Graduate Student Loan Program Cuts—An Ill-Conceived Idea

The recent overhaul of the student loan program by the Federal Government made headline news—not surprisingly. As part of the budget bill that was passed in July of last year, massive cutbacks in the graduate school portion of the loan program will go into effect on July 1 of this year, essentially unraveling a more than twenty-year-old initiative designed to support students looking to enhance their careers by studying for and obtaining graduate degrees in their professions. Notably, many of the impacted graduate degrees are in great demand today.

Getting to the specifics, the Government—in a combination of the Executive Branch’s soon-to-be-disbanded Education Department and the Legislative branch—has reclassified graduate degrees into two categories: “professional” and “non-professional.” Included in the “non-professional” category are graduate studies in nursing, an array of healthcare therapies, education, social work, business, engineering, accounting, and architecture. Graduate study opportunities in those disciplines will undoubtedly face challenges because of the Government’s imposition of a limit on the amount of borrowings it will allow a graduate student to obtain—a maximum of $20,500 per year. That amounts to a total of $41,000 for a two-year graduate program, and $61,000 for a three-year graduate program. While some graduate programs are available outside of the normal workday, there are others, notably in the nursing arena, that require full-time attendance for two years because the degree requires both clinical hours and didactic education. Lack of adequate Federal financing will certainly result in students’ inability to enroll.

There was a time—in the mid-20th century—when an undergraduate degree in education or nursing, as an example, would carry one through a career to retirement and still allow for advancement. However, by the mid-1980s, several states (New York and Massachusetts as examples) required teachers to obtain a master’s degree to maintain their certification, and today that requirement has been adopted by more, but by no means, all of the states. The same trend toward graduate degrees in nursing has evolved, not so much to maintain one’s nursing certificate, but rather to capitalize on the expanded roles now available to those with an APRN (Advanced Practice Registered Nurse, aka Nurse Practitioner) or PA (Physician Assistant), each a program that requires two years of graduate study. It is important to note that an APRN’s role is distinctly different from that of a nurse and includes the ability to treat independently (i.e., without the oversight of a doctor), to diagnose and to prescribe.

The Government has argued that the graduate student loan program creates a “moral hazard,” alluding to forgiveness programs and accommodation of default rates. However, the data show clearly that the default rate on student loans is highest among two-year and for-profit college graduates, averaging 21%, whereas defaults on graduate school loans are less than 2%. That is hardly surprising, as students emerging from graduate school programs face a far more favorable employment environment than students with little to no work experience and only two years of higher education. Those data are amply available online, and one must assume that both the Department of Education and the Congress were aware of the information.

The Federal government, it appears, is attempting to strong arm universities to reduce their tuition rates for graduate school programs. There is no doubt that the cost of higher education, both undergraduate and graduate, has risen consistently at a rate higher than inflation, although the trend in the last few years has come down to the inflation rate. Graduate school programs are an integral part of expanding higher education. Competition among universities is steep and necessitates that schools engage highly qualified faculty, provide outstanding facilities and offer a curriculum that will meet the needs of the increasingly high-tech world of business in this country today. The demand for graduate level degrees should grow in the years ahead, but limiting financing could reverse a trend that has been beneficial to growth, productivity and profitability in this country. Every college and university across this country is fully apprised of its own students’ loan default rate. So is the Federal Government. In in response to the Government’s impending cutback, many universities are developing programs that will provide loans to their graduate students—they know full well the financial risk and that it is more than manageable.

One of many industries—one with which I am familiar—that exemplifies the need for highly proficient graduate programs is health care. U.S. Government spending on healthcare—Medicare and Medicaid—today comprises the largest share of the country’s budget at around 28% and will be one third of the budget in less than ten years. For reference, in 1970, the U.S. government spent 5% of its budget on healthcare. Improvements in medical technology are extending both life expectancies and the quality of life. The corollary to that good news is that as people live longer and healthier, or perhaps more medicated, lives, there will be a growing demand for the full panoply of medical careers, from at-home caretakers to nurses, from physician assistants (PAs) to nurse practitioners (NPs), from clinical doctors to surgeons. Meanwhile, fully 25% of practicing physicians in this country today are 65 years old or older. A report by the American Association of Medical Colleges in 2024 predicted that the U.S. will face a shortage of possibly 86,000 doctors by the year 2035. Specifically, it quoted the AAMC president, “…sustained and increased investments in training new physicians are critical to mitigating the projected shortfall of doctors.” Even today, the U.S., with 3.6 doctors per one thousand people, falls considerably behind Western Europe where the number ranges generally from 4.4 – 5.8. Today, nurse practitioners and physician assistants account for more than 25% of health care visits in this country, a substantial increase from about 14% as recently as 2013. That trend will continue.

The focus in this column on health care is largely because the data are available to prove the point. That does not minimize the impact on other graduate degrees that are part and parcel of an employee’s career enhancement and remuneration. In the world of finance, an MBA is often essential for advancement, and a CV without one is likely to be discarded or treated as less interesting. Teacher promotions are largely based on continuing education courses that show commitment to the profession. A social worker requires a graduate degree to practice and today’s demand for their services far outpaces the capacity. Graduate school education has been an integral part of the business culture in this country. Cutting the loans for qualified students whose risk of defaulting on their debt is close to zero is not only short-sighted but deleterious to the potential economic growth in this country. The right business attitude is to support and embrace the trend towards improved skills in a world where the competition from other countries is fierce.