How Trump’s HE policies are hamstringing economic growth

There is much uncertainty about how the new federal provisions limiting loans for graduate education in the United States will play out this coming fall.

The consensus is that it will depress enrolment demand in graduate education and professional schools in particular, like medicine and business. In turn, this is already creating significant financial problems for universities.

United States President Donald Trump’s erroneously titled One Big Beautiful Bill Act, signed into law on 4 July 2025, set new federal loan caps for graduate students with the hope it will pressure schools to reduce tuition fees.

Many critics of federal financial aid policies related to graduate education have acknowledged the need to limit borrowing but argue that these new limits are too extreme and typical of the Trump administration – abrupt and without much thought given to the consequences.

With the new limits on borrowing and other restrictions, new students who do choose to enrol in high-tuition programmes will need to seek additional loans in the more expensive private sector. Many may not be able to secure loans. Private lenders are far more selective than the federal government about whom they will lend to.

Surveys show that many prospective graduate students don’t know about these major changes to the Grad PLUS loan programme or are just starting to comprehend what it will mean financially for them.

There is also debate, and a lawsuit, over what constitutes a professional degree – a designation that determines whether students can borrow up to US$50,000 a year or face a sharply lower US$20,500 cap.

The Department of Education (DoE) originally listed only 11 qualifying programmes so far. As a result, students in fields like social welfare, nursing or public health will not be eligible for the higher, US$50,000 federal loan cap.

But, in reaction to a court order, last Monday the DoE expanded the list to 29 programmes, including three nursing degrees, with a caveat: “These interim administrative designations are provided solely to facilitate implementation of the Court’s order and may change as litigation in the case proceeds,” Trump officials stated.

Trump-induced confusion seems to be the order of the day.

In response, and to maintain enrolments, some universities and colleges are cutting tuition or creating scholarship, loan and grant programmes. Santa Clara University School of Law launched a guaranteed, renewable scholarship for incoming students.

But more typically, campuses such as Berkeley are maintaining tuition rates (that tend to be lower than comparable private institutions like Stanford) and are instead relying for now on informing prospective students about the new financial aid landscape.

They have also been urging them to accept 2025-26 loans before the new federal limits and restrictions which took effect on July 1.

To date, two states, Minnesota and Connecticut, have launched or expanded their own state-sponsored graduate student loan programmes.

Adding to the volatile market for graduate education are declining college-age populations, particularly in Northeast and Midwest states. And AI is also presenting concerns among prospective students regarding the value of graduate programmes.

Conflicting trends

Yet there are also indicators that graduate education enrolment demand may increase as young and mid-career adults pursue advanced degrees because they are anxious about job prospects and displacement, continuing or returning to school to acquire specialised AI management skills to remain competitive. The extent and dynamics of the AI-driven shift in the labour market are nascent.

Anxiety may drive more to retooled graduate programmes. But as employers adjust to the AI environment, there are indicators of shifts in employment demand that may also drive future enrolments, if prospective students can afford it.

One example: “Ford reportedly rehired more than 300 veteran engineers after AI-heavy quality systems failed to capture decades of institutional knowledge,” notes Mikhail Edel, a partner at Mavka Capital. “The lesson is not that AI failed. Rather, AI performs best when paired with experienced people who understand the edge cases the models were never trained to recognise.”

Other factors shaping enrolment demand? Future graduate students and postdocs, who tend to skew politically left, may factor state politics into where they apply.

States such as Florida, Texas and Ohio have passed laws eliminating Diversity, Equity and Inclusion offices, restricting how race and gender can be taught and increasing political oversight of faculty hiring and curriculum design.

And finally, anti-immigrant fervour, including hostile federal policies as well as restrictions on H-1B visas in a growing number of Republican-led states, adds another dynamic that is already influencing where international talent decides to pursue graduate education – increasingly not in the US.

The impact on the economy

New foreign enrolment in US graduate programmes fell by an average of 24% in spring 2026.

Organisations including NAFSA reported that over 60% of surveyed schools saw a drop in foreign graduate students. In the short term, NAFSA projects US$1.1 billion in lost tuition revenue for universities and almost 23,000 fewer jobs in local economies.

Economists say that a sustained one-third drop in international STEM students will strip between US$240 billion and US$481 billion from US GDP over a decade, severely dampening entrepreneurship, business dynamism and technological leadership.

Institutions are facing major budget deficits. For example, a 30% drop in international enrolment led to a US$45 million deficit at one university, forcing the elimination of 71 programmes. MIT recently reported a 10% reduction in research activity and warned of a “persistent drop” in graduate admissions.

Within these megatrends, what we can surmise is that the One Big Beautiful Bill Act provisions will further erode the financial model of higher education institutions – a central feature of the Trump administration’s policies – and will probably lead to further labour shortages in key professional fields, such as healthcare.

At the same time, depressing graduate enrolment may lead to a moderate reduction in tuition rates and reduced student loan debt over time.

But it will likely come at a cost to the economy in terms of fewer professionals across a wide array of fields, as well as further erosion in socioeconomic mobility, for which access to graduate education is a key component.

Graduate-trained workers are disproportionately responsible for the kind of specialised output – medical care, engineering, advanced research, applied science – that drives productivity growth. Shrinking the pipeline into these fields doesn’t just mean fewer degrees conferred; it means fewer nurses, doctors, engineers and scientists entering the workforce in the years ahead, at precisely the moment labour shortages in healthcare and other technical fields are already straining the system.

At the same time, research institutions employ enormous numbers of people directly, purchase goods and services locally and anchor the economies of the college towns and small cities that depend on them.

When enrolment drops, that contraction ripples outward: fewer graduate teaching and research assistants spending stipends in local economies, fewer ancillary jobs in housing, retail and services near campuses and less institutional spending on the equipment, construction and contracts that universities routinely generate.

Dubious assumptions

Supporters of Trump’s policies related to graduate education counter that reining in federal loan exposure and forcing tuition discipline will produce a leaner, more accountable higher education system whose long-run benefits will outweigh the short-term disruption. This is likely a dubious assumption.

The cumulative impact of Trump’s policies is a decline in graduate education enrolment, in talent development, in the US’ science capabilities and in the nation’s economic competitiveness.

John Aubrey Douglass is a senior research fellow at the Public Policy and Higher Education at the Center for Studies in Higher Education (CSHE), Goldman School of Public Policy, University of California, Berkeley, USA. He is the author of Neo-Nationalism and Universities (Johns Hopkins University Press, Open Access via Project Muse).

This article is a commentary. Commentary articles are the opinions of the author and do not necessarily reflect the views of University World News.