Throwing Caps: A PROSPER Post 👩‍🎓👨‍🎓🎓

Hello again, it’s Adria, come to bring more legislative information regarding student loans. This post will be especially relevant to those of you who are working to pay off undergrad loans yet are still considering graduate school; but it will also be a good update for all of us tracking the PROSPER Act.

I will begin by drawing our attention to my somewhat cheesy title. In it I am alluding to two things: graduating caps (those material-covered square cardboard pieces attached to a swimmer’s cap-styled apparatus) and federal student loan caps (sorry, no snarky description for this one). The one is a lovely, goofy visual indicator that a student is soon to graduate—throwing off such a cap is a celebratory moment. The other is a complex, not-so-goofy monetary indicator that a federal loan can go only so far in providing a student with the financial support they may need. This cap is not being thrown off; the PROSPER Act, in fact, plans to put this cap in place for graduate students.

Did you note the word “complex” as the descriptor for loan caps? The cap amount is not the complex bit (it would be $28,500 a year). The complexity comes in with the discussion of the motivations behind this cap, whether or not it will achieve the desired effects, and what unintended effects might come of it.

Some of the main motivations behind this aspect of the Act are: minimizing taxpayer dollars, motivating the private sector to provide more student loans, and saving government money (see this positive perspective of PROSPER here).

It is difficult to predict a policy’s total effect. However, Justin Draeger, president and CEO of NASFAA, recently wrote an opinion piece for The Hill where he provides insight into what a loan cap might mean to taxpayers. He notes that cutting federal loans (whether through specific loan programs or by creating a borrowing cap), will likely lead to an overall loss of money. This counterintuitive fact is due to loans being an asset that, given interest and some fees, end up making money. So, this borrowing limit means less aid, at a cost (a calculation affirmed by the Congressional Budget Office, Draeger notes).

As to the private sector stepping up to provide for graduate students who need more than the new limit would provide, this hope does not have solid grounding, sadly. Christopher Chapmen, CEO and president of AccessLex Institute, predicts that private sectors are not likely to take up this new role of step-in-for-the-gov. Many private loan providers cannot afford the same risks the government’s enormity allows for. Additionally, they may be deterred by the long lag-time of people paying back their loans.

Backing up a step, we can all nod in agreement that more than $28,500 a year in graduate school loans is a big burden to carry. But to the person willing to take out such a loan for the sake of learning what they know they want (and for their desired career, what they need) to learn, is it right to say, “That is too much to borrow”? On the one hand, I admire how the PROSPER Act aims to explore ways to balance spendings, investments, and earnings. On the other hand, we ought to question a loan cap that is unlikely to truly save the government money while yet being likely to curtail the goals and aspirations of students aiming for the pricey but desired graduate school education. Full circle back to the cheesy title: Let’s encourage our politicians to throw the cap (remove the limit) so more graduate students can throw their caps. (Some puns are just too tempting, sorry.) Happy Tuesday everyone!

Quick and helpful way to respond to this: We have a pre-drafted email here for anyone who wants to send a message to a senator or congress member asking them to work against this federal student loan cap. Just sign your name and send it off. Let’s get our voices heard!

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