The Graduate Student Debt Review

A New America analysis of recently available Department of Education data released today reveals that much of America’s student debt problem may be a result of expensive graduate and professional degrees—not unaffordable undergraduate educations. In fact, more than a third of recent federal loan disbursements are for graduate student debt, suggesting that a large chunk of the ubiquitous “$1 trillion in outstanding federal student debt” number is, in fact, graduate debt.

New America’s report, The Graduate Student Debt Review, suggests that debt for graduate students in a range of master’s and professional degree programs accounts for some of the most dramatic increases in student borrowing between 2004 and 2012. Moreover, this trend is not limited to what many already know are high-cost credentials, like those in medicine and law. According to the data, in 2004, the median level of indebtedness for a borrower who earned a Master of Arts degree was $38,000. In 2012, that figured jumped to $59,000, after adjusting for inflation. Debt levels for other master’s degrees, such as a Master of Science or a Master of Education, show similar trends. For borrowers at the 75^thpercentile of indebtedness, the increases are even larger in absolute terms. For most master’s degrees, debt at the 75^th percentile jumps from about $54,000 for degree recipients in 2004 to $85,000 in 2012, after adjusting for inflation.

The paper suggests that policymakers and news media should shift their understanding of student debt as primarily an undergraduate problem.

The paper suggests that policymakers and news media should shift their understanding of student debt as primarily an undergraduate problem. Most of the borrowers covered in newspaper stories—who typically have huge loan balances upwards of $50,000—attended graduate school.

Still, most accounts of student debt treat loans from graduate and undergraduate studies as one and the same. A 2013 Wall Street Journal article about rising costs at four-year colleges and universities is a typical example. It profiles 23-year-old Nicole Preucil, a public university student with $60,000 in student loans, who says, “I think tuition is absolutely too much… I kind of didn’t realize how expensive it was going to be here… I think about my loans, and I try to pay off my interest… I think it will take a long time in my profession to pay it off.”

Nicole earned her undergraduate degree with a manageable $10,000 in loans, about one-third of the amount typical for her peers who borrowed, after she “cobbled together scholarships and grants [and] worked part time” to pay for her education. Despite the fact that the article is about undergraduate debt, Nicole’s comments regarding unaffordable tuition are actually about graduate school. She added $50,000 in debt to her initial $10,000 in loans to pursue a master’s degree in social work.

In fact, Nicole’s story is a success story for her undergraduate experience. It was her decision to borrow $50,000 for graduate school, and the school’s pitch to sell her a degree at that price, that put her in the dilemma she now faces. The Graduate Student Debt Review shows that Nicole’s story is not unusual. Her debt level is now the norm for a master’s degree recipient who borrows to pay for school.

The failure to distinguish between undergraduate and graduate debt in discussions of college costs is a serious flaw in how we think about student debt. Students, families, and taxpayers invest significant resources in financing “college,” largely because a bachelor’s or associate degree is a must for anyone who wants to secure a middle-class income. If students are taking on unmanageable debt to earn those credentials, many would argue that the system isn’t working. Our system of higher education aims to underwrite much of the cost—and risk—that students take on when they pay for an undergraduate education, especially for students from families with fewer means.

But arguments for high levels of subsidy for students who attend graduate and professional school are on shakier ground. While a graduate or professional degree boosts a student’s earnings prospects and the economy at large, it is not the foundation for economic opportunity and middle-class earnings that a two- or four-year degree now provides. Students pursuing graduate degrees should be far more informed consumers. Therefore, they shouldn’t need a lot of public support to finance their next credential, which is why there are no Pell Grants for master’s degrees. That spike in debt for graduate degrees should also focus policymakers’ attention on an impending wave of loan forgiveness for graduate students and the lack of loan limits for students pursuing graduate degrees.

The debt statistics in The Graduate Student Debt Review offer a new picture of the student debt problem. But the data pose many more questions about the graduate school industry, as well. Check back with EdCentral in the coming months for more of our research and analysis. Check out the full report here."