Speaker
Ron Lieber
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1 episodes
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1
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New federal rules cap parent PLUS loans at $20,000 per year and $65,000 over the entire undergraduate period, far less than many schools' annual tuition.
Graduate students in non-professional master's programs are now capped at $20,500 per year and $100,000 in total federal borrowing.
Students in professional programs like business, dental, law, and medical school are limited to $50,000 per year and $200,000 in total federal borrowing.
Undergraduate programs must show alumni earning more than same-state high school graduates aged 25–34, measured 4 years after graduation, or risk losing federal loan eligibility.
Programs must fail the earnings test in 2 out of 3 consecutive years before losing federal loan access — meaning no immediate consequences for at least 3 years.
Total outstanding federal student loan debt stands at $1.7 trillion — more than all credit card debt and all auto loans combined.
Higher education researcher Robert Kelchen found that 14,000 new master's degree programs were created in the roughly two decades leading up to the mid-2020s.
Under the Public Service Loan Forgiveness program, borrowers who work for a nonprofit or government for 10 years have their remaining loan balance cancelled entirely.
The federal government extended graduate student loans broadly in 2005–2006 with little underwriting, assuming advanced-degree holders were reliable credit risks who would out-earn their debt.
When the Obama administration tightened loan underwriting, some historically Black colleges and universities came close to shutting down because their students heavily relied on the parent PLUS loan program.
Analysis of over 30,000 undergraduate majors suggests that religion degrees and fine arts programs at many schools are likely to fail the new federal earnings test.
Graduate program alumni must earn more than the median salary for bachelor's degree holders aged 25–34, measured 4 years after graduation, to keep federal loan eligibility.
Starting July 1, 2026, parents are capped at $20,000/year and $65,000 total in federal PLUS loans — less than a single year's tuition at many universities. Graduate students face their own caps: $20,500/year for non-professional programs, $50,000/year for professional programs like law or medical school.
Federal loans will be cut off from undergraduate programs whose graduates don't out-earn same-state high school graduates, measured 4 years after graduation. Fail in 2 out of 3 years and the program is shut out of the federal loan system — potentially killing low-ROI degrees like religion and fine arts.
By 2008, the student loan system was already straining under more middle- and working-class borrowers than it was designed for. When the Great Recession hit and people started losing jobs, they couldn't make payments — and the federal government was left holding a very bad look.
Students and parents who hit the new federal loan caps will be pushed into the private student loan market — where creditworthiness matters and low-income borrowers may not qualify. Some schools may guarantee private loans; others will lose students who simply decide college isn't worth it.
When master's programs proliferated, schools encouraged students to rely on Public Service Loan Forgiveness — a program canceling debt after 10 years of nonprofit or government work. But many borrowers misunderstood the rules, picked the wrong jobs, or got bad advice and ended up stuck with massive payments.
Jed Shaffer works with homeless high school dropouts helping them earn their GEDs — exactly the public service work that should qualify for loan forgiveness. He borrowed for a master's degree, tried to follow the rules, and still ended up in a complicated mess that took years to untangle.
The Obama administration tightened student loan underwriting in 2011, intending to weed out risky borrowers. Within a year or two, some historically Black colleges and universities were on the verge of closing, because their students disproportionately depended on the parent PLUS loan program. The changes were reversed by 2014.
The Trump administration's new rules specifically call out NYU and USC — two schools in major blue cities — in the official Education Department fact sheet. Ron Lieber calls it '23% political,' but notes there has been genuine bipartisan frustration with the student loan system for years.
Ron Lieber raises the possibility that the new policies, while disruptive, could be a long overdue correction — eliminating programs that only existed because federal loans made them financially viable, regardless of whether they served students. The question is whether the disruption is worth the correction.
There is $1.7 trillion in outstanding student loan debt in the U.S. — more than credit card debt, more than auto loans. It grew because the system began with no underwriting, no caps, and the assumption that college borrowers were always safe credit risks. They weren't.
Universities discovered that master's programs — no labs, no costly infrastructure — could be enormously profitable if students believed the degree would boost their earnings. Research by Robert Kelchen found 14,000 new master's programs were created in roughly two decades, many of dubious value.
In 1980, the federal government started backing student loans because families were struggling with just a few thousand dollars in tuition. College attendance was lower, the borrowers seemed like safe risks, and the dollar volumes were small — so the government skipped the guardrails. Those guardrails never came back.
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- History 9%
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