Only 25% of those with student loans went to graduate school—but they owe around 50% of all student debt

Jul 16, 2021
In The News

When many people think of the student debt crisis, they think of jaw-dropping six-figure debt totals.

But “many of those big numbers end up being outliers or they’re grad students who have accumulated [debt] based on continuing their education,” says Rick Castellano, vice president of corporate communications for Sallie Mae. He says undergraduate college students rarely borrow over $100,000. 

Today, Americans collectively owe more than $1.7 trillion dollars in student debt. U.S. student debt has increased by more than 100% over the past 10 years and the fastest-growing category of student loans are those taken out by graduate students. 

Brookings estimates that while just 25% of student loan borrowers went to graduate school, these students hold about half of all outstanding student debt. 

The average amount of student debt for a person with a bachelor’s degree is $28,950. But it is $66,300 for an MBA, $71,000 for a master’s degree, $145,500 for a law degree and $201,490 for a medical degree. 

It is regularly argued that graduate students take on more loans because they can expect to earn more, which is often true. Workers with master’s degrees earn $1,545 per week on average and workers with a professional degree (such as a JD or a MD) earn $1,893 per week on average, the Bureau of Labor Statistics estimates.

However, those with a just bachelor’s degree earn closer to $1,305 per week and those with a just high school degree earn closer to $781 per week on average. Workers with advanced degrees also have significantly lower unemployment rates. 

The pandemic drew attention to the sacrifices that many medical professionals — who have some of the highest student debt totals — make. New York Congresswoman Carolyn Maloney even introduced a bill that would eliminate the student debt of health-care workers treating patients with coronavirus.

More recently, some elite graduate programs have come under scrutiny for leaving graduates saddled with massive amounts of student loans and without high enough early career earnings to pay down their debts.

As graduate student debt totals rise, many are calling attention to the issue. Here’s a look at why these totals have increased.

An increase in attendance

One reason for the increase in graduate student debt is because graduate program enrollment has increased over the past 10 years. 

Census data indicates that between 2000 and 2018, the number of people aged 25 and over who earned master’s and doctoral graduate degrees doubled. In 2000, 8.6% of U.S. adults had an advanced degree — that figure is now closer to 13.1%.

In the face of sluggish wage growth, many young workers turned to graduate school in hopes of increasing their earnings. For many, graduate school stood out as an opportunity to close stubborn wage gaps.

One reason for that thinking is because women must earn one more degree than men in order to overcome some of the wage disparities they face, a 2018 wage gap report from the Georgetown Center on Education and the Workforce found.

“A woman with a bachelor’s degree earns $61,000 per year on average, roughly equivalent to that of a man with an associate’s degree,” reads the report. “The same rule holds true for women with master’s degrees compared to men with bachelor’s degrees and for each successive level of educational attainment.”

For some, graduate school can help close these gaps, but it has also come at a cost. The federal student loan program has charged interest rates as high as 7.9% in recent years. Currently, they are set at 6.28%.

Sky’s the limit

Another major reason graduate students owe more in student debt is because they are able to borrow unlimited amounts of federal student loans, says Adam Looney, a nonresident senior fellow at Brookings and professor in the department of finance and executive director of the Marriner S. Eccles Institute for Economics and Quantitative Analysis at the University of Utah.

The cap on federal student loans for dependent undergraduate students is $31,000, but there is no limit on how much graduate students may borrow, Looney says.

“A dependent undergraduate student may not borrow more than $31,000 in total federal debt over their entire college career. A graduate student can easily borrow that in a single year,” he explains.

Looney adds that graduate students often carry cumulative debt from their undergraduate careers as well. 

“In addition, graduate students have gone to school for more years, often borrowing for both college and graduate school,” says Looney. “And many initially repay their loans more slowly because any undergraduate loans are deferred during graduate school, and certain professionals like doctors, dentists, or PhDs often enter residency or post-doc programs for a few years before entering formal practice.”

“But I think the big factor is that graduate school is expensive and graduate students are allowed to borrow at full cost.”