Is a master’s degree worth it? For decades the answer was clear, but US government economists are increasingly concerned that students are now borrowing far too much.
For the first time, the share of money the government is lending to graduate students annually is on track to eclipse that of undergraduates, exceeding $39 billion, or 47% of federal loans. And it’s becoming clear that those advanced degrees don’t necessarily result in greater earnings, according to the Office of the Chief Economist at US Department of Education.
“There is generally very little correspondence between the amount students borrow to finance their advanced degrees and their labor market outcomes,” economists Tomás Monarrez and Jordan Matsudaira wrote in a recent report. Earnings for those with graduate degrees remained high but stagnant over the last 20 years, “suggesting a potential decline in the net return to graduate credentials.”
With US student-loan repayments set to resume in October after a more than three-year pause, the findings represent a distressing reality for people who took on grad school debt as a path toward higher earnings and greater career success. And costs are only rising: In addition to ever-increasing tuition, interest rates for graduate students taking loans this semester have climbed to more than 8%, the highest in a dozen years.
At the same time, graduate students are taking on an outsized share of debt while annual federal borrowing for undergrad degrees has been declining over the last decade. Grad students accounted for 21% of federal borrowers between 2021 and 2022, yet their debt totaled nearly half of the $83 billion issued by the Education Department.
Their bills tend to mount up because they can borrow up to the entire cost of attendance for school — which can run $80,000 or more annually including housing and other living expenses — while federal undergraduate loans are limited to borrowing about $30,000 over four years. Interest on Grad Plus loans also accrues during school, unlike some loans for undergraduates.
That’s led graduate student borrowers to leave school with an average of $57,000 in debt compared to $27,000 for undergraduate borrowers, according to the National Center for Education Statistics, a trade group that surveys graduating students at more than 200 universities. For a doctoral degree in professional practice, such as medical or law school, the average is $176,000.
Take Craig Spofford, 52, who manages a nonprofit in the Minneapolis area for college-age students with disabilities. He borrowed $40,000 for a Master of Divinity he earned in 2014.
“I felt like I needed this advanced degree to progress,” said Spofford, who has about $33,000 in debt left — not to mention $46,000 of parent loans in his name for his daughter’s college education. “I realize it was a big risk that is not paying off at this time.”
Spofford also has a part-time job in tech support, that helps boost finances and provides health, vision and dental insurance for his family. He’s counting the months until some of his student loans will be wiped out by a federal program that rewards public-service workers by erasing their remaining debts after a decade of payments.
While college is often viewed as a ticket to a better living, it’s not clear that all master’s degrees lead to jobs with better pay. The differential between average starting salaries for bachelor’s and master’s degree graduates decreased to 22.5% in 2021 from 31.8% four years prior, according to the National Association of Colleges and Employers, a trade group surveyed graduating students at more than 200 universities. That’s in part a result of employers judging candidates based more on their skill sets rather than degree level, according to the group.
That idea is also showing up in other places. An analysis of online resumes found that while the share of employees with post-graduate degrees have been rising since 2008, job listings mentioning post-graduate degrees has been stagnating since 2015, said Hakki Ozdenoren, a labor economist with workforce research firm Revelio Labs.
“Job postings are becoming more skill based rather than degree based. Therefore, having a grad degree in itself is not as valued by the market,” Ozdenoren said. “What is more important is that you have the skills that are sought after.”
Nonetheless, the cost for grad programs has been going up too, faster than for undergrads. For full-time master’s degree students, the average price of tuition and fees, not accounting for scholarships, increased by 79% between 1996 to 2016 after adjusting for inflation compared to 47% for bachelor’s degrees. Master’s students paid an average of $32,550 in tuition and housing costs in 2016, about $10,000 more than a decade prior, according to data compiled by the Urban Institute.
“There’s this earnings premium, but you are paying more to get this premium,” said Jason Delisle, a nonresident senior fellow at the Center on Education Data and Policy at the Urban Institute who has studied graduate school loans.
Republicans in June introduced bills related to curbing college costs, including one that would limit graduate school loans.
Brielle Berndtson, who graduated from Eckerd College in 2012, worked odd jobs from teaching yoga and coaching gymnastics to working as a receptionist and chiropractic assistant. She wanted to find a job with better pay, and enrolled in law school at DePaul University in Chicago. She paid down most of her college debt before law school and borrowed about $150,000 for the legal degree, curbing the cost with some scholarships.
After graduating in 2021, she landed a job at an international law firm based in Los Angeles working in compliance — though the job doesn’t require a law degree.
“I do feel that many doors opened for me and that there is a lot of financial potential,” Berndtson said. “I would likely do things differently if I knew what I know now about student loan debt.”
Her partner, meanwhile, became a plumber without attending college or taking on student debt. Berndtson estimates it will take her until 2045 to pay off her loans, which she expects to grow to about $245,000 with interest. Her payments are supposed to be about $1,700 per month, but she has applied for an income-based repayment program.
Interest on federal loans began accruing on Sept. 1, ahead of the repayment restart date in October. Berndtson’s loans are now growing by almost $25 each day.
“The debt hangs over my life like an anvil on an unraveling string,” she said.
This article was provided by Bloomberg News.