Student debt has been a problem for many students for the past decade. Now it looks like the problem may be larger than just to one specific group of students. Of the over $1 Trillion in student loan debt, $600 Billion of it belongs to graduate students. That’s over half of the outstanding student debt being held by only a small percent of the student and graduate population. Soon, it will be ten years since new rules were introduced dealing with it and it’s an understatement that this situation has to change.
How Did Grad Students Get Here?
So how does less than a fifth of the student population wind up with half the debt? It’s the increased cost of tuition obviously and the differences between undergraduate and graduate loans. First, the process to get a graduate student loan is simpler. Applicants are considered as independent and no longer require their parents’ financial information to get a loan. With only one set of tax returns to analyze, applications are cleared more easily and quicker. Second, graduate students, in particular low income students; have fewer options. Pell Grants are not available for graduate studies. Even a student that worked full or part-time and took extra months or even years to complete a Bachelors Degree will find themselves needing to take on student loan debt to further their education. Their choices as far as Federal Loans go include Graduate PLUS and Stafford loans. Perkins loans are also available, but they are not funded as well as the Graduate or Stafford loans.
Interest and Borrowing Limits
Another difference is both good and bad for graduate students. Interest rates on their loans are now linked to the 10 year Treasury note. While this means they will no longer pay higher than the market rate for their loans, it does mean that they will pay a higher rate than they did for undergraduate loans.
Finally, the borrowing limit is much higher for Graduate loans. Using Stafford loans as an example, undergraduates are maxed out at $31,000 over an entire traditional four year program. For Graduate loans, students can borrow up to $20,500 per year. Stafford loans allow for a total of $138,000 for both loan programs together. Health Care Students in certain fields are allowed up to $47,167 each year for a lifetime total of $224,000.
All of this adds up to placing a crushing debt on the very people that every society depends on to grow their economy and push forward in every field from engineering to medicine. In their report released in March, the New America Foundation details that forty percent of the over $1 Trillion in student debt has been for graduate degrees.
According to Jason Delisle, author of this report, graduates with advanced degrees now owe on average $57,600 between their undergraduate and graduate loans. That’s only the average. One-fourth of these graduates have borrowed almost $100,000 by the time they complete their education and the “top” ten percent have borrowed over $150,000.
Unintended Consequences Strike Again!
Ironically, it has been the success of repayment programs established in 2006 that may have led to increasingly higher numbers of borrowing. The Income-Based Repayment among other repayment plans were intended to provide graduates struggling to repay their loans a way to do so and yet still advance their careers and families. Loan Forgiveness Programs were also created to discharge those loans for people who could no longer repay their loans due to physical injury or had chosen a community service career that while personally rewarding, was not financially so. Unfortunately, these programs are in danger of being abused by some.
According to Mr. Delisle’s report, combining almost unlimited borrowing and then giving people an “out” after ten years means that very soon, perhaps as early as 2016, we may see a huge increase in the amount of debt being basically written off or payments being reduced and then finally written. As long as fraud isn’t involved, none of these applicants are doing anything wrong either.
Before you shrug and say “serves the government right”, remember that the billions in debt that may just disappear is money that was expected to be paid back in order to fund future student loans and other programs such as Pell Grants. In order to prevent this, Delisle’s report suggests that lower caps be placed on what graduates can borrow and what the government will discharge through its loan forgiveness programs.
It’s A Start
This may not solve the entire problem, but it is something that can be done now. As we’ve reported before at Student Debt Relief, rising tuition costs are directly tied to the availability of student loan money with some universities taking advantage of programs intended to help families pursue their dreams. To stay on top of this and other student loan information, check in with us at our news blog and growing knowledge base regularly.