How Did Expanded Access to Federal Student Loans Influence Graduate Student Borrowing?
Lessons Learned from Grad PLUS Loans
Student loans are intended to enable students to attend and complete college; without these loans, students may not have access to the resources needed to pay for tuition and living expenses. However, we still have an incomplete understanding of which students benefit from access to student loans as well as how those loans should be designed. In this report, we focus on loans for graduate school and the effects of higher loan limits for graduate students via the creation of the Grad PLUS program. We also discuss how our findings contrast with undergraduate loan limits and the reasons for our different findings.
Grad PLUS loans were created as part of the Deficit Reduction Act of 2005. Prior to the creation of Grad PLUS, graduate students could borrow from the federal government up to the Stafford maximum, which was $18,500 annually for most programs. Students could make the gap between the maximum they could borrow federally and additional costs using private student loans, savings, or through working for wages. Grad PLUS expanded access to loans by allowing borrowers to borrow up to the total cost of attendance (COA) after other aid. For some programs, this dramatically increased the amount students could borrow. For instance, this increased how much students at UT Austin law school could borrow by about $15,000 annually for in state students and $28,000 for out-of-state students. Programs differ widely in their tuition, even within the same university. This policy change enables us to evaluate whether increased borrowing limits for graduate students helped facilitate student success in graduate school.
We find that programs that saw larger loan limit increases with Grad PLUS did not see enrollment increases relative to programs that saw smaller or no increase in loan limits, and we are able to rule out even small changes in enrollment for higher priced programs. We also find that constrained borrowers (those who borrowed at the Stafford maximum already) increased their annual borrowing by a greater degree after the introduction of Grad PLUS loans, by, on net, $3,596. Despite this increase in student debt, we find no evidence of increased persistence or graduation. Finally, we find that schools did increase prices. For each additional $1 of federal borrowing, we see an approximately $1 increase in listed program prices. Offsetting this effect, we also see an increase in average grant aid so that on net, a program’s net price increases by $0.64 per $1 increase in federal borrowing. This is a substantial amount of pass-through of the increase in loan generosity to institutions, suggesting that institutions are capturing more than two-thirds of graduate loan aid.
