Connecticut Democrats pitch plan for state-level graduate loan program

Dive Brief:

Democratic leaders in Connecticut are proposing a new state graduate student loan program to fill a vacuum created by the federal lending pullback built into Republicans’ massive spending bill. 
That plan would expand the reach of the Connecticut Higher Education Supplemental Loan Authority, using up to $20 million of its funds to create the loan program, according to a press release. It also calls for $10 million in state funding. 
The program could reach over 2,000 students in its initial phase, a CHESLA official said at a press conference Wednesday. The chairs of the General Assembly’s education committee plan to introduce and push for the proposal in the upcoming session.

Dive Insight:

The federal bill set to take effect in July, dubbed the One Big Beautiful Bill Act, will bring sweeping changes to the federal student loan system, with the largest impacts landing on graduate students and programs. 

The new law sunsets the Grad PLUS loan program, which allows graduate students to borrow up to the cost of attendance. When it launched 20 years ago, Grad PLUS was the largest new student aid program in decades. 

Along with the program’s end, OBBBA sets new caps on annual and total borrowing. Federal loans will max out at $100,000 for graduate students and double that for professional students.

Just who is considered a graduate or professional student is no small financial matter, and one that regulators are mulling. The U.S. Department of Education plans to propose regulations that would exclude some health professions — including nursing, occupational therapy and physician associates — from the definition of “professional” that carries a higher loan cap. 

Much uncertainty hangs over the federal loan changes and could put pressure on states to engineer their own solutions, as Connecticut is considering. 

“We can ensure that students have the ability to become a doctor or scientist or a nurse or an educator and have their career choice determined by their drive and their talent — not the size of their bank account,” Rep. Gregg Haddad, co-chair of the state House’s Higher Education and Employment Advancement Committee, said at a press conference Wednesday. 

Haddad and others estimate Connecticut graduate students currently receive $90 million in Grad PLUS loans, leaving a large financing gap in the state once the program ends. 

The plan to create a state-level loan program would use CHESLA’s existing infrastructure and bond authority, while state funding could make loans more affordable, said Josh Hurlock, deputy director of CHESLA, at the press conference. 

“The plan is not to just replace the Grad PLUS program,” Hurlock said. “The goal is to provide a more affordable financing option for Connecticut graduate students.” 

Democrats control both chambers of Connecticut’s legislature as well as the state’s executive branch. 

Where states don’t create their own lending programs, graduate students could be forced into the private lending market to make up shortfalls in federal loans. 

Currently, private lenders play a “minimal” role in the market, researchers with the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute said in a recent analysis. 

The study found that 28% of graduate student borrowers in recent years took out loans over the cap levels set by OBBBA. Of those, 38% had either subprime credit scores or no score at all, meaning they would struggle to borrow in the private sector without a co-signer. 

Those students could also face higher interest rates and less generous terms from private lenders compared to loans from the federal government, the researchers pointed out. 

Connecticut officials alluded to this possibility when announcing their proposal. 

“These arbitrary ceilings do not reflect the reality of rising tuition, and they’ll force students to turn to a predatory private market for lenders that will impose higher interest rates with fewer protections,” Haddad said.