Trump's Opportunity: Resolve the Student Loan Debt Crisis Without a Bailout
Under the Biden administration, student loan debt was treated as an urgent national crisis, with sweeping forgiveness proposals dominating headlines. Now, under Trump, the issue has largely faded from the political landscape—raising an important question: Was it ever a crisis to begin with? While 42 million Americans collectively owe $1.7 trillion in student loans, the structure of these loans, particularly the unchecked borrowing for graduate programs, suggests that the problem is not an unavoidable catastrophe but rather a predictable consequence of flawed government policy. Instead of advocating for broad forgiveness, the real solution lies in addressing the root cause: the absence of borrowing limits for graduate education. President Trump now has a unique opportunity to implement such reforms, effectively mitigating the issue at its source.
For the sake of simplicity, this discussion excludes private loans, which make up only 8% of all student loans, as well as parent loans for college, which are the responsibility of parents rather than students. Instead, the focus is on individual students borrowing money directly from the federal government to fund their college education.
At first glance, the numbers seem alarming, and news articles often suggest that crushing student loan debt is an inevitable reality for most college students. However, these reports frequently omit a key detail: federal student loans for undergraduate studies are capped at $31,000. This means it is impossible to accrue more than $31,000 in debt for an undergraduate degree without turning to private loans. As a result, the average federal student loan debt for undergraduates is only $29,600—a figure that rises modestly to $35,500 when private loans are included.
To put these numbers into perspective, consider auto loans in the United States. The average loan for a new car is now $41,000, while the average for a used car is $26,000—figures comparable to the average student loan debt, even when private loans are included. Yet, we rarely hear widespread alarm about an “auto loan crisis,” despite total auto loan debt standing at $1.6 trillion—nearly the same amount as the total student loan debt.
Most people have little hesitation about taking out a loan to buy a car, even though a new car typically lasts only 15 to 20 years with normal use. In contrast, a college degree offers economic benefits that extend over several decades. On average, a college graduate is projected to earn $1.2 million more over their lifetime compared to someone with only a high school diploma. Viewed this way, undergraduate student loans represent a prudent investment—a borrowing of future income to secure significant long-term economic gains.
If undergraduate loans are capped at relatively modest amounts, how is the average total student loan debt now over $100,000? And why do we so often hear stories of borrowers with even larger debts—like the 37-year-old featured in a Wall Street Journal article who managed to rack up over $1 million in student loans? Conservatives might blame humanities degrees that produce graduates fit only for serving coffee at Starbucks, but undergraduate degrees are clearly not the issue, given the federal cap on undergraduate loans. The real driver of the so-called student loan debt crisis is graduate education.
One crucial detail that reporters often overlook is that federal loans for graduate studies were capped for many years, with a total borrowing limit of $138,500 for both undergraduate and graduate loans combined. This structure ensured some level of restraint on student borrowing. However, in 2006, Congress radically overhauled the system by introducing the Grad PLUS loan program. This change allowed graduate students to borrow up to the full cost of attendance—including tuition, fees, and living expenses—without any specific annual or aggregate limit. This policy shift opened the door to unchecked borrowing for graduate studies.
The soaring costs of professional graduate programs, particularly at private institutions, have caused student loan amounts to skyrocket. In 2000, the average undergraduate student loan debt was $25,000, increasing modestly to $30,000 two decades later. In stark contrast, average graduate student loan debt surged from $59,000 in 2000 to $103,000 over the same period (all amounts are in 2023 dollars). Graduate loans now account for nearly half of all student loan debt, even though graduate students make up only 17% of postsecondary enrollment. This stark disparity highlights the root of the problem: the decision to raise and eventually remove borrowing limits on graduate student loans has directly fueled the current debt crisis.
Why would the media obscure what is really happening? The answer lies in the background of the journalists themselves. They are products of their social class: college-educated, often graduating from expensive private institutions, and many with graduate degrees. Their friends, family, and partners inhabit the same world. This bias is evident in how they report on higher education. As the former president of Macalester College, Brian Rosenberg, points out, “During the first six months of 2022, Harvard, Yale, Stanford, and Princeton were collectively mentioned in the New York Times about twice as often as the term community college. Together those four universities enroll about sixty thousand students; community colleges enroll between seven and eight million.” For this class of people, graduate student loan debt is a pressing concern. Even if a journalist has managed to pay off their own loans, they likely know many in their circle who have not. This explains the outsized focus on student loans in the media—framed as a national crisis—and the relentless push for broad federal loan forgiveness as the sole solution.
As a result, when journalists highlight individuals with excessive student loan debt, they often obscure key details that would reveal the broader reality. Rarely do they mention whether the subject attended a private university, what they majored in, or delve into their pursuit of graduate education beyond a passing reference. The media learned a hard lesson in 2011, when The Nation faced widespread ridicule for publishing a sympathetic article about a teacher struggling to find work in his graduate field after taking on $35,000 in debt to earn a Master of Fine Arts. His graduate specialty? Puppeteering.
Undoubtedly, the case for federal student loans is compelling. The government has a vested interest in ensuring broad access to the golden ticket of economic success—a college degree. However, only 37% of Americans hold a college degree. These individuals represent an elite group who, as some might say, are already replete with “privilege.” Given the many competing demands for government resources, they are hardly in need of additional handouts via virtually unlimited loans for graduate study.
Reinstituting borrowing caps for graduate students similar to those for undergraduates would resolve the student loan crisis almost immediately. Alternatively, maintaining the current federal graduate lending program, but requiring universities to assume responsibility for loan payments if a borrower defaults, would shift the fiscal burden away from taxpayers while incentivizing schools to better align their graduate programs with market demands.
