Conversations about increases in student debt often focus on undergraduate borrowers and the rising price of a bachelor’s degree. But the largest changes in student borrowing are taking place in graduate education, a new report says.
The report, being released on Tuesday by the New America Foundation, a nonpartisan public-policy institution, also questions federal policies on lending to graduate students. It suggests the government consider placing limits on the amount that students pursuing graduate degrees can borrow, as it does for undergraduates.
The report, "The Graduate Student Debt Review," also asks whether income-based repayment programs that include loan-forgiveness benefits might be part of what is driving increases in graduate-student borrowing.
"Policy makers may wish to examine if that is the best way the federal government can support our higher-education system," says the report, "or whether these policies themselves are to blame for the marked increase in borrowing for graduate and professional degrees in recent years."
The foundation’s analysis of U.S. Department of Education data shows that debt for students who earned a range of master’s and professional degrees has increased rapidly in recent years.
The median level of debt for a borrower who earned an M.A., for example, has risen significantly since 2004, when it was $38,000, after adjusting for inflation, according to the report. By 2012, it was $59,000.
For most master’s programs, one out of four borrowers in 2004 had accumulated debt, some dating to their undergraduate years, of $54,000 or higher, when adjusted for inflation; in 2012, one in four had debt of $85,000 or higher.
Jason Delisle, director of the foundation’s Federal Education Budget Project, said the public and policy makers should stop lumping undergraduate- and graduate-student debt together because they raise different issues.
"An undergraduate degree, we’ve all sort of decided, is a must for earning a middle-class income," he said. "A master of arts? Probably not. These are all people who have an undergrad degree. They have all made it, in that sense. They are a success. The question then is, ‘What is the purpose of the public support of the master’s degree?’"
Mr. Delisle said loan-forgiveness programs may be partly to blame for increases in graduate-student borrowing.
One such program is Public Service Loan Forgiveness. It allows borrowers who work in a public-service organization—including all employees of federal, state, and local governments—to have their remaining student-loan debt forgiven after making 10 years of qualifying payments.
The program is open to former undergraduate and graduate students. Graduate students, who tend to take on the most debt, particularly benefit from the program, Mr. Delisle said.
He provided an example of how much a borrower with a large student-loan debt could benefit under the Public Service Loan Forgiveness program.
A student with an M.A. who is in the 75th percentile of borrowers, for example, has debt of $91,000, Mr. Delisle said. The student, if given a salary of $60,000 and annual raises of 4 percent, would end up making $45,000 in payments over 10 years and have $100,000 in principal and interest forgiven, Mr. Delisle said.
"Now let’s say they borrow $120,000 instead," he said. "Want to guess what the total payments are? $45,000. Let’s say they borrow $150,000. Now they’re at the 90th percentile of borrowers, and they’d still only pay $45,000."
This "is a serious, serious problem because when you borrow, that’s cash you have in hand," said Mr. Delisle, who before joining the foundation worked as a legislative aide to U.S. Rep. Thomas E. Petri, a Republican of Wisconsin who has argued for the elimination of the Public Service Loan Forgiveness program. "That’s not a safety net anymore. That’s a tuition-financing mechanism."
Nicholas Hillman, an assistant professor at the University of Wisconsin at Madison who studies higher-education finance, said the foundation’s critique of the Public Service Loan Forgiveness program misses the point: A goal of the program is to encourage Americans to enter public-service jobs.
"Only looking at the financial costs without looking at the societal benefits is a really myopic way to view education," he said, "and this policy in particular."