Private student loans could make a comeback under the GOP's new bill
More Americans will likely need to borrow private student loans to pay for college and graduate school under reforms Republicans are moving forward on Capitol Hill — especially if they want to become doctors or lawyers.
GOP lawmakers are aiming to include a major shake-up of the federal student lending program in their party's marquee tax and budget bill, which they are piecing together in the House. Those changes include new lifetime loan limits that would have their biggest impact on students seeking professional degrees, according to an analysis by the Urban Institute, a Washington-based think tank.
'That's where you'll see more private loans and more private borrowing,' said Jason Delisle, an Urban Institute expert who authored the report.
Private loans have made up a relatively small share of new student debt ever since the 2008 financial crisis. Back then, the Wall Street crash wiped out a boomlet in subprime education lending by companies like Sallie Mae, which had been fueled by the same sorts of securitization that inflated the mortgage bubble.
Read more: What are private student loans?
Around the same time, a combination of looser borrowing limits and more generous repayment options began to make federal loans a vastly more appealing option to most students. Today, private loans make up just under 8% of America's $1.6 trillion student debt burden.
The GOP's proposal — known as the Student Success and Taxpayer Savings Plan — wouldn't necessarily lead to a massive surge in private loans. But it could force more students to consider them or find ways to borrow significantly less for their degrees.
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Say goodbye to Grad PLUS
One major reason: The Republican measure would put an end to the Grad PLUS loan program, which has allowed students seeking advanced degrees to borrow effectively unlimited amounts since it was created in 2006. Students would instead be allowed to take out up to $100,000 for graduate programs and $150,000 for professional programs like law and medicine.
Learn more: How to pay off your student loans quickly
Only about 13% of students who earned a master's degree in the 2019-2020 school year borrowed over the proposed $100,000 limit, according to Delisle's analysis. For professional students, though, it was a different story: Almost 39% of law students borrowed above the proposed $150,000 cap. The same was true for 75% of medical students and 62% of dentistry, pharmacy, and veterinary students. (Tuition averages about $59,000 annually at medical schools and $43,000 at law schools, according to the Education Data Initiative.)
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