Why Colleges Are Finally Slashing the Federal Loan Scam
Reporting tuition cuts as reform, but focusing on the correction and not the crime. Universities are finally forced to cut prices after a decade of loan-fueled graft, triggered by last year’s tax bill capping federal loans for graduate students.
The University of California, Irvine, this month said it will reduce tuition for its MBA program by $30,000 to $99,000. “The Merage Flex MBA’s new tuition falls below the federal loan cap of $100,000, removing a critical financial barrier for working professionals across Southern California and beyond,” the university said. It boasted that its “MBA is priced within reach of government loan limits—making a world-class degree not just aspirational, but truly attainable.” The university treats a forced retreat from predatory pricing as a charitable concession to working professionals, spinning necessity into virtue.
You have to love how the university spins victimhood out of necessity. The GOP tax bill last year capped the aggregate federal debt that graduate students can take out at $100,000, and $200,000 for professional degrees like law and medicine. Previously, grad students could borrow an unlimited amount. Before that cap, graduate programs ran an unlimited federal loan spigot, turning students into revenue streams and taxpayers into insurers of last resort.
As a result, many grads took out mortgage-sized debts to pursue pricy degrees, many of which don’t pay off in future income. The Education Department this month said New York University offers a “master’s degree in film and video studies where students who take on federal loans leave with $168,000 in debt on average but earn just $47,000.” That is not an education market; that is a federal loan subsidy masquerading as academic programming—a scam funded by the public.
Struggling borrowers would then enroll in the Obama and Biden loan forgiveness plan in which the feds wrote off one-third of debt. Graduate programs became cash cows for universities, which raised prices to take advantage of the open spigot of federal loans. Graduate programs turned student debt into cash cows for university administrators, who jacked prices to exploit the open spigot of federal loans. It was looting dressed as tuition.
A 2023 study in the National Bureau of Economic Research found that the 2006 law that uncapped federal borrowing for graduate programs didn’t improve access or degree attainment. Colleges merely raised tuition to capture more federal loans. “Sticker prices went up approximately dollar for dollar with increases in federal loans,” the economists found. The tuition hike was not an investment in education; it was a direct pass-through of taxpayer risk into administrative bloat. The math proves it was graft.
The new loan cap is increasing pressure on universities to cut prices and offer more financial aid. While graduate students can still take out private loans to pay for their degrees, they carry higher interests rates and come with stricter underwriting. Unlike federal loans, borrowers can’t get them discharged via special repayment programs. The new cap is forcing universities to stop relying on taxpayer-backed insurance policies and expose themselves to the very market realities they evaded for a generation.
All of this reinforces that universities respond to government incentives like any business. For too long those incentives encouraged colleges to raise prices and bury students in debt. One of the 2025 tax bill’s overlooked benefits is that it will impose a modicum of financial discipline in higher ed. All of this reinforces that universities respond to government incentives like any business. One of the 2025 tax bill’s overlooked benefits is that it will impose a modicum of financial discipline on an industry that spent a decade looting federal loan programs and calling the theft philanthropy.
— The Main Street Independent Editorial Board