Why Americans Will Get Less Help Paying for College

The Daily

The Trump administration is rolling out new rules to limit federal student loans, capping borrowing for parents and grad students and tying loan access to alumni earnings. These changes aim to curb rising college costs a

Key takeaways

• Parent loans capped at $20K/year

Transcript preview

From the New York Times, I'm Rachel Abrams, and this is the Daily. Today, as the cost of higher education has soared in recent decades, universities have attracted more scrutiny about the value of a four-year degree. Now, the Trump administration is taking those questions to the next level, with a new set of policies that scale back the federal government student loan program. Today I talked to my colleague Ron Leiber who writes about personal finance about what these new changes are and how they might reshape higher education in America. It's Wednesday, July 1st. There have been concerns about anti-Semitism on campus. The administration has accused a lot of different schools of being as it describes to woke. But you cover personal finance and you have been following a very different set of developments when it comes to higher education, which go into effect today, July 1st. So tell us what has been going on. Sure. So the federal government put into place some changes to the way it lends money for higher education. I mean, there's one point. $7 trillion in student loan debt, and that's more than credit card debt, it's more than auto loans. And you'll probably remember that there was this giant pause in the repayment of student loans. It happened at the beginning of the pandemic, but it went on for years. And since then, the Trump administration has been trying to revise the federal government's repayment plans to make them a bit stricter. And some of those changes went into effect. today. So that's going to be a big change for families who are in the process of paying off student loans. But there's an even bigger change that the administration also put into place, which is that instead of focusing solely on cancelling student debt or changing up the repayment plans, they are also trying to reduce the amount of loans that are given out in the first place. So what specifically is the government doing to try to achieve that? So two things are happening that just went into effect. The first thing is that there are going to be caps on certain kinds of federal loans. First of all, there's this thing called the Plus Loan. Parents take that one out on behalf of their undergraduate students. Grandparents sometimes do it too. And they do it when that student's financial aid package, if any, is not enough to cover the cost. And then there are the loans for graduate students and up until this point there have been very few limits on the amount of money that you can borrow. You borrow whatever you want. Up to the cost of attendance which includes room and board you know it can be over a hundred thousand dollars per year right and now parents are only going to be able to borrow a certain amount of money per year and a certain amount of money over time through the entire process. of completing a degree. And then graduate students who are borrowing for themselves are going to have a different set of caps. And I know that there are probably a lot of nuances here, but just really generally speaking, can you give us a rough idea of what the caps are for grad students and from the parents borrowing for their undergrad children? Yeah, so let's start with those parents. The cap is $20,000 a year for those federal loans that parents can get access to. And then the total over time might be four years might be more depending on how long the kid takes to get through that's 65,000 dollars total which is not a whole lot if you consider the fact that some universities charged that just for one year of school right so now over to those grad students if you are in you know one of those standard master's degree programs or you know other programs that are deemed non-professional you're limited to 20,500 year allowed to borrow is $100,000. And then there are so-called professional programs. So those are things like business school, dental school, law school, medical school. They're limited to $50,000 a year and $200,000 over time. Got it. Okay. And we should note that there is ongoing litigation over which of these graduate programs actually qualify as quote-unquote professional and therefore would have that higher cap where people could borrow more. So basically the idea from the administration here is to keep students, keep parents from getting into a situation where they are borrowing essentially way more money than they can pay off. Right. It may seem counterintuitive to think hey we're fixing the problem of higher education being too costly here by giving less in federal loans to pay for the cost. But I think the idea here is to provide more guardrails to keep families from overextending themselves and then that might drive down prices at least a bit. How so? Well if parents and students can't borrow as much, it may make it harder for a lot of the schools to charge what they're charging now. So the schools might need to lower their prices to match whatever it is that the families are. the students can actually pay. Okay so you told us that two major buckets of changes were coming. What is the second? So the second big change the government has said that it does not want to provide student loans anymore to programs whose alumni don't meet a minimum earnings test. Okay an earnings test explain what that is and how it works. So here's the basic deal. finish their undergraduate program, there's going to be a measurement four years later. And those folks from a particular program must on average earn more than the people in their state who only finished high school and are between the ages of 25 and 34. So the basic bottom line is if you're not earning more than a high school graduate does on average, what is the school done for you? to the point why is the federal government subsidizing a degree that doesn't put you in any better financial position than a high school student is that the idea exactly so this earnings test it will also be applied to advanced degrees and professional schools and in that case the test is similar but with different numbers it will look at the earnings of alumni four years after graduation to see whether they earn more than the median salary for working adults age 25 to 34 who have a bachelor's degree. Can you give some examples of programs that might fail