The return on investment in graduate education has diminished in recent years because of growing student debt. As a result, congressional lawmakers are considering limits on graduate student lending as part of changes to the federal student loan system in budget reconciliation.
It's possible that Congress uses the graduate debt limits set out in the 2024 College Cost Reduction Act (CCRA), which aligned limits with the median cost of attendance (COA) across all students in a given graduate program. However, policymakers may also consider alternate thresholds. In this analysis, I assess the effect of a simplified set of loan limits for annual graduate student lending.
In this post, I show that students who receive Pell grants and those enrolled at private nonprofit institutions are more affected by loan limits, even at thresholds higher than the median COA. I also assess how these alternative limits compare with existing limits constraining federal borrowing for undergraduate degree–seeking students.
Proposed loan limit modifications in the CCRA
The CCRA sets a proposed limit for graduate program lending at the median COA “for the program of study across all institutions of higher education offering such a program for the preceding award year.” The calculation of COA occurs at an individual level because cost can vary by enrollment intensity and other factors specific to the student.
Because the bill specifies a median measure, the US Department of Education (ED) would need to collect individual-level data for all students. ED’s Financial Value Transparency and Gainful Employment data collection, which is currently underway for the first time, collects COA only for students receiving federal financial aid. ED does not collect individual-level data on students who do not receive federal aid.
To keep the spirit of the CCRA limits, Congress could simplify to the degree level (e.g., master’s, professional doctoral, etc.), regardless of field of study, by using a median estimate of COA as reported in the National Postsecondary Student Aid Study.
Testing the effects of COA limits at different thresholds
Using the national COA numbers at the degree level, I tested how different student groups would be affected by loan limits at different COA thresholds. For master’s degree students, a loan limit pegged to the national COA would cap borrowing at $20,710 annually at the 40th percentile and $42,988 annually at the 80th percentile in 2019–20 dollars. During the 2019–20 academic year, only 9 percent of master’s students borrowed above the 40th percentile, and just 3 percent borrowed above the 80th percentile.
When breaking out these results by different types of students, it’s clear that students enrolled at private nonprofit institutions and students who received Pell grants for undergraduate education are more likely to be affected, even at higher COA thresholds. Further, students pursuing a master’s in social work, fine arts, or public health would be disproportionately affected at all thresholds of a COA cap.
When COA threshold limits are applied to doctoral degrees, professional practice degrees are far more likely to be affected than academic degrees. This discrepancy is likely because many academic PhD programs offer tuition remission and living stipends for students, reducing the need for loans. At the 40th percentile of COA, 23 percent of students obtaining professional practice doctoral degrees would be affected and 7 percent would be affected at the 80th percentile. In contrast, around 3 percent of academic doctoral students would be affected at the 40th percentile.
Importantly, the effects of COA limits show stark differences by field for professional practice degrees. More than a quarter of students obtaining medicine or dentistry doctoral degrees would face federal loan caps if the threshold were set at the median. Policymakers may wish to provide additional flexibility in loan limits for health programs given their cost, similar to existing differences in unsubsidized direct student loan limits for graduate and professional students enrolled in certain health profession programs.
A simpler approach to graduate loan limits
At the median, this simplified approach to graduate loan limits caps annual borrowing for 8 percent of master’s students and 19 percent of professional practice doctoral students. To put those numbers in perspective, between 12 and 19 percent of dependent undergraduates borrowed above the usual federal maximum in 2019–20, as did between 2 and 6 percent of independent undergraduates.
If policymakers want graduate loan limits to roughly match the level of external (largely nonfederal) borrowing by independent students, they would set a loan limit between the 60th to 70th percentile for master’s degree programs’ COA and around the 80th percentile for professional doctoral programs’ COA.
Further increases to the COA threshold used for loan limits could help maintain access to federal lending for graduate students from low-income families (i.e., students who received the Pell grant as an undergraduate). Policymakers could also consider an exception for students enrolled in certain health care programs to access additional federal credit.
Ultimately, this simplified approach may prove more stable than a program-level approach, which might be vulnerable to shifts over time (e.g., a large program closure may change the median COA for all other programs in that field). Further, under the current CCRA proposal, the loan limit for a master’s in urban planning could be substantially different than that of a master’s in public policy. An applicant might see this gap as a signal of relative return on investment, but, in truth, it only signals a difference in typical program cost.
As policymakers consider options during the budget reconciliation process, they should understand the effects of different loan limit thresholds and the differences in the implementation of these thresholds.
Let’s build a future where everyone, everywhere has the opportunity and power to thrive
Urban is more determined than ever to partner with changemakers to unlock opportunities that give people across the country a fair shot at reaching their fullest potential. Invest in Urban to power this type of work.
