The voices of Urban Institute's researchers and staff
January 16, 2018

Changes to graduate lending policy are long overdue

January 16, 2018

The House Republicans have endorsed a bill that would reduce the availability of federal education loans for graduate and professional degree students and make it more difficult for these students to have their debts forgiven. Is that a bad thing?

Under the Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act, the House Republicans’ first step in the overdue reauthorization of the Higher Education Act, most graduate and professional students, who can now borrow to cover their entire budgets for as long as they are in school, would be able to borrow a maximum of $28,500 per year with a lifetime limit of $150,000. The current practice of forgiving remaining balances after a specified number of years would be eliminated (for both undergraduate and graduate students), replaced by a provision to forgive balances only in rare cases after borrowers have repaid the principal and considerable interest.

These changes may sound harsh, but many voices have been raising alarms about the current system, which promises to forgive the large federal debts of many graduate and professional students who earn more than most taxpayers but less than the income required to retire their entire debts under the generous terms of current borrowing and repayment plans.

The advantages of the current system accrue disproportionately to the few graduate students preparing for careers in law, medicine, and other professions, a group that comes disproportionately from privileged backgrounds and has good prospects for high earnings.

Who borrows for graduate school?

Graduate and professional students constitute less than 20 percent of postsecondary borrowers, but they account for almost 40 percent of annual federal student loans. Average annual borrowing is more than $18,000 per student, more than three times the average for undergraduates. But all graduate students are not the same.

In 2011–12, almost 90 percent of professional degree recipients had debt, compared with about two-thirds of master’s degree and just over half of research doctoral degree recipients. Almost 60 percent of professional degree recipients had borrowed more than $100,000 to fund their studies, compared with only 10 percent of all advanced degree recipients.

distribution of debt amounts by degree type

Professional degree students—those preparing for careers in law, medicine, pharmacy, and other professions—rather than master’s and research doctoral students are accruing large amounts of debt.

Who are professional degree students?

Professional degree students tend to come from more privileged backgrounds than others.

Students who grew up in the upper half of the family income distribution are more likely than those from low-income backgrounds to enroll in programs that prepare them for the professions. Those from the lower half of the income distribution who continue their education after earning bachelor’s degrees are disproportionately likely to enroll in master’s degree programs in the liberal arts and sciences, education, business, or other fields. These programs are generally shorter and less expensive than professional degree programs.

2007-08 Bachelor’s Degree Recipients Who Enrolled in Graduate School by 2012

Graduates of professional degree programs can also anticipate higher earnings than other graduate students. In 2016, median earnings for adults with professional degrees were $100,000, compared with $92,000 for those with doctoral degrees and $66,000 for those with master’s degrees.

Borrowing for professional degrees has increased rapidly, with the share of graduates borrowing $100,000 or more increasing from 13 percent in 2003–04 to 56 percent in 2011–12. The share borrowing $150,000 or more increased from 3 percent to 33 percent over these years.

What are the implications of the proposed limits on access to federal student loans?

The graduate students who take most advantage of the generous Grad PLUS loan program are disproportionately those preparing for professions with high average earnings and come disproportionately from relatively privileged backgrounds. Using tax dollars to prevent them from depending on private loan markets or to forgive large amounts of their debt should not be the first priority for federal spending.

But we should aspire to creating opportunity for more students from low-income backgrounds to become doctors, lawyers, and other professionals. And we should encourage people who earn these degrees to pursue public service, not just to maximize their incomes. The most constructive avenue for reauthorizing the Higher Education Act should limit broad subsidies to professional degree students while providing the support and insurance those with limited resources need to pursue these paths.

Graduating students fill the Columbia University campus during a graduation ceremony in New York on Wednesday, May 17, 2017. Photo by Seth Wenig/AP.

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