Graduate school debt is driving up the cost of helping borrowers manage their student loans

Americans are amassing hefty debt in graduate programs and turning to repayment plans that offer loan forgiveness. But the trend is costing taxpayers and could make the popular programs politically untenable.

A Congressional Budget Office report released Wednesday projects that loans made to graduate students over the next decade will account for 81 percent of the $207.4 billion the federal government will forgive through what are known as income-driven repayment plans. The plans cap monthly payments at a given percentage of earnings and extend repayment periods from the standard 10 years to as many as 25 years, with the promise of canceling the balance at the end of the term.

The volume of debt in the plans has surged as people with high balances, especially those with graduate loans, sign up, according to the report. Graduate students represented nearly a third of borrowers in the federal income-driven loan plans and held an average of $92,000 in debt in 2017. The increase in debt means the federal government will have to forgive far more money than anticipated. To curb the cost of the program, the CBO said limiting forgiveness for graduate students would have the most impact.

The CBO report arrives as President Trump is proposing limits on the amount graduate students can borrow from the federal government and stricter terms for repayment of that debt. Although the White House budget proposal appears likely to face strong opposition in Congress, it has highlighted the overwhelming debt load shouldered by people with advanced degrees. And the CBO report puts a fine point on the cost of that debt to the federal government.

For every dollar the Education Department provides over the next decade, the CBO projects the federal government will lose about 17 cents for loans repaid through income-driven plans because of the debt cancellation involved. In contrast, taxpayers gain nearly 13 cents on loans paid through standard repayment plans.

The evolution of income-driven repayment plans has deepened ideological rifts over the programs. Although the plans have existed since the 1990s, few people took advantage of them until the Obama administration expanded eligibility, lowered monthly payments and shaved five years off the path to forgiveness. The goal was to help more people manage their debt. The CBO found that objective has largely been met: Borrowers in income-driven plans default on their loans at much lower rates than people in other repayment plans.

But soaring enrollment and costs have made conservatives leery of the federal policy.

“Our nation is currently facing trillion-dollar deficits and any system that lends more than is repaid will ultimately become a liability to American taxpayers,” Senate Budget Committee Chairman Mike Enzi (R-Wyo.) said in a statement Wednesday. Enzi and Sen. Lamar Alexander (R-Tenn.) requested the CBO study.

Enzi said lawmakers must ensure the programs are “targeting limited federal resources appropriately and slowing the unsustainable growth in the cost of higher education.”

The Trump administration has proposed folding five income-driven repayment plans into one that shortens the payment period to 15 years for undergraduates but raises the monthly bill to 12.5 percent of income for undergraduate and graduate borrowers. But people with graduate school debt would have to pay for 30 years before receiving loan forgiveness.

“What the Trump proposal does is return this program to the safety net its supporters said it was supposed to be, instead of what it’s become, which is a very opaque tuition subsidy for graduate school,” said Jason Delisle, a resident fellow at the American Enterprise Institute, a conservative think tank.
The rise of expensive graduate programs, a dearth of grant aid and unlimited lending by the federal government have increased the prevalence of graduate school borrowing.

The White House called on Congress in March to impose limits on graduate lending, arguing that the current system provides colleges with few incentives to control costs. Trump’s latest budget proposal would impose a $100,000 per student cap on lending, which the White House says will save roughly $28 billion over 10 years.

Student advocates caution policymakers against using a cleaver to fix a problem that requires a scalpel. Not everyone who pursues a graduate degree ends up earning six figures, they argue, and the prevalence of borrowing often reflects wealth disparities that are ignored in conversations about imposing stricter terms on lending and repayment.

“We have to look at the cost of [graduate] programs relative to earnings, and graduate schools need to take a hard look at how much debt they are asking students to take on,” said Antoinette Flores, a higher education policy analyst at the liberal think tank the Center for American Progress.

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