Why Americans Will Get Less Help Paying for College

From The New York [music] Times, I'm. Rachel Abrams and this is The Daily. Today, as the cost [music] of higher. education has soared in recent decades, universities have attracted more. scrutiny about the value [music] of a. four-year degree. Now, the Trump administration is taking. those questions to the next level with a. new set of policies [music] that scale. back the federal government's student. loan program.

Today, [music] I talked to my colleague. Ron Lieber, who writes about personal. finance, about what these new changes. are and how they might reshape higher. education in America. [music]. >> [music]. >> It's Wednesday, July 1st. So, Ron, we have talked a lot on the. show about how the administration has. really focused on higher education.

There have been concerns about. [clears throat] anti-Semitism on campus. The administration has accused a lot of. different schools of being as it. describes too woke. But, you cover personal finance and you. have been following a very different set. of developments when it comes to higher. education, which go into effect today, July 1st. So, tell us what has been. going on. >> Sure. So, the federal government put. into place some changes to the way it. lends money for higher education. I. mean, there's 1.7 trillion dollars in.

student loan debt and that's more than. credit card debt, it's more than auto. loans and you'll probably remember that. there was this giant pause in the. repayment of student loans. It happened. at the beginning of the pandemic, but it. went on for years. And since then, the. Trump administration has been trying to. revise the federal government's. repayment plans to make them a bit. stricter and some of those changes went. into effect today. So, that's going to.

be a big change for families who are in. the process of paying off student loans. But, there's an even bigger change that. the administration also put into place, which is that instead of focusing solely. on canceling student debt or changing up. the repayment plans, they are also. trying to reduce the amount of loans. that are given out in the first place. >> So, what specifically is the government. doing to try to achieve that goal?

>> So, two things are happening that just. went into effect. The first thing is. that there are going to be caps on. certain kinds of federal loans. First of. all, there's this thing called the PLUS. loan. Parents take that one out on. behalf of their undergraduate students. Grandparents sometimes do it, too. And. they do it when that student's financial. aid package, if any, is not enough to. cover the cost. >> Mhm.

>> And then there are the loans for. graduate students. And up until this. point, there have been very few limits. on the amount of money that you can. borrow. >> You borrow whatever you want. >> Up to the cost of attendance, which. includes room and board. You know, it. can be over a hundred thousand dollars. per year, right? And now parents are. only going to be able to borrow a. certain amount of money per year and a. certain amount of money over time. through the entire. process of completing a degree.

And then graduate students who are. borrowing for themselves are going to. have a different set of caps. >> And I I know that there are probably a. lot of nuances here, but just really. generally speaking, can you give us a. rough idea of what the caps are for grad. students and from the parents borrowing. for their undergrad children? >> Yeah, so let's start with those parents. The cap is $20,000. a year for those federal loans that. parents can get access to. And then the.

total limit over time might be 4 years, might be more, depending on how long the. kid takes to get through. That's $65,000. [snorts]. total. >> Which is not a whole lot if you consider. the fact that some universities charge. that just for 1 year of school. >> Right. So, now over to those grad. students. If you are in, you know, one. of those standard uh master's degree. programs or, you know, other programs. that are deemed non-professional, you're limited to $20,500. per year. And the aggregate total that.

you're allowed to borrow is $100,000. And then there are so-called. professional programs. So, those are. things like business school, dental. school, law school, medical school. They're limited to $50,000. a year and $200,000. over time. >> Got it. Okay. >> And we should note that there is ongoing. litigation over which of these graduate.

programs actually qualify as, quote-unquote, professional and. therefore would have that higher cap. where people could borrow more. >> So, basically, the idea from the. administration here is to keep students, keep parents from getting into situation. where they are borrowing, essentially, way more money than they can pay off. >> Right. It may seem counterintuitive to. think, "Hey, we're we're fixing the. problem of higher education being too. costly here by giving families less in.

federal loans to pay for the cost." But. I think the idea here is to provide more. guardrails to keep families from. overextending themselves, and then that. might drive down prices at least a bit. >> How so? >> Well, if parents and students can't. borrow as much, it may make it harder. for a lot of the schools to charge what. they're charging now. So, schools might. need to lower their prices to match. whatever it is that the families of the.

students can actually pay. >> Okay, so you told us that two major. buckets of changes were coming. What is. the second? >> So, the second big change, the. government has said that it does not. want to provide student loans anymore to. programs. whose alumni don't meet a minimum. earnings test. >> Okay, an earnings test. Explain what. that is and how it works. >> So, here's the basic deal. For people. who finish their undergraduate program,

there's going to be a measurement 4. years later. And those folks from a. particular program must on average earn. more than the people in their state who. only finished high school and are. between the ages of 25 and 34. So, the. basic bottom line is if you're not. earning more than a high school graduate. does on average, what has the school. done for you? >> And more to the point, why is the.

federal government subsidizing a degree. that doesn't put you in any better. financial position than a high school. student? Is that the idea? >> Exactly. So, this earnings test, it will. also be applied to advanced degrees and. professional schools. And in that case, the test is similar but with different. numbers. It will look at the earnings of. alumni 4 years after graduation to see. whether they earn more than the median. salary for working adults age 25 to 34.

who have a bachelor's degree. >> Can you give some examples of programs. that might fail this test? >> Well, I've been looking at a pretty. detailed data set of like over 30,000. undergraduate majors at all sorts of. different schools. So, undergraduate. religion degrees at a lot of schools may. end up flunking the test. A whole bunch. of fine art schools with particular. degrees and theater programs often end.

up at the bottom. Now, let's be clear. here. There are not going to be any. ramifications for any of this earning. stuff for at least 3 years because the. way the test is set up is that. if a particular institution and its. programs don't pass this earnings test. in two out of three years, only then will there be consequences. And those consequences will be no more.

access to federal student loans. So, the. programs may not cease to exist at that. point, but if a lot of people in those. programs are borrowing a fair amount of. money, those people are going to have to. figure out some other way to pay for it. And the school's probably going to have. to help them. >> So, we said at the beginning of this. conversation, it's no secret that the. administration has targeted higher. education in various ways. Like for. instance, they threatened to cut off or. did cut off hundreds of millions of.

dollars in federal funding to a bunch of. different universities over the last. year. And I wonder whether we should be. thinking of the changes that you are. describing as a kind of continuation of. that effort. Like in other words, how. much of everything you're describing is. political and how much is purely. financial? >> I don't know, Rachel. Let's call it 23%. political, >> [laughter]. >> right? If you look at the education department. fact sheet that's explaining the rules, it very specifically calls out schools.

like the University of Southern. California. in Los Angeles and New York University. in New York. I don't think it's a. coincidence that those institutions are. in big blue cities. >> Sure. >> But, there's been bipartisan consensus for a. really long time that the student loan. program is deeply problematic. >> Mhm. >> And the fact of the matter is is that, you know, these are taxpayer dollars. here. And whatever the president may.

think, whatever Congress may think, there are a growing number of people. who are really mad about the amount of. borrowing that is required to get this. higher education stuff. And they feel. like there ought to be a way to control. the price, right? And so, it's possible. that this is a medium-size step towards. changing things. >> I mean, the more you talk about this,

Ron, it actually seems kind of insane. that this country ever devised a system. where a family or a student could so. easily borrow tens of thousands of. dollars with basically no strings. attached. >> In retrospect, it seems that way, right? But, we're talking about decades of. history here that began with some very. good intentions. >> Okay, so let's rewind the clock then. Why don't you tell us about how all of. this got started and how we got to the. point where we're at today?

>> So, 1980, it begins to become clear that a growing. number of families were having trouble. affording the last couple of thousand. dollars each year for tuition, room, and. board. Now, let's remember, at the time, there weren't as many people going to. college. There weren't as many. low-income people going to college, right? And the federal government felt. like, "Well, okay, if it's just a couple. thousand dollars a year, no big deal, right? We don't need to necessarily put.

a cap on the amount that people are. borrowing and we also don't really need. to do all that much underwriting because. these folks are decent credit risks and. it's not a high volume of people and. it's not a high volume of dollars. >> Right. So the sort of vetting that. typically happens, underwriting, when. somebody borrows thousands and thousands. of dollars, like making sure you can pay. it back or you have a good credit score. or whatever, you're saying that the. federal government was not doing much of. that.

>> That's correct. So flash forward another. 25 years or so, we're in 2005, 2006 and. the federal government opens those loans. to graduate students. And again, big. idea here is well, these are people. getting master's degrees, they're. getting professional degrees. These. people are really good risks as well. because. >> going to earn more. >> Surely they're going to earn more, right? And so there too, there didn't seem to. be any need for any severe restrictions.

>> But as time went on, a few problems. began to emerge. So first, there are more and more people. who are borrowing through these loan. programs who are not necessarily the. higher income earners that the. government originally created some of. these programs for. There are more. middle-income families, working class. families using those parent loans.

because more and more people start going. to college. And then. >> The Dow tumbled more than 500 points. after two. >> It's 2008, 2009, the Great Recession. comes along and these borrowers start. running into some trouble. >> Student loans for college just keep. climbing. >> No one expected the economy to take such. a hit, leaving a lot of families. scrambling. >> People are losing jobs and they cannot. afford to make their payments. >> I'm currently making six loan payments.

every month, which essentially add up to. a full mortgage payment, and. I was recently laid off, so. >> And that's just a terrible look for the. federal government. This is bad. And so. the other thing that's happening here is. as more and more people do borrow, more. questions emerge about whether all of. this debt is actually fueling rising. prices that people are paying to go to. these institutions, and there begins to.

be some evidence that suggests that. maybe those two things are [music]. connected. >> Student loan debt has now surpassed. credit card debt for the first time. ever. >> And so 2011 rolls around, and the Obama. administration takes a look at all this. and says, "Hey, um we need to try and. rein this system in a bit, right? So. that we have more certainty that the. people who are borrowing can actually.

afford to pay the debt back over time.". >> Mhm. >> When a big chunk of every paycheck goes. towards student loans instead of being. spent on other things, that's not just. tough for middle-class families, it's. painful for the economy, and it's. >> And so his administration tightened the. underwriting, and within a year or two, a whole bunch of institutions, including. some historically black colleges and. universities, were on the brink of going. out of business.

>> Wow. >> Their borrowers were disproportionately. affected here because they were. borrowing a lot from this federal parent. loan program, and once they no longer. qualified for new loans, they could no. longer afford those institutions. >> So what did the administration do? >> They did what they felt like they had to. do, and by 2014, they had essentially reversed the. changes that they made, and kind of made.

things go back to where they were. before. And so, borrowing kept going up. And part of the reason it did so is. because some of the universities. themselves were gaming [music] the. system. >> We'll be right back. So, Ron, we're at the moment in the. story where the federal government has. tried and failed put some kind of.

guardrails around education lending. But, as you said, the problem kept. getting worse. What's going on? >> So, a couple of things are happening. First of all, the schools and their. strategy consultants are realizing that. master's degree programs can be pretty. profitable, right? If there no labs. involved, or, you know, any expensive. infrastructure on behalf of the schools, you can charge a lot of money if you can. persuade students that their earnings. will go up at the conclusion. And.

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Happiness Studies. >> So, Robert Kelchen, you know, he's one. of the most respected higher education. researchers out there. He took a look at this and realized that. there were 14,000. new master's degree programs that had. been created in the last two decades. leading up to the middle of this decade. >> So, the schools are really leaning into. this, and it sounds like it is turning. into quite a gravy train for them.

>> Exactly, right? And if people feel like. these programs, and the vast majority of. them were almost certainly marketed this. way, if people feel like these programs. are going to help them advance in their. career, there going to be enough people. who are willing to borrow a bunch of. money from the federal government and. essentially take the risk that their. earnings are going to go up after. they're done. >> And do we have any sense of how much. this growth in master's programs was. actually benefiting students? Like, were.

these programs actually helping to. supercharge what they would earn once. they graduated, for example? >> Yeah, so the data back then wasn't as. granular or widespread as what we have. today, but there was definitely. suspicion that at least some, and and. and maybe a growing number of those. master's programs, weren't really doing. the job of helping people increase. their, you know, financial and earnings. prospects. But even for those programs that may not. have been supercharging people's.

earnings, the universities started to. find what became kind of a workaround. for them, and that was the public. service loan forgiveness program. So, that was created in the 2000s, and in. that program, if you go to work for a. nonprofit or the government, what. happens there is that if you do that job. for 10 years, the federal government. will waive the rest of your student loan. balance entirely once that period is. over. >> They forgive it.

>> It cancels that loan balance altogether. And so, schools, they kind of start to. get wise to this, and you start to see. examples of those schools really. encouraging students to make use of that. public service loan forgiveness program. And that encourages people to sort of. compartmentalize. how much they're taking out, right? What. the dollar amount will actually end up. being at the end because the debt just. gets canceled in 10 years, right?

>> Mhm. >> But it's worth noting here that it does. not always go well for those students. Sometimes they figure out years down the. road that they actually didn't. understand how the program worked or. they were doing it wrong because they. got bad advice. Maybe their job did not. qualify or they didn't do the. certification process correctly. There's. a lot of paperwork here. Or maybe they. go into some kind of public service job. and they hate it and they're either. stuck staying there in some kind of job.

that qualifies for 10 years in order to. cancel the debt or they don't do that, they go take a different job that. doesn't qualify and then they're stuck. paying back a whole bunch of money. >> Mhm. >> And while borrowers are not blameless, we have a systemic problem here with. helping people understand the complexity. that exists in America around money. So, it's not really leading to great.

outcomes. >> I wonder if you could give us an example. or two of an individual person that. stands out to you who has run into some. kind of trouble like what we are talking. about. >> So, the person I've written about more. than anyone else in the pages of the New. York Times is a guy named Jed Shafer who. we refer to internally as sort of the. patron saint of lost student loan. causes. >> This is a guy who works with high school. dropouts, some of them homeless, and. sets them up in a program where they.

learn life skills and get their GED. >> So, the exact type of job that might. qualify for one of these public service. loan forgiveness programs. >> Right. So, Jed got a master's degree so. that he could do this work. He borrowed. a bunch of money and he thought he was. doing the repayment correctly in order. to get to the point where the loans. would be wiped away through one of these. federal programs and it turns out it was. a whole mess. >> Mhm. >> Now, eventually he got it sorted out,

but if he had not, he would still be. making large payments each month. I. think to this day. And. he'd be making those large payments at. the same time that he was getting ready. to send his own kids to college. I don't. think that's what anybody had in mind 30. or 40 years ago when we set all of these. loan programs up in the first place. >> And so, between the growth in master's.

programs and the schools basically. encouraging teenagers, young people to. throw caution to the wind, take out. these enormous loans, the problem has. only gotten worse since the Obama. administration tried to tackle it, right? And that brings us to this moment that. we are currently in where the Trump. administration is trying something new. with these caps on loans and the. earnings test for these different. programs. >> That's right. >> Ron, you talk to university. administrators all the time for your. reporting about the cost of college. tuition specifically, etc., etc. And I'm.

curious what you were hearing from them. in this moment because I would imagine. that they are not happy about some of. these new changes coming from the. administration. >> Nobody wants the constraints on the. market and the pool of available tuition. dollars. And in fact, some of the. professional schools in particular have. pushed back. and made equity arguments, right? They're saying that people with low. incomes who are confronted with loan.

caps and are sort of foisted into other. marketplaces for, you know, private. student loans from a bank or Sallie Mae. or whatever, maybe they won't qualify. depending on their program or depending. on their credit or depending on their. age, and we may lose a whole bunch of. people who we would have actually really. liked to be clinical psychologists or. doctors or lawyers, and that's one of. the risks here. >> But what do they say about the question.

about how much responsibility they bear. for their alumni who might not be. doctors or might not be clinical. psychologists, for people that maybe. don't have the obvious earning potential. of those types of professional degrees, what do they say they view as their. responsibility to be tethered to a. student's earning potential and frankly. the outside world? >> They try to say as little as possible, and when backed into a corner, they say, "Look, we don't force people to take on. debt. The federal student loan program.

is available for a reason. This is a. matter of public policy, and we are. making this education available to them. at the price that we think is. appropriate.". >> I do want to ask Ron because you said. earlier that the goal of all of these. new efforts is to try to rein in the. cost of college, right? And also to make. sure the college actually provides a. return on this enormous investment that. some people are making. Given the history that you've laid out. here, and also given how long-standing.

and complicated and intractable some of. these problems have been, do you think. there's any chance that these new. policies being implemented by the. administration could fix those problems? >> It depends on how things play out. because there are many things that might. happen here, right? Schools could just. cut tuition right away. They could offer. more in in way of financial aid, so, you. know, grants or scholarships that are. really just coupons. And you know, that.

brings the net cost down to the student, but it doesn't lower the list price. necessarily. Some schools might rely on. the private student loan market. They. might even get into bed with one of. these lenders and say, "Hey, we'll. guarantee the loans on the back end. because we think our students are. amazing credit risks." More people might. just go to cheaper schools, right? And. then there is the unintended consequence. potentially, right? Which is that a not.

small number of people just give up, throw up their hands, and they say, "I'm. not going to go at all.". >> [snorts]. >> I do wonder if there's another way of. looking at this though, which is as a. long overdue course correction. Like. shuttering programs or schools or. departments or whatever that might only. exist because there was money there to. fuel them and not necessarily because. they serve the students or civic. society. It could also maybe redirect some. students who might be better served by.

not going to school. So, I just kind of. wonder like how you are weighing all of. this and how you are thinking about sort. of the net benefits and the net. consequences. >> I am rooting for. people to become way more informed about. the data that exists now around what. you'll earn if you get a particular. major or what you'll earn if you go to. particular graduate degree program. I'm. not saying that we need to put all the.

PhD programs in history out of business. or that, you know, private universities. should stop offering, you know, expensive master's degrees in social. work. But what I am saying is that everybody. who's shopping for higher education. deserves. way better answers and way more data. when they come to the institutions with. questions. about why this costs more than that. competing institution down the street by.

20 or 30 thousand dollars a year or why. this master's degree that did not exist. five years ago. actually offers me something that will. make me smarter, that will build my. network, and that will advance my. career. When there's a change in public policy. that alters the marketplace, it's an. opportunity for consumers to pause and. say, "Huh, there's a change that's happened here. It's supposed to be for my benefit. What.

[music] questions am I not asking that. could make me more informed?". >> You are rooting for more transparency. and for people to be having more honest. conversations about what the value of. going to school is. >> Yes, please talk more, ask better. questions. We are entitled to better. answers to these questions from the. institutions. >> Ron Lieber, thank you so much. >> Thank you.

>> We'll be right back. Here's what else you need to know today. >> [music]. >> In separate decisions on Tuesday, the. Supreme Court dealt a blow to the Trump. administration's [music] attempt to end. birthright citizenship and handed.

Republicans a victory [music] in their. fight against federal campaign spending. limits. In the latter [music] case, the court. ruled the current federal limits on. coordinated spending violated the First. Amendment. In dissent, >> [music]. >> Justice Elena Kagan wrote that the. ruling effectively allowed a party to. act as a candidate's quote checking. account. In the birthright [music] citizenship. case, the court reaffirmed the long-held. principle that nearly all children who. are born [music] on US soil are American. citizens.

The president had issued an executive. order aimed at preventing babies born to. undocumented [music]. immigrants and temporary foreign. residents from automatically becoming. citizens, but the court ruled that the order had. violated the 14th [music] Amendment. Today's episode was [music] produced by. Olivia Nat, Adrian Hurst, Diana Wynn, and Ricky Nvetsky. It was edited by Rob Zipko [music] and. Lisa Chow, and contains music by Maryan Lozano and. Diane Wong. [music]. Our theme music is by Wonderly, and this.

episode was engineered by Chris Wood. >> [music]. [music]. >> That's it for The Daily. I'm Rachel. Abrams. See you tomorrow. [music].