Magazine article University Business

Piled Higher & Deeper: Graduate Student Debt Runs out of Control

Magazine article University Business

Piled Higher & Deeper: Graduate Student Debt Runs out of Control

Article excerpt

Student borrowing is going up. National Student Loan Data System data shows that cumulative borrowing per student participating in federal loan programs increased from about $3,943 in 1990 to $11,510 in 2000 and $13,856 in 2009. Much of the increase is attributed to funding for graduate education, and recent changes in federal student loan policies for graduate students will likely cause this to go higher.

This will likely affect the entire campus. Enrollment may become a challenge, students may shun programs that lead to jobs with lower starting salaries, and alumni satisfaction may decline. Yet, graduate students are older than the average undergraduate and are likely a little savvier about debt levels and career choices.

As of July 2012, graduate student loans will carry higher interest rates than in years past, and they won't be subsidized. Another round of changes that increase borrowing costs are set for July 2013, and they won't be the last. The reason is simple. The federal government is broke. "Undergraduate is seen as somewhat of an entitlement," says student loan debt management expert Paul Garrard of PG Presents in West Virginia. Hence, the brunt of cuts go to those who are older and stand to make more money from their additional education. Garrad is also a consultant to NSLP, the nonprofit financial aid solutions provider.

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Why Changes, Why Now

PLUS bans, first made available to graduate students in 2006, allowed them to borrow the entire cost of education. For many students, this was welcome. Graduate school tends to have higher costs than undergraduate school, and there are fewer grants and scholarships offered. Many people walk off the commencement stage and into high-paying jobs, making the repayment burden relatively light.

Although PLUS loans have a wider range of repayment and forgiveness options than private loans, they come with a higher price in the current market. Graduate PLUS loans have a rate of 7.9 percent, currently above the prime rate or the London Interbank Offer Rate (LIBOR) usually used to price borrowing. Private educational lenders charge rates closer to prime and LIBOR, which makes them cheaper right now.

Mark Kantrowitz, publisher of the financial aid websites Fastweb.com and FinAid.org, says access to education is affected more by how much money people can get and when they have to repay the funds, rather than the rate being charged. However, rising undergraduate debt levels may affect graduate school enrollment when the recession ends. "Some data suggest that students who graduate from undergraduate school with no debt are twice as likely to enroll in graduate school as students who graduate with some debt," he says. Furthermore, "every $10,000 in debt is associated with a 6 percent decline in choosing a public service career."

The Council of Graduate Schools conducts an annual survey of pressing issues among its members. For 2011, the second most pressing concern was graduate student financial support, mentioned by 54 percent of the deans surveyed, especially those at doctoral and public institutions. "Year after year, for a decade or more, our deans report that one of their big issues is financing graduate education," says Nathan Bell, director of research and policy analysis at the organization, adding that with some of the changes in that area being so new, "we haven't seen any evidence of effects yet."

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The Council of Graduate Schools reported a small decline in academic program enrollment in 2010, but Bell says it was not statistically significant. Most of those declines were in business, education, and public administration programs where students tend to be self-supporting or sponsored by an employer.

At the master's level, 44 percent of students have loans, 25 percent are funded by employers, and 20 percent have assistantships. …

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