The War on Graduate Students

on May 23, 2017

The president’s fiscal year 2018 budget proposal, released on May 23, 2017, continues the war on graduate students by making it more expensive to pay for graduate school. The war on graduate students deems it acceptable to cut financial aid and increase college costs for graduate students because they will be wealthier than undergraduate students and can afford to repay more student loan debt.

 

The latest salvo in this fight goes too far, forcing many graduate students into indentured servitude.

 

The war on graduate students began on October 22, 1986, when the Tax Reform Act of 1986 changed the exclusion from income for scholarships and fellowships to no longer apply to payments for teaching and research assistantships. Although the Technical and Miscellaneous Revenue Act of 1988 later restored an exclusion from income for tuition waivers for graduate student teaching and research assistantships, amounts paid for living stipends were still taxable, even if used to pay for tuition and textbooks.

 

When the Taxpayer Relief Act of 1997 created the Hope Scholarship and Lifetime Learning Tax Credits on August 5, 1997, it provided a more generous tax credit for undergraduate students than for graduate students. The Hope Scholarship Tax Credit and the American Opportunity Tax Credit, which generally are available to undergraduate students only, are more generous than the Lifetime Learning Tax Credit used by graduate students. (The American Recovery and Reinvestment Act of 2009 replaced the Hope Scholarship Tax Credit with the American Opportunity Tax Credit.)

 

The College Cost Reduction and Access Act of 2007 repealed the 20/220 rule on October 1, 2007. The 20/220 rule allowed borrowers to qualify for the economic hardship deferment when monthly loan payments under the standard 10-year repayment plan exceeded 20 percent of discretionary income, if discretionary income was less than 220 percent of the greater of the federal minimum wage and the poverty line for a family of two.

 

Medical school graduates relied on the 20/220 rule to qualify for the economic hardship deferment during their internship and residency, when they typically faced a debt-to-income ratio of 3:1 or more. More than two-thirds of medical school graduates have total student loan debt in the six figures. With such a high debt burden, the monthly payments on a standard 10-year repayment plan could be as much as 40 percent of gross income during the internship and residency. Medical school graduates were forced to use forbearances and income-driven repayment plans, since they couldn’t afford to repay their student loans on an intern’s salary.

 

The College Cost Reduction and Access Act of 2007 also reduced the interest rates on subsidized Federal Stafford Loans from 6.8 percent to 3.4 percent, but only for undergraduate students. Graduate students continued to be charged 6.8 percent.

 

The Budget Control Act of 2011 eliminated the subsidized Federal Stafford Loan for graduate students, effective July 1, 2012. Graduate students were then restricted to borrowing only unsubsidized Federal Stafford loans and Federal Grad PLUS loans.

 

The Bipartisan Student Loan Certainty Act of 2013 changed the interest rates on federal student loans, yielding interest rates that are 1.55 percentage points higher for Federal Stafford Loans to graduate students than to undergraduate students and 2.55 percentage points higher for Federal Grad PLUS loans.

 

On October 27, 2015, the U.S. Department of Education issued final regulations that established a Revised Pay-As-You-Earn Repayment Plan (REPAYER). REPAYER increases the repayment term from 20 years to 25 years for graduate students.

 

The president’s fiscal year 2018 budget proposal takes this further, increasing the repayment term on income-driven repayment plans, such as Pay-As-You-Earn Repayment (PAYER), from 20 years to 30 years, and increasing the monthly payment from 10 percent of discretionary income to 12.5 percent of discretionary income. That’s an 87.5 percent increase in borrowing costs for graduate students.

 

Moreover, a 30-year repayment term represents the majority of a graduate student’s work-life, since completing a graduate education can take as much as 10 years after undergraduate school, leaving only 30-35 years before retirement age. Although some graduate students may earn more than undergraduate students, they have a shorter work-life available to earn the higher income.

 

Not all graduate students earn more money than undergraduate students. Social workers, public school teachers, emergency medical technicians, public defenders, public librarians and employees of tax-exempt charitable organizations aren’t paid very well, despite their important contributions to society.

 

The president’s budget proposal also would eliminate public service loan forgiveness. This means that public servants would be forced into debt slavery, repaying their student loans for several decades because their income is insufficient to repay the debt.

 

Sure, a few wealthy doctors might qualify for partial loan forgiveness, but they represent a very small percentage of borrowers pursuing public service loan forgiveness. Such concerns can easily be addressed by adding a means test on public service loan forgiveness, not by eliminating the program entirely.

 

It is not surprising that a survey of 15,000 graduate students by the Council of Graduate Schools found that financial difficulty is a significant source of stress for graduate students.

 

Collateral damage from the war on graduate students includes not just the graduate students, but also occupations that serve the nation and national competitiveness.

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