Almost 1/3 of Student Loan Debt is now from Grad School

Graduate school, which generally leads to higher income, is increasingly leaving students with higher debt. As discussed in a previous post, Congress is attempting to keep student loan interest rates at lower levels. However, little attention is being paid to graduate students. Student loan debt in the U.S. now tops $1 trillion and graduate students account for approximately 1/3 of that sum, which is likely to grow.

Beginning in July, subsidized Stafford loans will no longer be available to graduate students. This likely will force graduate students into more expensive loans to pay for tuition. Currently, subsidized Stafford loans are the most popular student loans. More than 1/3 of students sign up for them annually because the government covers the interest payments while students are still enrolled. Other loans charge students the interest while they are still in school.

Without the subsidized Stafford loans, experts say that graduate students will likely soon account for a larger share of student loan debt. It is estimated that the student loan debt load at graduation will increase by about 6% on average.

The cuts are part of the federal goverment's move to slash spending across the board. Last year President Obama signed the Budget Control Act of 2011, which eliminated the subsidized Stafford loan for graduate degrees. This was expected to save around $21.6 billion over 10 years, with nearly $5 billion going to the deficit reduction. The adminstration says they removed the subsidized Stafford loans for graduate students because those with advanced degrees tend to have higher incomes, and these loans do not encourage more students to enroll in graduate school.

However, with the struggling economy, more adults have been returning to college for graduate degrees and leaving with more debt. Master's degrees account for about $200 billion in outstanding student loan debt, while other advanced degrees account for another $100 million. This year approximately 830,000 people are expected to graduate with advanced degrees, with debt averaging around $43,500, up 10% from five years ago. Since the fall of 2007, roughly 56% or 3.6 million graduate degree recipients incurred loans.

In spite of the rising student loan debt levels, proponents of the government's decision to elimiate subsidized Stafford loans for graduate students say that they don't need as much help because they'll make more money. During a 40 year career, individuals with only a Bachelor's degree will earn nearly $2.3 million on average, while those with a Master's degree will earn an extra $400,000 on average. The median income for someone with a Master's degree is on aveage about $12,000 higher a year than someone with just a Bachelor's degree.

However, the pay difference is even smaller in some fields. For example, the arts and journalism. Some professions even require a Master's degree but typically do not pay more. For example, teaching and social work. Additionally, since the recession tuition has risen 11%, to an average of nearly $22,000 per year for private, non-profit graduate programs. At public universities, tuition rose 25% to $9,247, outpacing undergraduate tuition hikes.

Schools are raising tuition even though enrollment continues to grow. Between 2007 and 2010, enrollment in graduate programs grew 11%, to an all-time high of 2.9 million students. Costs are generally rising because colleges are charging higher tuition for more popular programs and public universities are receiving less funding from their states. However, it is often argued that graduate programs are expensive to run, especially in technological intensive fields such as engineering and science, and profitable departments often subsidize less profitable or unprofitable departments.

I suggest that anyone considering graduate school look into attending public universities, which are generally cheaper than private institutions. You should also consider if the cost of attending graduate school is worth it. An individual with a Bachelor's degree in business or engineering should earn about $19,000 a year more with a Master's degree but you need to consider how much you'll have to borrow in student loans and how many years it will take to pay that off. It is also important to remember that student loans are generally not dischargeable in bankruptcy. I look forward to your comments and/or questions.