Will ending Grad PLUS cut graduate tuition costs?

A plan to shut down Grad PLUS on July 1 is designed to curb graduate tuition by tightening federal borrowing. But economists and higher-education researchers say the connection between student aid and what colleges charge is far from straightforward—and that s

On a Tuesday in May, Education Secretary McMahon told the House education committee that college costs are “exorbitant” and that students are “burdened with debt.” The call was urgent and direct: “We really have to do something to bring down the cost of college.”

Republicans have moved quickly toward that goal. Using last year’s One Big Beautiful Bill Act, they scuttled the program known as Grad PLUS and limited graduate loans, betting that borrowers will choose cheaper programs and that expensive schools will cut prices to stay competitive.

The problem is timing—and the economics. Many economists aren’t convinced the math will play out the way the policy makers expect. Some say graduate borrowing limits could pressure tuition over time. Others warn the change could simply change where students go, or even whether they can enroll at all.

The argument traces back almost four decades, to Feb. 18. 1987. when then-Education Secretary William Bennett—under President Ronald Reagan—published a scathing opinion piece for The New York Times titled “Our Greedy Colleges.” Bennett took aim at colleges whose tuition hikes outpaced inflation. and he argued that increases in federal student aid had allowed schools to raise tuitions “blithely. ” confident federal loan subsidies would cushion the increase.

Economists later gave that idea a name: “The Bennett Hypothesis.” Phillip Levine, a professor of economics at Wellesley College, describes it this way: “The Bennett Hypothesis essentially says that, if you provide greater federal aid to schools, they will respond by increasing the price.”

Almost 40 years later, Republicans are dusting off that hypothesis to justify “severe limits” on student borrowing—particularly in graduate school, where the tuition pressures feel most explosive.

Undergraduate tuition is a different story. According to Levine, the net price for undergraduate programs—what families actually pay—has been pretty stagnant lately. Preston Cooper. who studies higher education policy at the conservative-leaning American Enterprise Institute (AEI). says that for at least the last five years. “college costs have actually been fairly flat.”.

Graduate school is where the strain shows. Robert Kelchen. a professor of higher education at the University of Tennessee. Knoxville. says the shape of borrowing has shifted: “We’re at a point where almost half of the borrowing right now is among graduate students. despite them being a much smaller share of the overall population.”.

That is where Grad PLUS comes in. The Trump administration plans to shut down Grad PLUS on July 1. For two decades, it has functioned as an add-on to the traditional loan program, allowing graduate students to borrow effectively as much as they needed—no limits or guardrails.

Cooper argues that this “uncapped” system helped schools raise graduate prices by removing the risk. “Up to this time. it has been a very easy answer [for schools] to basically increase revenues a little bit every year by just raising the cost of graduate school tuition because they know that the federal government is going to have to give their students a loan for those extra costs.”.

But when researchers tried to test that logic, the picture came back mixed.

Denning. an economist and professor at the University of Texas at Austin. says “Having essentially uncapped loans. I think. is not a great policy.” Denning was part of a team that studied Grad PLUS in Texas. Their goal was to see whether the “suddenly limitless font” of Grad PLUS loans that began in 2006 contributed to graduate programs hiking their prices.

The short answer from the study they produced: yes. They wrote that for every additional dollar students received in loans, graduate schools increased their prices by $0.64 after accounting for grants they gave out.

That estimate is the kind policymakers seize on. Republicans cite it to argue that if schools raised prices nearly as much as federal aid increased, then cutting aid should lower prices.

Yet Kelchen says the direct link doesn’t show up neatly in all settings. “I did not find evidence” of a direct connection between federal aid and prices, he says, including in research on business, medical and law schools.

Even Denning, when asked if the Bennett Hypothesis is true, says “it depends.” He points to “some evidence that this happens in certain circumstances,” alongside “evidence that it doesn’t.”

Kelchen ties the uncertainty to who is running the program. He calls the Bennett Hypothesis “a logical conclusion” “if you think that these graduate programs are massive profit centers.” Some are, he says. Some aren’t.

Medical school, for instance, is “wildly unprofitable,” Kelchen says. He adds that it can take “a million dollars of resources to produce one medical degree,” meaning that limiting borrowing might not reduce that underlying cost.

Overall, he says evidence backing the Bennett Hypothesis “is largely mixed.”

Levine offers a different explanation for why tuition rises even when federal aid rules change. Much of the growth in higher education costs over the years, he says, is attributable to a phenomenon known as “cost disease.”

In his account, most businesses gain efficiency over time, helping control costs while wages rise elsewhere. Higher education does not follow that pattern. “Since wages rise elsewhere, colleges need to keep pace to attract workers who could work elsewhere. In the end, costs rise to produce exactly the same product.”.

Even among economists who believe the price-aid connection is real in some circumstances, there is shared agreement on one point: the policy design of Grad PLUS was flawed.

Sandy Baum. a senior fellow at the Urban Institute. says there was “broad consensus that the idea of letting graduate students borrow basically infinite amounts of money was not a good idea.” But she remains skeptical of the Bennett Hypothesis as a universal explanation. “There’s been lots of study of what causes increases in college prices and of the effects of increases in student aid. ” Baum says. “And most of them find that in some cases… in particular for-profit institutions, it’s true. But mostly it’s not true.”.

Instead, Baum argues price hikes have been driven by multiple pressures: “cost disease” and student loans, but also rising costs of insurance, technology, and “the cost of living.”

If the borrowing limits work, what will they change first? That’s where expectations diverge.

AEI’s Cooper agrees with ending Grad PLUS, but doesn’t expect immediate relief. “I don’t want to promise that, in the first year, everybody’s going to slash their costs, and, you know, it’s gonna be great,” he says. “But I do think that this is going to create some pressure [on prices] over time.”

Kelchen’s expectations are smaller. He says he expects “at most, a small decrease in tuition as students may become a bit more price-sensitive and shop institutions a little bit more.”

Levine thinks dramatic cuts are unlikely. “Is it conceivable that it could contribute to some small change in graduate student pricing? Maybe. … Colleges don’t just make up their prices. Colleges have costs, and it has to be the case that the revenue that they generate covers their costs.”

Denning. who found the clearest evidence of a connection between federal loans and college prices in his study. doesn’t predict a simple reversal. Asked about the new loan limits driving price cuts, he says, “It certainly is possible. I’m not sure if it will happen. I do not have a crystal ball. I wish I did.”.

He adds that it’s also hard to predict how students will respond. A large reduction in federal aid could push students toward cheaper programs—or it could drive them into private borrowing. Denning points out that although the new loan limits are roughly the same as they were in 2006. “they’re actually ‘much lower’ because they don’t account for two decades of inflation.”.

Baum puts it more bluntly: “We needed loan limits,” she says, “but these limits are extreme.” She predicts tuition will not simply collapse. “It’s not like prices are gonna plummet. They might rise more slowly.”

But one risk is getting lost in the discussion about tuition rates: who will be able to enroll at all. Baum worries the limits arrive so suddenly that some students could be priced out of graduate school.

That concern lands with additional force in the argument made by Dominique Baker. an associate professor of education and public policy at the University of Delaware. Baker says there is “really robust evidence on what happens when we reduce access to financial aid. ” adding that students “stop enrolling.”.

Baker emphasizes that it may hit lower-income students especially hard—particularly those without the kind of credit history needed to qualify for private student loans.

Recent analyses suggest these new limits will affect roughly 30% of graduate borrowers.

In her testimony before lawmakers. Education Secretary McMahon repeatedly said that some graduate schools have already lowered their prices ahead of the big change. She did not offer a national list on the spot; instead. NPR followed up with the Education Department to get a list of those programs. some offering discounts through new scholarships. The programs named are:.

Borrowers likely hope this short list gets longer—and fast.

For students. the question is less about theories than about the month ahead: Grad PLUS is set to end on July 1. and the policy’s promise—cheaper tuition in exchange for tighter borrowing—will hinge on what schools do when the federal funding channel narrows. and what students can realistically do when options shrink.

Grad PLUS student loans graduate tuition Bennett Hypothesis higher education policy cost disease McMahon American Enterprise Institute Urban Institute