs will almost certainly decline, or at the very least see their enrollment decline, which would reduce the supply in yet another way.
7. If the Grad PLUS Loan is eliminated or shrunk, what happens for students already in graduate school?
It seems highly likely that students already in these programs will be grandfathered in. It would arguably be unconscionable to expect students to pay cash for tuition and living expenses when, for instance, they are halfway through borrowing for law school.
For nearly two decades, near limitless borrowing enabled students to pursue advanced degrees regardless of cost—but it also fueled rising tuition and widespread debt. Whether these proposed changes become policy or not, it’s critical for families and advisors to understand how the grad school funding landscape is evolving and to plan accordingly.