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If you or your children are planning to pursue a graduate or professional degree, it’s important to understand potential changes to the federal Direct PLUS Loan program. These shifts could significantly impact who can afford advanced education and reshape the landscape of graduate school financing.
The Trump administration is considering whether to eliminate or reduce the federal PLUS program for grad and professional students, which has allowed students to borrow whatever money they needed to obtain post-bachelor degrees.
Abolishing or limiting the amount students can federally borrow would have significant ramifications for students and schools, as well as the future salaries for those who ear professional and graduate degrees.
Here’s what you should know:
The Grad PLUS Loan Program, which was launched in 2006, has allowed students to borrow large sums of money for graduate school. Students turn to the PLUS Loan after they have exhausted the federal Direct Unsubsidized Loan for graduate students.
The Direct Unsubsidized Loan’s current annual limit for graduate students is $20,500 for a maximum total of $138,500. The current annual limit for medical and dental students is $47,167 with a ceiling of $224,000.
When the yearly Direct Loan cap is exhausted, students can turn to the PLUS Loan, where they may borrow up to the cost of attendance, minus their Direct Unsubsidized Loan.
Here’s an example of how this works:
Let’s say the cost of attendance for the 9.5-month program for a master’s degree in Wealth Management at Columbia University is $130,000. After tapping the $20,500 Direct Loan, a student could borrow $109,500 via the PLUS Loan.
The ability to attend the most expensive grad programs by borrowing large sums of money has pros and cons:
On the positive side, costs have not been an impediment to obtaining advanced degrees. For nearly 20 years, students who were accepted into any professional or graduate program could attend by borrowing.
On the negative side, the price of graduate schools has soared since the PLUS Loan became accessible. This has impacted the many students who have been saddled with tremendous debt. In some cases, this financial burden has extended to parents who believe their children need graduate degrees to boost their chances of financially succeeding in life and have sacrificed to help cover some (or all) of the costs.
The free flow of borrowed money not only encouraged schools to boost their prices, but to also create new graduate programs to cash in on a revenue bonanza.
Student Loan Planner, a resource for student loan issues, recently shared the following figures, while illustrate the dramatic rise of programs:
25 years ago, there were 27 physical therapy programs in the country, but today there are 335. During the same period, the number of medical schools jumped from 125 to nearly 200, and pharmacy schools grew from 80 programs to more than 140.
Beyond professional programs, many universities saw expensive graduate degrees as a meal ticket since high prices wouldn’t lock out students, unlike bachelor’s degree programs.
Limiting or eliminating Grad PLUS Loans could be disruptive to the world of higher education, but it could benefit some grad students financially.
Students who don’t need to borrow money for graduate school could get by relying on the Federal Direct Unsubsidized Loan. Since many students wouldn’t be able to afford graduate programs, those who could would – more than likely – have an easier time getting accepted.
In addition, those currently with graduate degrees, and those who will be able to afford these diplomas in the future, might end up with higher incomes. This could happen as the number of new graduates declines, while the demand for such professionals as doctors, dentists, lawyers, veterinarians, and so on, remains steady or rises.
The number of graduate programs will also decline, or at the very least see their enrollment decline, which would reduce the supply in another way.
One question remains: If the Grad PLUS Loan is eliminated or shrunk, what happens for students already in graduate school? While we do not know for sure, it is possible that the students already enrolled in these programs will be grandfathered in.
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