Who can afford grad school? New loan caps may narrow the field

Right now, students across the country are weighing the big decision of which schools they’ll attend this fall. Part of that decision? Whether they can even afford the cost. Many students will take out a federal loan to cover the bill, but soon changes are coming to how students pursuing graduate and professional degrees borrow.

Starting July 1, a provision from last year’s One Big Beautiful Bill Act, or HR-1, on federal student loan borrowing limits kicks in. Students attending graduate programs will soon only be able to take out $20,500 a year, and up to $100,000 in total. Students looking to study for a professional degree like medicine or law will be capped at $50,000 a year, with a cap of $200,000 over their career.

To discuss these changes and how they’ll affect students and universities, “Marketplace Morning Report” Sabri Ben-Achour host was joined by Jordan Matsudaira, a professor at the School of Public Affairs at American University and former Deputy Undersecretary and Chief Economist at the Department of Education. The following is an edited transcript of their conversation.

Sabri Ben-Achour: What is the purpose of these limits? Is it to save money for the federal government or what?

Jordan Matsudaira: So, certainly. When they were included in the reconciliation bill, a primary goal was to save money. But a lot of advocates believe that some form of loan limit is wise in the sector. I think that the issue with the limits that are incorporated in the law is just that they're set at such an aggressive level that, rather than primarily reining in the most egregious cases of over-borrowing, they really risk cutting off access broadly.

Ben-Achour: How do these limits compare with how much these students tend to borrow? Basically how limiting will these limits be?

Matsudaira: The short answer is that they are very limiting. They're going to affect a lot of borrowers. Our estimates are that somewhere in the neighborhood of 30% of all students who would ordinarily rely on the federal government to finance their education are going to face these loan limits, in the sense that they currently borrow more than what the new limits will be.

Ben-Achour: So could students turn to private lenders? Is that an option here?

Matsudaira: A lot of the students who are going into graduate school have either thin credit or no credit, or alternatively, they just have kind of low or bad credit. So, among the borrowers who are going to be affected by this policy, our estimates are that nearly 40% of them are in this bucket. And because of that, we think that they are going to have a really difficult time getting access to loans from the private market.

Ben-Achour: So, if a bunch of people are not going to be able to get the money to go to grad school from a federal loan, and they won't be able to get it from the private market, does that just mean a bunch of people are not going to be able to go to grad school?

Matsudaira: That is definitely the concern. Institutions, states, and a lot of other actors are currently trying to put together solutions to try to get credit to some of these students who are going to be cut off. But I think it's going to be a rocky road come July for a lot of students. I think the worry is a lot of students are likely to be shut out of programs that tend to be pretty expensive, like these MD, law school programs, and others.

Ben-Achour: What about the impact on universities? I mean, if you have less people able to go, what does that mean for universities?

Matsudaira: I think the hit to most institutions is going to be relatively modest, but it's not going to be evenly distributed across institutions. You know, a lot of open-access institutions, a lot of HBCUs, minority-serving institutions that tend to serve students who may not have credit kind of good enough, may not have access to parents with good credit to co-sign their loans, a lot of those institutions might really struggle with being able to keep up enrollment in their more expensive professional programs.