Congress could put an end to this with one simple policy change: Stop supporting graduate programs with federal loan dollars.
There’s a reasonable economic justification for federal lending to undergraduate students, since most have no credit history to speak of and might need government help to get a loan. But that argument generally does not apply to graduate students, who are in their 20s and 30s. The economic rationale for a federal graduate-loan program is nonexistent.
Indeed, there was a thriving private market for graduate loans — one that could be engaged once more — before Grad PLUS arrived on the scene. Students who needed to borrow large amounts for a high-value degree, such as medical students, could almost always secure private funding, and usually at a lower interest rate than the federal government offered.
But programs with outrageous tuition costs and meager earnings payoffs would have a hard time pocketing funding from a private lender that cannot simply pass losses on to taxpayers, as the federal government can. Only the presence of federal graduate loans, with their heavy implicit subsidies, makes high-cost, low-value programs possible on a large scale.
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