Federal loans for graduate students on track to outpace those for undergraduates

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Dive Brief: 

  • The U.S. Department of Education could soon disburse more for graduate student loans than it does for undergraduate loans, according to a recent report from the agency’s chief economist office. 
  • That’s because undergraduate loan disbursements have plummeted, falling from almost $80 billion in 2010 to $45 billion a decade later. Those figures are adjusted for inflation to 2020 dollars. 
  • Meanwhile, graduate loan disbursements surged starting around 2000 before leveling off at around $40 billion from 2010 to 2020. Graduate loans will account for the majority of disbursements in the next few years if these trends persist, according to the report. 

Dive Insight: 

The August report offers insight into how the federal student loan landscape is shifting and what’s fueling those changes. More adults heading to graduate school is one big driver. 

The share of adults ages 25-54 with a graduate degree has doubled over the past 20 years, according to the report. Much of the increase came from master’s degree attainment — the share of adults with that diploma rose from 6% in 2000 to 12% in 2022. 

However, degrees awarded tell only part of the story. Not only have more students pursued graduate studies, but borrowing amounts for these programs have also increased when inflation-adjusted to 2020 dollars. 

In 2000, borrowers who completed their degrees took out an average $53,140 for their graduate programs. By 2016, that amount rose to $66,502. And the share of borrowers taking out loans for high-priced programs has also jumped. 

Just 1.9% of graduates in 2004 took out between $60,000 and $80,000 in federal loans to finance their graduate education. But that share more than doubled to 4.7% in 2016. 

Similarly, 1.4% took out over $80,000 in graduate student loans in 2004, growing to a whopping 10.8% in 2016. 

Many borrowers see these investments pay off — their earnings are significantly higher than those of high school graduates and those who finished undergraduate programs only. 

For instance, median lifetime earnings for master’s degree holders are estimated to be around $3.2 million, compared to $2.8 million for those whose highest degree is bachelor’s, according to a 2021 report from Georgetown University researchers. 

Yet while borrowing has increased, the earnings premium enjoyed by those with graduate degrees has remained the same over the past two decades, according to the Education Department’s analysis.  

“This suggests that the net returns of graduate degrees may have fallen over the past 20 years, but further analysis of policy driven changes to the costs of student loans to graduate students and out-of-pocket payments is necessary,” it said. 

Concerns have been mounting over whether graduate programs give students a good return on investment. 

In fact, one-third of colleges leave their graduate students owing more on their loans than what they initially borrowed five years after they enter repayment, according to a recent report from The HEA Group, a consultancy and research agency. 

The Education Department’s report highlighted recent regulatory proposals meant to address some of these issues. It called out the draft of the gainful employment rule, released in May, which would cut off federal funding to for-profit colleges that leave their graduate students with high debt burdens relative to their earnings. 


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