How Trump Is Bursting the $100 Billion Grad School Bubble

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1:34Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Bloomberg Audio Studios. Podcasts. Radio. News. Every fall, around 3 million graduate students from all around the world start classes at colleges and universities across the U.S. But this year, some of their classrooms will be a little emptier. Some of the even most elite institutions in the country are seeing very significant declines in their grad enrollment. Bloomberg education reporter Liam Knox. Cornell is down by over 200 students. MIT is going to admit 500 fewer grad students in the fall.

2:17That's a huge deal for a university which is known for its graduate programs. Big flagships like the University of Wisconsin. they're seeing similar declines. And Liam says the loss of those students could have a big financial impact on the U.S. higher education system. Universities are not just an ivy-clad center of academic and intellectual enrichment. They're businesses. And over the past few decades, that business model has become increasingly leveraged on graduate programs, in particular the master's degree. As undergraduate enrollment has declined in recent years, many universities have doubled down on their graduate programs, relying more and more on tuition from graduate students to fill funding gaps and support schools' ever-expanding offerings.

3:07Today, the U.S. market for grad school is worth about$100 billion. But that could all change. Right now, the Trump administration is the biggest threat to that business model. The White House is on a mission to reshape the country's higher education system And Liam says its policy agenda is hitting grad school programs in a few key ways. There are policies that would make master's programs harder to pay for, that would make it much harder for international students to come and pursue these degrees, that make federal funding for grad programs a lot less certain. Those things hit at the financial heart of the modern American university and its business model.

3:49And in a lot of ways, that has a more widespread and sweeping effect on what American campuses might look like, what kind of power they have, than going after specific elite institutions.

4:05I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, how the U.S. graduate school bubble grew and the Trump administration policies that could make it burst.

4:22Getting an advanced degree like a PhD has long been a status symbol, an extra boost for a resume, something that can lead to a pay bump or a fancier title in some professions. But the growing emphasis that colleges and universities have put on master's programs is actually a relatively recent phenomenon. Master's programs have exploded in the past two decades. They've grown by double the rate as other degrees in the country. They're now the most commonly held advanced degree. There's a wide range of master's programs out there. You can go get a master's degree in public health, computer science, or social work.

5:01Or you can get what's considered a professional degree by going to medical school or law school. Master's degrees have become kind of part of the financial foundation of the higher ed system and a huge part of how employers look for highly skilled workers in certain fields. What explains that? Why over the past few decades have master's degrees become so important? Well, the explosion of master's degrees really kind of started in the mid-2000s for a number of reasons. In 2006, the federal government created what's called the Grad Plus Program, which is essentially a stream of uncapped, unlimited loans for graduate students that would allow any student going to an advanced program to take out, not only up to the cost of tuition, but also room, board, sometimes cost of living expenses, in order to kind of get them through going back to school before they enter the workforce again.

5:58Now that made what might have been a difficult financial decision a lot more feasible for a lot of people. It also created a pretty big pool of federal money that universities were very keen to dive into. When the Great Recession hit just a couple of years later, many workers opted to wait out the bad job market by going back to school, hoping both the economy and their job prospects would be better once they had a master's. Schools responded to this new demand for the degrees by creating new master's programs. It wasn't just the major research universities multiplying their offerings. It was also liberal arts colleges becoming universities that had graduate schools.

6:40And that trend continued in part because the number of traditional undergraduate students, 18-year-olds coming out of high school going to college, started to decline at around the same time. So they were relying more and more on these master's students. They had to fill the gap somehow. They needed alternative sources of revenue. And so UCL colleges kind of put a lot of their eggs in that basket and really invest heavily in master's programs, which were often really big cash cows because students could get federal loans. There wasn't a lot of aid involved from universities. They were often very expensive.

7:15And they created this very lucrative cash flow for universities. It seemed like the master's was the new bachelor's, right? Between 1991 and 2019, the number of master's degrees awarded annually grew by over 140 percent. That's nearly double the rate of increase of bachelor's degrees in the same time period. But since the start of President Trump's second term, his administration has rolled out a suite of new policies that are hitting universities and their master's programs hard. The three major stressors are attacks on international students who make up a huge amount of these programs, new caps on previously unlimited federal lending for grad programs, which have really fueled the explosion in master's degrees.

8:02And then there's the reduction in federal research funding, where even the most elite universities are seeing double-digit percentage point declines in their federal funding for these programs. So let's go through each one in a little bit more detail. You mentioned this idea of the restrictions on international students. How has that been impacting graduate programs? And are there certain types of programs that are being hit harder than others? Across the board, international students are more represented at graduate programs than at undergraduate colleges. Some of these programs have, you know, more than half of their seats are filled by student visa holders.

8:40And there are big worries about the sustainability of that if we see 20, 30, even more percent declines in foreign students coming to this country in the next few years. The decline in international students is going to specifically hit STEM programs very hard. where students from India and China and other countries in Africa and in South Asia, where visa crackdowns are having the biggest effect, the universities are going to have to completely kind of reshape the way they're thinking about how they fund and enroll in those programs. And that's a big deal because a lot of the emerging fields that even the Trump administration says they want to continue to invest in, like, say, semiconductor engineering, The pipelines to those programs of global talent run through these master's degrees.

9:28And so there's a lot of concern about what that could mean for American competitiveness and innovation moving forward. And another blow to science and to research generally has been these reductions in federal research funding. I'm wondering, Liam, how much have these institutions historically relied on federal funding to sustain their research programs? And what's changing now? specifically in technology specifically in medicine the amount of funding from the national institutes of health or the national science foundation flowing to universities that creates these pools of research money that is you know half the draw for students right you go and you get a master's degree in some biomedical science field and half of what you expect to be able to do is work with your hands in a lab is have the resources to pursue exciting new research with in groundbreaking areas.

10:21And if federal support for that starts plummeting, as it has been, or if even there's uncertainty around it, as there certainly is, that's going to have an effect on students' appetite for those kinds of programs. And it's also just going to have a big effect on universities' ability to provide the same kind of value in education as they had before. Meanwhile, the Trump administration is also placing strict borrowing limits on federal student loans for grad school in what Secretary of Education Linda McMahon has said is an effort to pressure universities to lower the costs of their programs. Every single master's program relies disproportionately on federal lending to fund students' tuition.

11:06It used to be that you could borrow unlimited amounts of money from the federal government to pay for your grad program. Now there is a$20 ,000 a year cap on almost all grad programs. There's an additional cap for some programs that have been categorized as professional. So that includes law school, medical school, a couple of other things. They have a higher cap of$50 ,000 a year. Liam says those types of professional programs tend to be more expensive. So even with the higher cap, loans are unlikely to cover the full cost of tuition anymore. Students are going to have to turn to other sources to try to fill the gap, including private lenders, which are starting to create new lending products to try to enter this space, but which have much less forgiving repayment options.

11:52And are unlikely to be dispersed to students pursuing expensive degrees in fields that have low income outcomes. Right. So like social work, teaching, nursing. These are really high need areas where students are extremely dependent on federal lending to pursue their degrees. And which often have more forgiving repayment options on the back end, in part because these are seen as a public good. And that's not going to be around anymore. And the U.S. has already pretty bad workforce shortages in nursing and teaching, especially. And these caps are going to exacerbate that issue. I mean, it's worth noting that student debt is a real issue in this country, right?

12:35Great graduate programs make up 40 percent of the one point seven trillion dollars Americans owe in federal student debt. Is the counterpoint that the issue here is really the cost of these programs, not the loan caps? It's a great point. And it's the justification behind the Trump administration's and congressional Republicans efforts to cap these loans. They say that it's going to push colleges to drive down their tuition prices. They say that it's the only way to stop higher education from leaning on the federal government to continue jacking up prices for American families. The reality is that that's not really how the higher ed market works.

13:16Not a lot of students pay full sticker costs for undergraduate degrees. A lot of colleges, even if they charge$80 ,000,$90 ,000 a year sticker price for tuition, are struggling financially. And so taking away the ability to fund these master's programs, the actual effects are very unclear. And so far, very few colleges have given any indication that what they're going to do in response is lower their costs. Coming up, we hear from a university administrator about how his school is navigating these challenges and how the decline in graduate enrollment could lead to a great shrinking of American universities.

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16:49Stevens Institute of Technology sits on the Hudson River in Hoboken, New Jersey, with a view of the Manhattan skyline. Stevens dates back to 1870, and like many private research universities, it's invested heavily in its graduate programs in recent decades. Between 2013 and 2022, Stevens' grad school enrollment more than doubled. It's almost a 50-50 split grad students to undergrad students, or at least was recently before some of the changes that took place here. That's Rob Towner, the chief business officer for the school's College of Professional Education, a new initiative Stevens launched a few years ago.

17:27Rob started last year and was hired in part to find new ways to bring in business, as the school saw traditional revenue streams drying up. So it's no surprise that Stevens, like many institutions, has faced enrollment challenges from international graduate students. International students, whether it's here at Stevens or other institutions, tend to be full-pay students and tend to be a large amount of revenue that comes into a university. We had to figure out ways to plug that gap going after new markets that were not addressed before. One approach Stevens has taken is leaning into online degree offerings, which are easier to scale.

18:03It's also launching more targeted certificate programs, which for students are shorter commitments than a master's degree. People don't have the kind of money they used to have to go afford to go to grad school. On top of that, there's an obvious debate and conversation in this country of, is higher ed worth it? When you're asking people, hey, two to three years from now, when you finish this degree, what is your job role going to look like with AI? There's a lot of uncertainty there for a lot of roles in what we're trying to do with these shorter form credentials that say, you don't need to commit the next two to three years.

18:32Just come grab one of these short-form certs, do that, and then come back to us later on if you need another cert and another and stack it to a degree, whatever it might be. And as students face new federal borrowing caps, Stevens has adjusted tuition for its online offerings accordingly. It's cut the cost of its online MBA degree in half. Now, students pay as little as$36 ,000 for a two-year online degree. That helps the federal loans go farther. So over the two years, you would have more than enough cushion to be able to use the$20 ,500 to fund that. Stevens isn't alone. Purdue and UC Irvine have slashed the costs of some of their MBA programs, too.

19:12But Liam says it's been more common to see universities shrink their offerings than their tuition. Almost every major university, from research institutions to technical institutes to small colleges, are looking into short-term AI credential programs or other kind of emerging fields, but not one to two-year master's degrees where the student comes onto campus and lives there and works in a lab. Often they're online. Sometimes there's a hybrid component and there's a lot of investment in what a lot of higher education leaders say is the future of advanced education in this country, which is these stacked skills.

19:52What all of this means potentially is the shrinking of the American college. You've already started to see a lot of universities, you know, sell off parts of their campuses, try to kind of downsize. Are we seeing layoffs at universities? We are certainly seeing layoffs at universities. We've been seeing layoffs for a couple of years, but they're really exploding now. I talked to the president of Portland State University. They offer a lot of social work degrees. They have a lot of international students. They actually train more than half of the social workers in the state of Oregon, and they're laying off staff.

20:28The cuts there are very painful to faculty and to students, and that's happening all across the country. And in part, that's a response in some ways to market forces, to American families being less willing to pay the astronomical costs of colleges, to kind of the changing demands of a workforce increasingly shaped by rapidly evolving technology that colleges are struggling to keep up with. But in large part, it's also because of what's happened over the past year under the Trump administration and just the intensification of those pressures has put a lot of colleges into crisis mode. I'm wondering, are there any people within the academic universe who say, you know, this was a bubble that was bound to burst and we do need to take a hard look at our budgets, our finances, our reliance on federal student loans and create like a healthier atmosphere and a healthier long term path for the sake of the future of academia?

21:26They certainly would. That's a huge contingent among academics themselves. I know based on my conversations with many of them that they would take issue with the way it's being pursued. But there is a real frustration with how universities have operated as businesses over the past many decades, with how they've treated costs, with how they've put more and more money into more and more expensive programs, more and more amenities and new campus buildings and new everything. And there's this idea of the ever-growing American university that has been a real sore spot for not just Republicans in Washington, but academics across the country who see it as unsustainable and who are afraid of a kind of backlash, which is coming now.

22:25This is The Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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