New report says there’s a myth about student loan debt, and the real cause may shock you

loan-debt-studentAccording to a new report, the current national concern and outrage over student loan debt is misguided, since many believe the debt occurs while obtaining an undergraduate degree. Not true, say data experts, who revealed that most student loan debt comes from pursuing graduate degrees.

The report, “The Graduate Student Debt Review: The State of Graduate Student Borrowing,” released by the New America Foundation, a nonprofit, nonpartisan public policy institute, basis its findings from the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS)—a research dataset published every four years to compile information on student-level records, financial aid, student demographic, and enrollment data.

After reviewing the data, the report states that much (40 percent) of the $1 trillion in outstanding student loans derives from graduate and professional degrees, rather than bachelor’s or associate’s degrees.

What’s also interesting is that the report calls into question student accounts given to the media about their student loan debt.

(Next page: False reports; rising grad degree costs)

For example, the report cites a 2013 Wall Street Journal article about a 23 year-old student, Nicole Preucil, who said that she’s a public university student with $60K in student loans.

“I think tuition is absolutely too much,” said Preucil in the WSJ article, which noted that Preucil  “works part time at Starbucks to cover living expenses. Her parents, one disabled and the other working at a retail store, don’t provide financial support. ‘I kind of didn’t realize how expensive it was going to be here.’”

“Given the framing of the article–rising college costs and student debt–careful readers are surprised to learn that Nicole earned her undergraduate degree with a manageable $10,000 in loans, about one-third of what is typical for her peers who borrowed, after she ‘cobbled together scholarships and grants [and] worked part time’ to pay for her education,” notes the report. “That is why her comments regarding unaffordable tuition are actually about graduate school and the $50,000 in debt she added to her initial $10,000 to pursue that degree.”

The report emphasizes that Preucil’s story is “not unusual,” and her debt level is not the norm for a master’s degree recipient who borrows to pay for school.

“Balances for undergraduates, meanwhile, are low on average compared to those of graduate and professional students,” says the report.

But that’s not to say the report condones the rising cost of graduate degrees.

According to its data analysis, the trend of rising graduate degree costs are not limited to “high-cost credentials” like medicine and law. According to the data, in 2004 the median level of indebtedness for a borrower who earned a Master of Arts degree was $38K. In 2012, that figure jumped to $59K after adjusting for inflation. The trend is similar for other areas of study.

“This report is meant to encourage policymakers, the media, students, and others to start examining issues of college access, cost, and student debt only after first distinguishing between graduate education and a more limited definition of “college,” a two-year or four-year postsecondary credential,” stated the report.

It’s important to make this distinction, it says, because failure to distinguish between these two different categories of credentials is a flaw in how society perceives student debt.

(Next page: Calls to action)

For example, students, families, and taxpayers invest “significant” resources in financing college undergraduate degrees, in large part because a bachelor’s or associate’s degree is a “must for anyone who wants to secure a middle-class income,” explains the report.

If students are taking on unmanageable debt to earn those credentials, then many believe that the “system” isn’t working. However, “we should not draw the same conclusions from debt levels of students who attend graduate and professional school,” says the report, since though this type of degree boosts a student’s earnings prospects and the economy, it “is not the foundation for economic opportunity and middle-class earnings that a two-year or four-year degree now provides.”

The report also states that the higher education system actually aims to underwrite much of the cost and risk that students take on when they pay for an undergraduate education, but this is not the case for graduate programs, since those with an undergrad degree should “be far more informed consumers,” says the report. “Therefore, they shouldn’t need a lot of public support to finance their next credential, which is why there are no Pell Grants for master’s degrees.

Finally, the report emphasizes that the recent spike in graduate degree debt should focus policymaker’s attention to the lack of loan limits for students pursuing these degrees and income-based repayment programs that include loan forgiveness benefits.

“The debt statistics in this New America report suggest that graduate and professional students are likely borrowing at levels that will lead to substantial waves of student loan forgiveness in the coming years,” it concludes. “Policymakers may wish to reexamine if that is the best way the federal government can support our higher education system or whether these policies themselves are to blame for the marked increase in borrowing for graduate and professional degrees in recent years.”

For more information on trends in student borrowing, what institutions are charging for graduate credentials, and debt level statistics, read the report. There’s also the report’s author’s take on the data presented:

Add your opinion to the discussion.