The Big Beautiful Fix for Graduate School Borrowing

When policymakers and the public talk about student debt, they usually picture undergraduates: young people taking their first steps into higher education and making some of their first consequential financial decisions. That’s where most of the attention and reform energy has gone. But the real engine of recent growth in federal student loan volume has increasingly been graduate education, where borrowing is less constrained and loans are larger—a cost to both student borrowers and taxpayers when degrees fail to deliver a payoff.

Despite making up a smaller share of the student population, graduate students now account for more than 40 percent of federal student loan dollars handed out each year. In 2023, economists Tomas E. Monarrez and Jordan Matsudaira wrote in a Department of Education report that “if recent trends continue, graduate loans will soon comprise the majority of federal student loan disbursements.”

Since 2006, the Grad PLUS program has allowed American graduate and professional students broad access to unsubsidized federal loans, effectively removing a hard cap on borrowing for many graduate programs. That program was created by legislation in the Higher Education Reconciliation Act of 2005. The idea was that graduate loans, which created revenue for the federal government, would allow fiscal cover for an expansion of Pell grants and other student aid programs.

At the time, less than 10 percent of Americans held a graduate degree. Since that time, enrollment in graduate programs and the sums that students borrow to pay for those programs have both increased substantially. In the decade preceding the Covid pandemic, total postbaccalaureate enrollment increased by nine percent (from 2.9 to 3.1 million students). What once felt like a budget “win” in 2005 has, over time, turned into a policy liability two decades later.

The expanded access to credit resulted in measurable increases in tuition costs. That, paired with the expansion of borrower safety nets during this same period, meant a rapidly expanded burden on taxpayers.

A 2020 report from the nonpartisan Congressional Budget Office predicted that, over the following decade, forgiven balances for borrowers with graduate-degree debt could exceed forgiven balances for borrowers with only undergraduate debt by a factor of three. That pattern means the programs designed to aid struggling borrowers turned into a boon for the most educated, and often highest earning, Americans. Because graduate balances were so large and monthly payments could be constrained relative to those balances, many were on track to have their debts forgiven even with a generous income.

For others, though, those benefits (though costly to taxpayers) were a lifeline. Research from my colleague, Preston Cooper, illustrated that graduate degree programs often yield a poor return on investment. His estimates indicate that as many as 40 percent of existing graduate programs leave students worse off financially than when they started.

These compounding issues—uncapped borrowing, taxpayer-financed forgiveness, and the prevalence of low-value degree programs—left us with a system of graduate education that was failing students and taxpayers alike.

The recently passed reconciliation legislation, the One Big Beautiful Bill, tackles these problems head‑on. First and foremost, it imposes limits on how much graduate students can borrow from the federal government. Graduate students can still borrow through the graduate Stafford loan program, but will be limited to just $20,500 per year (or $50,000 per year for students in professional degree programs such as medicine and law).

Just as importantly, the bill introduces a new system of program‑level accountability. In order for students to maintain access to federal student loans, institutions will be required to demonstrate that previous graduates fared well financially. For graduate programs, the specific requirement is that graduates of every program out-earn the average bachelor's degree holder in their state. The idea is that the programs “do no economic harm.”

This ensures that graduate degrees deliver real financial value—not just a credential—and guards against programs that leave students worse off than if they had never returned to school. Programs that fail this test won’t be eligible to have their students borrow through federal loan programs to pay their cost of attendance.

This represents a major shift in the way federal policy measures value in higher education, and it’s long overdue.

Critics of the bill will argue that loan caps and stricter standards may limit access to graduate education. But access absent value is not opportunity—it’s exploitation. Encouraging students to take on unaffordable debt for degrees that won’t pay off is not a policy success.

If implemented well, the reforms in this bill could transform the landscape of graduate education. We’ll likely see fewer overpriced, low‑performing programs. Schools will have stronger incentives to control costs and improve student outcomes. Congress has taken a bold step toward making graduate education more transparent, more accountable, and ultimately, more worth the investment.

With better incentives, more transparency, and clearer guardrails, graduate education can once again be a reliable pathway to opportunity—not a financial gamble. The One Big Beautiful Bill is the bold correction we need.