Policy: Economy

Manhattan Moment: Graduate borrowing is the real student debt problem

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Opinion,Education,Op-Eds,Finance and Banking,Economy,Student Loans,Manhattan Moment,Higher Education

It's no secret that student loan debt is reaching crisis levels in America, but the conventional narrative on student loans neglects a crucial aspect: the rapid growth of graduate student borrowing.

A recent report by the New America Foundation argues that the real student debt problem occurs on the graduate level. Using statistics from the Department of Education, they show that from 2004-2012, the "median level of indebtedness" for students earning master's of arts degrees increased 43 percent. Consequently, graduate student debt now constitutes a whopping 40 percent of the $1 trillion in total outstanding loan debt.

Over the past decade, the aid programs that have grown the most are those on which graduate students rely most. From 2003 to 2013, spending on the unsubsidized federal Stafford loan program, has increased 156 percent, while spending for the PLUS loan program has increased 179 percent.

Grad students are using these programs thanks to their low eligibility criteria and generous disbursements. To become eligible for unsubsidized loans, students need only attend an accredited program that leads to a degree or certificate. They do not need to demonstrate financial need. To obtain PLUS loans, students must also be enrolled in an "eligible program" and have a good credit history. While students who obtain the unsubsidized loans face semester and lifetime limits on the amount they can borrow, PLUS loan borrowers can receive as much as the difference between their cost of attendance and any other form of financial aid.

Oddly enough, the report doesn't mention why we should worry about the growth of graduate debt. It simply states that debt is rising and leaves us to think that this itself a worrying trend. However, this tacit argument relies on a fundamental misconception about the nature of student debt.

As I recently argued in National Affairs, student debt is not inherently bad. Quite to the contrary: It allows less-fortunate individuals to make a substantial investment in their future. It's therefore essential that we not demonize student debt. And fortunately, the report doesn't fall into that trap.

Its authors ask us to distinguish between the debt undergraduate and graduate students assume. The former is worthwhile because "a bachelor's or associate's degree is a must ... to secure a middle-class income," while the latter is less so, because graduate students have already obtained a college degree and should therefore have higher incomes than those without one. To that, the authors ask policymakers to think about imposing stricter limits on graduate student borrowing.

They might get their wish. Sen. Tom Harkin recently told the Wall Street Journal that he was willing to consider reinstituting lifetime loan limits for graduate students. This would be a positive first step in curbing irresponsible borrowing. However, it's important that policymakers not stop there and take a hard look at undergraduate borrowing, too. Unfortunately, the report seems to argue that since undergraduate debt hasn't grown as quickly as graduate debt and is a better investment, its growth isn't a significant concern.

This reasoning is inaccurate. Not only has undergraduate debt grown significantly in the past few years, but the percentage of students failing to repay in a timely fashion is growing as well. These students have more to lose then their peers with graduate degrees, because their earning power is generally lower. Moreover, if we agree with the report’s authors that a college education is a particularly worthwhile investment, we’re obligated to help fix the debt problem for undergraduates.

Fortunately, both Harkin and Sen. Lamar Alexander, the ranking Republican on the Senate Education Committee, have indicated that they'd consider more stringent loan limits for undergraduates as well. We can only hope they're serious.

Judah Bellin is an associate editor at the Manhattan Institute, where he researches higher education policy and edits Minding the Campus, the institute's higher-education website.
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