The student debt crisis is increasingly linked to graduate student debt

The student debt crisis is increasingly linked to graduate student debt
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When the media talk about student debt crisis, they tend to focus on six-figure sums, like the typical student borrowing $ 100,000 or more to finance college. However, these amounts are outliers, or they reflect the experience of graduate students who have taken on more debt upon entering higher education. The average undergraduate student rarely borrows more than $ 100,000. The American student debt crisis is a $ 1.7 trillion problem and has doubled in the last decade. The fastest growing segment of the loan market is graduate student loans. BrookingAlthough only 25% of those who take out student loans go on to graduate school, about half of the outstanding student debt is held by graduate students. According to a report by the Center for American Progress, the issuance of federal graduate loans increased from $ 35.1 billion in 2010 to $ 37.4 billion in 2017. During this period, new borrowing from undergraduate fell from $ 70.2 billion to $ 55.3 billion.

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Graduate students take on more debt in anticipation of higher earnings

The graph below shows the difference between the typical debt of a person with a bachelor’s degree and a person with a graduate degree:

Licence $ 28,950
Master of Business Administration (MBA) $ 66,300
Master’s degree $ 71,000
Law degree $ 145,500
Medical degree $ 201,490

Source: Nerdwallet

The typical argument is that graduate school students take on more debt because their future income will increase by having a graduate degree. For example, the Bureau of Labor Statistics (BLS) found that someone with a master’s degree typically earns $ 1,545 per week and that someone with a professional degree such as an MD or JD earns $ 1,893 per week. A person with only a bachelor’s degree can expect to earn $ 1,305 per week, and a person with only a high school diploma will earn $ 781 per week. People with a graduate degree also have a lower unemployment rate than others, as shown in the BLS chart below:

Student debt crisis

Not all graduate degrees are worth the student debt it takes to earn them

However, a the Wall Street newspaper report suggests some complacency with the idea that graduate debt is justified by the potential for future earnings. the the Wall Street newspaper found that some graduate programs left students with higher levels of debt than their estimated future annual earnings would be able to support. For example, a Columbia University film school graduate who takes out a federal student loan has a median debt of $ 181,000. Yet, two years after graduating, half of these borrowers were earning less than $ 30,000 per year. Considering that federal guidelines state that the debt must be repaid between 10 and 20 years after its subscription, these film school graduates would need a huge increase in their income to be able to repay this debt within a 10 to 20 year framework. . . The reality for many of these students is that student debt leaves them “financially hampered for life,” as one of the ex-students interviewed by the the Wall Street newspaper described themselves. The reality is that much of this debt will go unpaid, and taxpayers will be left behind.

Student debt crisis

Source: the Wall Street newspaper

Although Columbia University is an extreme example, many private universities, especially elite ones, have awarded thousands of master’s degrees whose earning potential does not allow graduate students to repay their federal student loans.

Although undergraduates have been the hardest hit by the growth in loan balances for years, universities have realized that the federal Grad Plus program offers them the opportunity to earn huge sums of money. The Grad Plus loan program has no cap on the amount of debt a student can incur to pay for tuition, fees, room and meals, and other expenses. So a university can charge whatever it wants, knowing that a student will take out a loan to foot the bill.

In contrast, undergraduates can only borrow up to $ 12,500 per year and the total debt is capped at $ 55,700, although this depends on the individual’s circumstances. The Grad Plus program has a portfolio of outstanding loans $ 82.8 billion, spread over 1.5 million people. Not only are loan amounts and interest rates higher than undergraduate loans, but the federal government will also cover any outstanding balance after 20 years.

Universities realized that they could raise their prices with impunity and focus mainly on master’s degree programs due to the huge demand for them. In 2017, graduate programs, including business schools, had enrolled 49% of all Grad Plus borrowers, according to the Government Accountability Office report.

The program is now the fastest growing federal student loan program, and interest rates have reached 7.9% in recent years. Currently, Grad Plus loans have an interest rate of 6.28%. This is happening at a time of decline and historically low lending rates.

Graduate degrees are an essential tool for achieving higher incomes. Yet this reality must be weighed against the fact that not all graduate programs lead to income that can support the student debt incurred to obtain them. A person needs to consider their career prospects and potential earnings and compare them to the costs of paying down graduate debt. A career as a lawyer or doctor can, for example, bear graduate debt, while a career in film can hamper a person for life. It is also important to look for alternatives graduate loan programs to avoid the almost punitive rates charged by programs such as the Grad Plus loan program.

The race for graduate degrees

Masters programs have become incredibly important in the job market as bachelor’s degrees have become widely available. A person now needs a graduate degree in order to be able to stand out in the workforce.

Census data shows that over the period from 2000 to 2018, those who obtained a graduate degree (either a master’s or a doctorate) and aged 25 and over, doubled in number. In 2000, only 8.6% of adults had a graduate degree, but today around 13.1% have one.

Student debt crisis

Competition for jobs is not the only reason people are increasingly turning to graduate degrees. The Georgetown Center on Education and the Workforce found that the wage gap encourages women to graduate more than men in order to close the gender pay gap. The typical woman with a bachelor’s degree earns $ 61,000, which is roughly what a man with an associate’s degree claims. Accordingly, the same rule applies to all levels of academic achievement.

Understand that graduate degrees are not necessarily tickets to above-average future earnings if graduate students are to be viewed as a constituency in serious need of wholesale debt relief. Established in 2005 by Congress, the Grad Plus program has led to a situation where graduates are on track to exceed loans taken out by undergraduates in the 2020-2021 academic year.


Robert P. Matthews