The U.S. Department of Education announced Thursday that it has finalized rules to to help stop colleges and universities from charging exorbitant amounts in tuition, paid for by taxpayers.
“For 20 years, colleges and universities have been able to charge virtually unlimited tuition for their programs, despite the fact that many graduates see very little or no return on investment, the results of this decades long policy on American graduates are staggering,” Nicholas Kent, Under Secretary of Education, said on a press call Thursday. “American families live within their means, and it’s time for colleges and universities to do the same.”
It has been a decades-long reality that colleges and universities have increased their tuition costs knowing Department of Education loans — funded by the American taxpayer, regardless of their education status — will foot the bill. Meanwhile, students are stuck for years with mountains of debt and a degree that does not yield jobs that pay a sufficient amount to justify the debt.
The current student loan portfolio under the Department of Education is $1.7 trillion, and it is estimated that fewer than 40 percent of borrowers are in repayment, while nearly 25 percent are in default.
College loans have skyrocketed 343 percent since 2005, and tuition has “increased faster than any other household expense,” Kent said. According to the department, 71 percent of college graduates delay major life milestones, like buying a home, because of student loan debt. While graduate students hold over one-third of student loan debt, 40 percent of master’s programs have a negative return on investment.
Meanwhile, colleges and universities “raked in billions of dollars at the expense of students and taxpayers over the past 20 years, and today, that era is over,” Kent said.
The final rule, set to take effect July 1, has four primary provisions, including borrowing caps for graduate and professional students. The department is eliminating the Grad PLUS program, which allowed graduate and professional students to borrow up to the full cost of attendance.
Graduate students will be limited to an annual cap of $20,500, with a lifetime cap of $100,000, while professional students will have an annual cap of $50,000 and a lifetime cap of $200,000.
The rules also alter the definition of “professional” degrees to pharmacy, dentistry, veterinary medicine, chiropractic, law, medicine, optometry, osteopathic medicine, podiatry, theology, and clinical psychology.
Some programs, like postgraduate nursing, are no longer eligible.
“These definitions and our final rules serve as a loan administration function. They identify borrower categories for solely the purposes of obtaining the higher loan limits for direct loan purposes,” Kent said. “They do not express the department’s value judgment about the importance of any particular occupation or field.”
“We feel that nurses, we feel that police officers, firefighters, we believe that all of these professions are professional in nature,” he added. “We need them in our society, but we value them so much that we do not want them taking on unmanageable debt that they’re not able to repay.”
Parent PLUS loans, which currently allow parents to borrow up to the full cost of attendance for their child, are now being capped to $20,000 per year, and an aggregate cap of $65,000 per dependent.
The final rule also allows institutions to create their own loan caps, per program, that “match the true value of their academic programs, preventing their students from overborrowing in programs with lower earnings or higher default rates,” the department said, noting that it is a “reform that was long urged by financial aid administrators.”
That portion of the rule seems to be in line with proposed rulemaking announced earlier in April. The department said it would stop taxpayer-funded student loans for college programs that do not meet minimum post-graduation salary requirements, as The Federalist reported. In some cases, programs will also lose Pell Grants. That rulemaking is also set to take effect in July, after a public comment period.
The final rules announced Thursday also streamline loan repayment with a two options: a Tiered Standard plan and the Repayment Assistance Plan. All previous repayment plans are being replaced under the new rules, including income-driven plans.
New “income-based” plans are “designed to benefit borrowers by allowing their payments to adjust based on income and family size, meaning borrowers pay more during years when their income is higher and less during years that their income is lower,” the department says.
The Repayment Assistance Plan “avoids unfairly penalizing married borrowers by prorating monthly payment amounts. Without proration, each spouse’s payment would increase based on the other spouse’s income, effectively double-counting that income and resulting in substantially higher payments for both borrowers,” the department adds.
“President Trump’s Working Families Tax Cuts Act addresses longstanding challenges in higher education and federal student lending, including exorbitant tuition costs, unchecked borrowing, and a confusing maze of repayment options that too often leave borrowers with higher balances despite making payments,” Kent said in a press release. “This final rule will help ensure students can access higher education without racking up excessive loan debt, offer repayment options that better serve borrowers, and force institutions to reduce costs.”
