Hildreth Institute in The Boston Globe
New student loan changes taking effect in July could make college less affordable for millions of borrowers
The federal student loan landscape will change dramatically this summer. Schools and families are working to plug the hole left behind.
This article originally appeared in The Boston Globe, written by Diti Kohli and Mara Kardas-Nelson.
For decades, the federal government has pumped trillions into student loans, helping millions of Americans go to college.
Now, in the most far-reaching changes in a generation, Washington has tempered its largess.
Through a combination of cuts to loan programs and new caps on borrowing by graduate students, the Trump administration is scaling back the assistance many families tap to bridge the ever-rising costs of college. With nearly 8 million borrowers already in default, the White House believes the moves will help rein in the nation’s student debt crisis and pressure schools to lower tuition.
The changes take effect in July, leaving students and universities alike scrambling to nail down funding for the next academic year.
The Plus loan program for graduate schools has been eliminated outright, as have multiple low-cost debt repayment plans for undergraduates. Most student debtors will be funneled to a new Repayment Assistance Plan that calculates their payments based on their incomes.
Parents will also be able to borrow only $20,000 each year, rather than the full cost of attendance. Loans for graduate school will be capped at $200,000 in total borrowing for those studying law and medicine, and $100,000 for other professional degrees.
The shift will leave a yawning gap between the cost of college and what families can pay. According to Boston-based startup Clasp, which facilitates loans in the health care field, students nationwide are facing a $6.85 billion shortfall in meeting the tuition bills this year.
Some specialists worry a number of prospective applicants, especially those from lower-income backgrounds or who are pursuing less remunerative degrees, may skip going to college altogether.
“The federal student loan program was designed to ensure access to college regardless of a family situation — wealth, race, ZIP codes,“ said Persis Yu, deputy executive director of the student loan advocacy group Protect Borrowers. “Some people are just going to be priced out of higher education altogether.”
The White House said the majority of graduate students will not run into difficulties with the new loan caps. Education undersecretary Nicholas Kent sees the changes overall as “durable policies” that will ultimately lower the cost of college at every level, from vocational training to PhDs.
The new limits are expected to prompt more families to turn to private lenders, experts said. But those loans tend to be come with higher interest rates and can be harder to access. More than one-third of graduate students may not be eligible for a private loan without a cosigner, given their credit histories, according to an analysis from the Federal Reserve Bank of Philadelphia in December.
It’s a stark shift after the last quarter-century, when government lending to students grew and grew. A raft of new loan options launched in the early 2000s, and more colleges supplemented federal loans with school-funded scholarships.
Yet, at the same time, tuition costs have ballooned by roughly 80 percent. There’s no sign schools are preparing to lower the sticker price of attendance, instead hopeful that wealthier students will shell out full-price.
Today, roughly two-thirds of students borrow at least some money for college.
Student debt became a political flashpoint during the COVID pandemic, when the Biden administration paused loan repayments and expanded initiatives to forgive the debts of many borrowers. But with the election of Trump to a second turn, the White House and a Republican-led Congress scaled back federal support for higher education, including changes to the college loan market that were part of the tax bill passed last year.
In Massachusetts, the caps on graduate loans will affect roughly 4,000 students, state figures show. In March, Governor Maura Healey warned that could drive some to take on more expensive loans, and also could worsen workforce shortages.
On campuses, financial aid officers are already handling a lot more questions.
At Boston College, Sean Sendall, assistant dean of graduate enrollment, student services, and financial aid said prospective nursing students are asking: “How am I going to pay for this? How do I find the funds for living expenses?”
Universities are trying to piece together solutions. Some — Yale University and Regis College, for example — are forging partnerships with private lenders, and others are considering “risk sharing” options, essentially cosigning private loans for students who might otherwise not qualify. (In this model, students pay the initial fees, while schools set aside money to cover borrowers in case of default.)
The University of Hawaii debuted a zero-interest loan program, similar to a low-cost loan initiative in New Jersey for students pursuing in-demand positions. This fall, the University of Kansas will tap its endowment to offer lower-interest loans to law students.
The Connecticut Higher Education Supplemental Loan Authority, a nonprofit lender affiliated with the state, hopes to provide $30 million in graduate loans for the next school year, although they will have stricter requirements than federal loans.
“We want to fill as much of the financing gap as we can,” said Josh Hurlock, deputy director of the Connecticut lender.
Tufts University is considering expanding a loan program for high-achieving international students in its graduate international relations program to include students from the United States. It loans up to $25,000 for tuition costs, funded by alumni donations. In other doctorate programs, the school arranges for employers to sponsor students in neuroscience, pharmacology, and three other fields.
“This is going to be an ongoing issue for all of us: the question of, how do we make our programs as affordable as possible?” said Tufts president Sunil Kumar.
Demand is also growing for startups such as Clasp, which arranges loans for health care students nearing graduation. The startup connects graduates to hospitals willing to pay up to $180,000 of student debt as an employee benefit.
“This way, the talent is getting meaningful financial support, and the employers are better off,” said Clasp founder Tess Michaels. “We don’t want people dropping out because of access.”
Massachusetts already has a no-interest loan program for up to $4,000 per year for residents and provides loan repayment assistance for teachers and early childhood educators. Since 2022, the state has doubled its financial aid contributions to college students. Yet, a recent report from the education policy nonprofit Hildreth Institute found Massachusetts would need to provide another $84 million to meet all the demand for assistance.
“Lower down the income ladder, you have higher levels of unmet need,” said Jeremy Thompson, the institute’s director of research. “This financial aid expansion is great, but it does not go far enough.”
For example, a student whose family earns $60,000 would have, on average, $10,000 in expenses — rent, books, food — that would not be covered by current levels of state assistance, Hildreth calculated.
Though many higher education advocates fear the consequences of the pullback in federal loans, there is some promise in alternative options.
Clasp, for instance, has garnered $130 million worth of student loan payment commitments from hospitals in Massachusetts and elsewhere, its founder Michaels said.
That’s helped students such as Brian Hopkins, who studied to be an X-ray technologist at Massachusetts Bay Community College. Last fall, Clasp connected him with Boston Children’s Hospital, which promised to hire him and pay his $36,000 in loans — six months before he even finished his program.
“I was going to have a 10-year plan with 6 percent interest,” said the 46-year-old Hopkins. “I had a lot of stress and worry about it. I had fear. I hadn’t had debt in 15 years.”
Under the arrangement through Clasp, Boston Children’s will pay $1,562.50 toward his loan each month.
It worked out for Hopkins, but he knows it might not for everyone. Undergraduates and debtors outside of health care are not currently eligible for assistance through Clasp.
“I know,” he said, “these student loans balloon on people so quick.”