How Limiting Grad PLUS Loans Could Raise Salaries (and Prices Too)

Since July 2006, the Grad PLUS loan program has allowed graduate and professional students to borrow up to the full cost of attendance. Now, the Trump administration is considering limiting or eliminating the Grad PLUS program altogether. If that happens, the consequences and downstream impacts could be enormous.

Grad PLUS has no borrowing limit. As an extreme example of this unlimited borrowing feature, schools like NYU Dental School are able to charge staggering tuition of over $600,000 for just four years of education. Other schools follow suit, imposing enormous costs on students that would likely be impossible to finance under the stricter limits of Stafford loans.

One on hand, Grad PLUS has expanded access, allowing many students to pursue degrees they might not otherwise afford. But there’s a trade-off: a larger pool of graduates that exists in most professions can have a limiting effect on salaries.

In a political environment with a lot of focus on consumer prices, eliminating or scaling back Grad PLUS loans could have another unintended consequence — driving up the cost of medical, dental, legal, and veterinary services.

Let’s look at the potential consequences of Congress eliminating or limiting Grad PLUS loans for professionals, consumers, and current students.

How Grad PLUS fueled an explosion of new graduate programs

The introduction of Grad PLUS loans coincided with a massive expansion in graduate and professional schools. Consider these numbers:

• Pharmacy schools: About 80 pharmacy schools in 2000, now more than 140.
• Physical therapy schools: In 2000, there were 8 DPT programs and 19 bachelor’s or master’s programs. Today, there are 335 accredited programs.
• Dental schools: Increased from 54 dental schools to 75 today. 
• Medical schools: Grew from 125 medical schools to nearly 200 today (with both MD and DO programs).

For many professions that require an advanced degree, the number of schools offering these credentials has skyrocketed.

Before Grad PLUS, new student growth was far more limited in these advanced degree-required professions.

For example, from 1980 to 2005, a moratorium capped med school enrollment (for allopathic schools). But after Grad PLUS loans became available, graduate school expansion became explosive across all professional schools.

Universities saw a huge revenue generation opportunity in Grad PLUS

When Grad PLUS loans became available, universities quickly realized they no longer had to worry about the cost of education they provided.

Since students could pay a percentage of their income no matter how much they borrowed, schools had little incentive to keep costs low.

Many institutions reacted to the open-ended borrowing of Grad PLUS by adding additional professional degree programs, especially in fields that did not place strict limits on the accreditation of new programs.

In some cases, schools even used Grad PLUS revenue to fund unrelated expenses, including new campus construction projects or subsidies for undergraduate tuition — moves designed to improve rankings rather than reduce student costs.

How eliminating Grad PLUS could force schools to close

Many universities have already built their long-term budgets around Grad PLUS revenue. If the program disappeared, the financial impact on students — and institutions — would be dramatic.

To use an earlier example, NYU dental school has about 1,900 students. If Grad PLUS went away, students could only borrow approximately $224,000 of Stafford loans.

Considering the $600,000+ cost of attendance, that leaves an enormous funding gap. Where could the other $350,000 come from?

• Private lenders hesitate to finance students with high debt-to-income ratios, making student loan refinancing an unlikely option.
• Personal savings or family wealth would become the primary funding sources, shutting out students without financial backing.

How many of the 1,900 NYU dental students could afford that? Likely a minority.

Other, cheaper dental schools must expand enrollment to open up seats, or NYU Dental may be forced to cut its incoming class size. Perhaps only those from independently wealthy families could afford the cost to attend.

And this issue isn’t limited to NYU Dental. If Grad PLUS loans were limited or eliminated, a large number of schools that were created since the introduction of this type of loan would face challenges to remain open or may have to drastically cut enrollment, as private banks and lenders are likely only to finance degrees that had high earnings relative to debt.

Why ending Grad PLUS could mean higher professional salaries

Basic economics tells us that when the supply of labor goes down while demand stays the same, salaries go up.

This change won’t happen overnight. But if 10% to 30% of professional degree programs close and the remaining ones accept fewer students, fewer graduates will enter the workforce. Over time, this scarcity can potentially drive up salaries for existing and future practitioners.

Some graduates already see this potential shift. Anecdotally, we’ve heard already graduated readers say they believe that the elimination of Grad PLUS would be great for their earnings, as they’d face lower competitive pressure from large corporate entities that often hire new graduates cheaply due to fears around the large amount of student debt these new grads owe, as well as the larger supply of new grads made possible by the Grad PLUS program.

That said, access to professional degrees will likely shrink — especially for students from less affluent families. Without Grad PLUS, only those with significant family financial support could afford many graduate programs, reducing the pipeline of talented professionals entering high-demand fields.

Why cutting Grad PLUS could mean higher consumer prices for professional services

Beyond reshaping higher education, scaling back Grad PLUS could directly impact consumers — specifically, on the cost of professional services.

With fewer medical, dental, veterinary, and legal graduates entering the workforce, the supply of professionals shrinks. But demand for these graduates wouldn’t disappear. As a result, consumers are likely to face higher prices for access to care and legal services since a smaller number of practitioners in the labor market means they could charge more for their expertise.

This is a classic example of how some groups benefit while others lose out from Grad PLUS elimination.

How Current Students Could be Impacted by Grad PLUS Elimination

Most repeal proposals to end Grad PLUS include grandfathering provisions to protect current students already enrolled in graduate programs.

After all, imagine being halfway through a dental degree, only to be told you have to drop out because the government ended a borrowing program and federal funding disappeared.

Such a policy change would be extremely unpopular politically, which is why most proposals use language that says something like “new borrowers as of [XXX date] will not have access to Grad PLUS.”

This means that current students are likely protected, but those still in preparatory undergraduate or postbaccalaureate programs could be cut off.

Higher education would be radically transformed without Grad PLUS

If it were ever to happen, eliminating Grad PLUS would radically reshape both universities and professional industries. And professionals will see dramatic implications, too.

If your goal is to maximize your future salary, you might support limiting (or eliminating) Grad PLUS since it could reduce competition and the supply of new graduates.

However, such a policy change would reduce access to talented students from less privileged backgrounds, reduce the number of practitioners in high-need fields such as healthcare, and force the closure of large numbers of university programs that employ many thousands of workers.

If you need help figuring out a plan for your Grad PLUS loans, we’d love to help.