January 22, 2020

Capping or Eliminating Graduate Loans is Bad Policy with Harmful Consequences

Policy and Advocacy


WASHINGTON, D.C., January 22, 2020 — Capping federal graduate student loans isn’t a new policy idea – it’s just a persistently bad one. This proposal has been put forth, in one form or another, for years. Most recently, it has been pushed by the Trump Administration, Republican leaders in Congress, right-leaning think tanks, and even considered by left-leaning think tanks.

Proponents claim that availability of federal student loans inevitably cause tuition hikes for students – an idea colloquially known as the “Bennett hypothesis.” This mindset underpins the central argument in favor of capping or eliminating federal student loans, including the Grad PLUS Loan program, and opens the door for private lenders to serve student borrowers in a supposedly more competitive marketplace. This, proponents say, would compel colleges and universities to lower the cost of attendance and sharply cut the amount of student loan debt.

This idea, however, is severely lacking in merit.

That’s because the contention that expanding access to federal student loans causes an increase in tuition prices across higher education isn’t actually backed up by data. In fact, the hypothesis has been repeatedly debunked as it relates to professional degree programs, including law. Moreover, if efforts to curtail student lending come to fruition, like capping graduate loan programs, the negative consequences would disproportionately harm some of our nation’s most vulnerable students. Two research reports released by AccessLex Institute last year, Examining Grad PLUS: Value and Cost and Examining Graduate Lending: Access vs. Private Lending, refute long-held criticisms of federal graduate lending programs and lay out the dire consequences to students if graduate loan programs are significantly cut or eliminated.

A few key takeaways include:

  • Graduate students are, by far, the best performing cohort of borrowers in the federal student loan portfolio, so significantly rolling back lending for graduate and professional students would only harm access.
  • Private student loan lending is an inadequate substitute for the access-driven investment from the federal government in advanced education. Differing incentives, goals and underwriting means the private sector would be unwilling to risk sacrificing profits to provide financing for many students.
  • Black borrowers and Historically Black Colleges and Universities would likely be the most substantially harmed by privatization of graduate lending because of the difficulty many students would have obtaining privately financed credit under traditional underwriting standards.

Congress is currently considering a comprehensive reauthorization of the Higher Education Act – our nation’s best tool to expand access to higher education. It is critical that lawmakers remain equipped with accurate information and timely data as they decide how to better serve all students in America who pursue advanced education.