As graduate student debt rises, it’s time to implement borrowing limits

With our student debt crisis raging and Biden’s student loan forgiveness plan now officially on hold, it’s easy to see why parents of students — and students themselves — are worried. Nothing seems to be going well in the higher education space, and it couldn’t come at a worse time since monthly federal student loan payments are set to resume in January 2023.

But, some segments of borrowers seem to be much worse off than others. Specifically, students who have earned a graduate degree or are pursuing higher education tend to carry more than their share of debt.

There are a multitude of reasons why those who attend college end up with more student debt than others, as the Brookings Institution recently pointed out. The most obvious reason is the fact that graduate students tend to borrow both for their undergraduate studies and high school. Beyond that, graduate students also accrue higher balances due to deferred repayment. This policy allows graduate students to avoid repaying their loans while they are still in school, but their undergraduate loan balances inevitably swell as they accumulate interest during this time.

The Brookings Institution also reports that more and more students are enrolling in graduate school in general, which only exacerbates the problem and worsens the overall statistics. Of course, they also note that the share of jobs that require or benefit from a college education has increased over time, with one analysis concluding that “the share of STEM jobs that most often require a master’s or professional degree has increased 5.7% between 2004 and 2015.”

Unlimited borrowing from graduate schools for inconsistent degrees

One of the biggest problems with graduate student loans is the fact that borrowers can rack up almost endless debt. For example, undergraduate students seeking direct subsidized and direct unsubsidized loans are limited to borrowing $5,500 to $12,500 per year depending on their school and dependent status. However, graduate and professional students and parents of dependent undergraduate students can borrow up to the full cost of attendance with Direct PLUS Loans, which have no annual or aggregate loan limit.

Then there are private student loans, which also allow students to accumulate almost unlimited student debt depending on the cost of school. As an example, College Ave student loans allow students to borrow for an annual limit of “up to 100% of the school-certified cost of attendance.” From there, a lifetime limit can be set based on “creditworthiness and degree chosen”.

Having large amounts of student loan debt could easily pay off if you go to medical school to become a specialist surgeon, or if you start a very profitable business that brings in millions of dollars for years to come. come. Unfortunately, statistics show that a large percentage of graduate degrees actually have a negative return on investment (ROI) when you factor in the cost of school.

In fact, a report published by FREOPP.org in early 2022 found that 40% of graduate degrees had no net financial worth after accounting for time and money spent in school. For example, the study showed that most graduate degrees in fields like art and theology had a negative return on investment (ROI). The same is true for many Masters of Business Administration (MBA) degrees, the study authors wrote, adding that more than 60% of MBAs and other business-related Master’s degrees have no return. positive after all the costs of earning them. are taken into account.

Should college loans have caps?

All of this begs the question: should graduate student loans be capped? Putting in place borrowing limits could be the answer to rising graduate student debt. At the very least, it might cause some prospective students to dig deeper into the actual return on investment (ROI) of the graduate programs they want to take to pursue.

Again, some experts warn that caps on graduate school loans could lead to a whole host of problems for students pursuing certain types of studies. For example, Michal Strahilevitz, Ph.D. of Saint Mary’s College of California points out that capping medical student loans would not be fair because medical school is expensive and the vast majority of parents do not have the money to pay school fees.

“It wouldn’t be fair to cap loans because that would mean only the rich can become doctors,” Strahilevitz added. On the contrary, she says, there should be more scholarships for medical professionals because their services are so crucial to the functioning of society.

“We certainly shouldn’t limit their opportunities,” Strahilevitz said.

Education Data Initiative’s Melanie Hanson also argues that capping higher education loans would have unintended consequences for higher education institutions themselves. Although the job market for those with advanced degrees, especially in academia, is almost non-existent these days, she points out that graduate students are still essential to the functioning of modern universities.

“It is the teaching assistants, tutors, research assistants and university employees who do much of the work of teaching undergraduate students, and capping Grad loans. MORE would mean far fewer people would be available to perform these tasks,” Hansen says. “Universities should hire replacements, further stretching their limited budgets.”

That being said, perhaps it’s time for us to ask ourselves if capping graduate student loans could help bring all the problems they cause under control. At the very least, perhaps loan limits could be put in place for fields of study that have the lowest potential for net positive returns.

If someone wants to get a graduate degree in art history, for example, they can try to find another way to pay for it.

Andrew Griffith, who is an associate professor of accounting at Iona University, also adds that capping student loans in general could encourage borrowers to “think more carefully about decisions about their degree programs and their post-secondary economic options.” -academics”.

For example, students who might have to find a way to pay cash for their graduate degree might end up pursuing another career or spending more time looking for a more affordable degree program.

The essential

Running a few numbers might even help students determine if their degree program is worth it.

Ultimately, Griffith thinks capping the money supply (e.g., student loans) in the post-secondary sector could also lead to lower tuition fees across the market. While it may just be wishful thinking, reducing the amount of funding students can access should theoretically mean that schools are forced to become more competitive in order to attract and retain students.

“In the long term, a global reduction in the price of higher education would really benefit society today and future generations,” he says.