New Cap on Student Loan Borrowing Proposed

Inside Subprime: March 25, 2019

By Lindsay Frankel

Last week, President Donald Trump and Education Secretary Betsy DeVos asked Congress to place limits on the amount students can borrow for college. The proposal was one of several suggested updates for the Higher Education Act, which was last reauthorized in 2008.

While the proposed cap is designed to curb exorbitant tuition rates and to “encourage responsible borrowing,” according to a senior administration official, experts are worried that the limits would exacerbate inequality in educational opportunities between wealthy and working-class families. The announcement comes at the heels of the recent college admissions scandal, which highlighted that families of means are willing to invest huge amounts of money in their children’s educational futures, and that some are even willing to commit fraud. That’s on top of extensive research that shows gaps in opportunity and performance based on socioeconomic status.

Currently, students can borrow up to $57,500 in total, and there are no limits to what parents can borrow on behalf of their dependents. The proposal didn’t state what the new cap would be, which was cause for concern for higher education experts. Some worry that the new limits may mirror a bill proposed by Republican Rep. Virginia Foxx last year, which would have limited loan amounts for parents to $12,500 annually.

“Some reasonable cap on borrowing definitely makes sense but capping it too low would mean that the private market would have to fill in the gap,” New America higher ed expert Clare McCann said. “That has implications for equity and access for those students.”

Seton Hall college finance expert Robert Kelchen told MarketWatch that the proposed cap would “disproportionately affect students who can’t get private loans.” That’s because low-income families with poor credit histories may not be able to access additional credit, effectively putting a college education out of reach. And those that manage to get private loans may be subject to predatory interest rates that put a greater burden on low-income families.

McCann also noted that while a reasonable limit on student loans might encourage for-profit undergraduate programs to lower their tuition costs, it wouldn’t do anything to help students seeking undergraduate degrees at public universities. A better solution, McCann said, would be more federal funding for state schools.

Democrats have long criticized the Trump administration for actions that seek to benefit for-profit educational institutions while harming students. Betsy DeVos tried to block an Obama-era rule that was created to forgive student loan debt for borrowers that have been misled by for-profit colleges. Because of a court order, the rule was still implemented.

Some experts are calling for an entirely new system instead of Trump’s proposal, one that would allow students to attend college without paying a cent. “We have to remember why the student loan system get created: So everyone could go to college, not just the rich,” Student Debt Crisis executive director Natalia Abrams told ThinkProgress. “I fear we’re going back to that system where it’s a two-tiered system where only people of means can go to college.”

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