The End of Grad Plus: Analyzing the Shift in Federal Student Lending

In this episode of The Indicator, hosts Darian Woods and Waylon Wong explore the significant changes brought about by the "One Big Beautiful Bill Act," specifically focusing on the elimination of the "Grad Plus" federal loan program. This legislative shift carries profound implications for graduate students, university tuition structures, and the broader labor market.

The Bennett Hypothesis and Tuition Inflation

For decades, the Grad Plus program allowed graduate students to borrow funds not only for tuition but also for living expenses like childcare and housing, with few restrictions. Preston Cooper, an economist at the American Enterprise Institute, argues that this unlimited access acted as a "cash cow" for universities, enabling them to raise tuition prices. This phenomenon is known as the "Bennett hypothesis," which posits that increased federal student aid leads institutions to hike their prices.

Economist Leslie Turner, who co-authored a study on these loans, found empirical evidence supporting this hypothesis. Her research indicated that for every dollar increase in average federal borrowing, sticker prices rose by approximately one dollar. Even after accounting for grant aid, the net increase in tuition remained significant, at around 60 to 65 cents. The government’s decision to eliminate Grad Plus is intended to curb this inflationary cycle, with some institutions, like the Santa Clara University law school, already introducing scholarship programs to lower costs in response.

Concerns Over Private Lending and Equity

While policy advocates argue that removing the program will stabilize tuition, others are deeply concerned about the consequences for students. Aisa Conchola-Banez, policy director for Protect Borrowers, warns that students forced to turn to private lenders will lose critical protections inherent to federal loans, such as income-driven repayment plans and debt forgiveness for public service.

Furthermore, there is a fear that these changes will exacerbate existing disparities. Data from the National Women's Law Center highlights that Black women, for instance, often require a master's degree to earn more than white men with only an associate's degree. Critics argue that the elimination of Grad Plus, without a corresponding increase in grant aid, disproportionately affects lower-income, first-generation, and minority students.

The "Professional" Designation Controversy

The new legislation also introduced annual and lifetime borrowing caps, reducing the lifetime limit for most graduate students from approximately $139,000 to $100,000. However, programs designated as "professional"—such as medicine, dentistry, and law—can borrow up to $200,000.

This classification has sparked an "uproar" among educators and professionals whose fields were excluded from the list. The American Medical Association (AMA) has specifically warned that because the cost of medical school often exceeds $200,000, these borrowing caps could make medical education unaffordable, potentially discouraging future doctors from entering the field.

Conclusion

As the Department of Education finalizes its rules and prepares to collect public comment, the debate continues. While the elimination of Grad Plus aims to address the "graduate portion of the student debt portfolio" and curb tuition inflation, the potential for reduced access to education and the loss of essential borrower protections remain significant points of contention. The long-term impact on the labor market—particularly in health care and public service sectors—will be a critical development to monitor in the coming years.