Andrew Gillen and Neal McCluskey
There are many things to like and dislike in the One Big Beautiful Bill (OBBB) enacted last week. One of the best things the law does is eliminate Grad PLUS, the worst of all the federal student loan programs. It is a type of loan available only to graduate students (e.g., master’s degree and above), and it operates on top of standard student loans.
Grad PLUS deserved to die for several reasons, including for the good of future job seekers and students.
First, Grad PLUS endangered students by undermining student lending’s guardrails. Without limits, some students will borrow too much, which is why undergraduate federal loans are capped at $31,000 ($57,500 for independent students). Graduate students can borrow up to $138,500 through the standard student loan program, which is already a towering sum. Grad PLUS kicks in once students reach that limit, which, of course, defeats the purpose of limiting standard loans.
When you hear about students with hundreds of thousands of dollars in debt, Grad PLUS is the reason. One borrower even racked up a million dollars in debt. Eliminating Grad PLUS would prevent many of these cases of reckless overborrowing.
Second, Grad PLUS was a massive drain on taxpayers. Many grad borrowers enter income-driven repayment, where their monthly payments are a function of their income, not how much they borrow. Any remaining balance is also forgiven after ten to twenty-five years, meaning that a significant portion of Grad PLUS loans will never be repaid, imposing a massive cost on taxpayers.
The latest estimates from the Congressional Budget Office indicate that taxpayers lose around 24 cents for every dollar of lending in Grad PLUS. Ironically, Grad PLUS was created two decades ago because it was believed that the government could make money from these loans, and the “profits” would be used to finance higher government spending. Not only did those profits never materialize, but the losses are now so high that eliminating Grad PLUS would save taxpayers almost $50 billion over the next decade.
Third, Grad PLUS fueled tuition inflation in graduate programs. The latest research finds that “the creation of Grad PLUS led to significantly higher program prices… sticker prices went up approximately dollar for dollar with increases in federal loans.” Needless to say, the point of student loans is not to funnel more money into colleges’ coffers.
Fourth, Grad PLUS subsidized wasteful education. Many college degrees have positive economic payoffs because the degree increases the borrower’s earnings potential enough to justify borrowing. But some programs fail this economic test because students borrow too much relative to the change in their earnings potential. Operating such programs is a wasteful use of resources, leaving both borrowers and taxpayers worse off. But colleges still profit from these programs because they are paid up front and get to keep all that money regardless of the impact on borrowers and taxpayers. Grad PLUS makes this problem worse by heavily subsidizing such programs. Many colleges have responded by not just maintaining these programs but creating more of them, treating these programs like Grad PLUS-grazing cash cows.
Finally, easy borrowing pushed credential inflation—job-seekers needing higher and higher degrees for positions that did not previously require them. Grad PLUS helps to keep this accelerating employment treadmill running by supplying funds to pay for more diplomas, but, too often, not meaningfully increased skills or knowledge.
Undoubtedly, many people see Grad PLUS as an important tool to make higher education affordable. But it has the opposite effect, making graduate education an increasingly expensive requirement that is often a millstone around society’s neck. Now that Grad PLUS is history, we say good riddance.