(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")
SALLY HERSHIPS, HOST:
It is August. It is hot. I wish I was in a bathing suit. But just for a moment, work with me, pull your mind out of your beach read because college is starting soon, in just a few short weeks actually. And with that in mind, I thought we should do a pop quiz about...
CARDIFF GARCIA, HOST:
HERSHIPS: Yes - about college debt.
GARCIA: Were there pop quizzes in college?
HERSHIPS: I mean, I don't...
GARCIA: I don't think so.
HERSHIPS: I don't know. I went to art school (laughter).
GARCIA: And I didn't always go to class, so yeah...
HERSHIPS: All right. Well, we can make up for that right now with question No. 1, and the only question on this quiz, which is, do Americans owe more in credit card or student loan debt?
GARCIA: I happen to know the answer to this one, actually. It's definitely student loan debt. I think it exceeded credit card debt some time ago, actually.
HERSHIPS: Ding, ding, ding, that is correct.
GARCIA: All right.
HERSHIPS: As a nation, we owe more than $1 1/2 trillion in student loans. As Cardiff pointed out, that is more than credit card debt, for which we as a country owe a trifling $870 billion. But here's something that might surprise people. It is graduate students who are taking on a growing share of the country's student loan debts.
JON MARCUS: Even though we spent a lot of time talking about undergraduate debt, it's essentially been flat for a few years. What's going up is graduate debt.
GARCIA: That's Jon Marcus. He's the editor of The Hechinger Report. And he says the cost of graduate school is rising faster than the cost of undergraduate education. And consequently, according to the College Board, the total amount borrowed by grad students has been climbing. Back in 2002, only 32% of the dollar value of government loans went to grad students. But during the last academic year, that number was up to 40%. Welcome to THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.
HERSHIPS: And I'm Sally Herships. On today's show - why is the share of student loan debt taken on by graduate students rising so sharply? And how does that growing burden impact both the system of higher education and the economy?
There are a host of reasons graduate students are taking on a larger chunk of our student debt bill. Reason No. 1, as we have previously reported - undergrad enrollment is weak. There's been a dip in the birthrate, so fewer students. And as the economy has improved, after high school, a lot of people are going right into the workforce and skipping college. So schools are under enormous pressure to get butts in chairs. And they are increasingly looking to grad students to fill those seats and keep those sweet, sweet tuition dollars rolling in. This is a conscious strategy on the part of school administrators.
MARCUS: And they'll tell you that. One of the university presidents I spoke to about this was at a university in Florida, a Catholic university that's increased its graduate enrollment by 30% in the last few years. And the president said, if there is no margin, there is no mission.
GARCIA: Meaning this particular school in Florida is using revenue from graduate students to subsidize its undergrad programs. Moving on to the next reason, reason No. 2, that grad students are taking on more debt. If you are a grad student trying to take out a loan from the government, you're not going to get the same deal as an undergraduate student.
MARCUS: Federally subsidized student loans for graduate students have higher interest rates than federally subsidized loans for undergraduates.
GARCIA: Plus, Jon says, there are fewer limits to how much money graduate students can borrow. So, Sally, this means that grad students are going to be able to take out more debt than undergrad students and also because those interest rates are higher, if those grad students aren't paying off their interest in time, then it can add up.
HERSHIPS: That is right. And don't forget, grad students are often older, so they may be taking care of kids and rent and mortgage payments and car payments, and we could make this list so long, which is why grad students can also end up taking out these big loans, so that they're able to cover their tuition on top of their other expenses.
GARCIA: And that tuition can be high. It generally costs a lot more than undergrad tuition, which might seem a little bit mysterious because you'd think that the costs of providing a graduate degree and an undergrad degree would be about the same. At the very least, we can say that the diplomas don't cost a different amount, right?
HERSHIPS: Right, I mean, card stock - heavy paper, like, good quality with, like, a nice weave, that is expensive.
GARCIA: Yeah. But even in terms of overhead, those are fixed costs - you know, space, labor. And, Sally, this is actually something that you asked Jon about.
HERSHIPS: Why is graduate school so much more expensive than undergrad?
MARCUS: So there are good reasons and sort of conjecture about why graduate school is more expensive. The conjecture is that because it can be.
GARCIA: What Jon means here is that it can be because with a graduate degree, you have an advantage in the job market. You can get paid more after you graduate from a grad program, so schools can get away with charging more. Here are some numbers. The average annual salary for an anesthesiologist or a surgeon is just over $250,000. If you're making that kind of money, then going to medical school could have been worth it. If you're an orthodontist, psychiatrist, a CEO or a petroleum engineer, you're still likely to earn well over 150 grand a year, so you're still looking at a nice return on your academic investment even though your grad program was expensive and you ended up with a lot of debt right after you graduated.
HERSHIPS: What about journalists? Are they on that list?
HERSHIPS: ...I feel like...
GARCIA: And you knew it when you got into it. We all did. We knew what we were signing up for.
HERSHIPS: Because not everyone pulls in that kind of money, as I know well. So although some grad degrees come with the promise of big, fat salaries, some of them do not.
MARCUS: So you need a master's degree to be a social worker, and I don't think it would come as a surprise to anyone that social workers don't make a whole lot of money. You need a graduate degree, a three-year degree, to become a physical therapist.
HERSHIPS: And this is where we get to the impact the rising number of graduate student debt has on the economy. Jon says students looking for advanced degrees could turn away from the nonprofit sector once they do the math, once they compare the cost of taking on all that debt versus the potential for their future earnings.
MARCUS: And so there's a - that's a more subtle impact on the economy, but a lot of really smart people who might have gone into sort of public service, what we would consider public service-related kind of professions, are instead going into the private sector for the paycheck.
GARCIA: Yeah, that makes sense. Sally, as you're thinking about what to do with your life, you're looking not just at what's meaningful. You're also looking at what will help you pay the rent. And if you're staring at all this tens of thousands of, you know, debt, you might end up opting for the job that helps you pay that down. There could be another problem. There is a risk of taking this too far because if graduate programs are supposed to subsidize undergraduate programs, then what happens if graduate school enrollment also starts to weaken? And that could happen if the cost of graduate school goes up by too much. And we might already be seeing signs of this. For example, law school enrollment is down 29% since 2010.
HERSHIPS: And applications for MBA's also fell last year, and the number of grad school applications from international students is also down. Cardiff, did you go to grad school?
GARCIA: Yeah, for journalism. That's how you know I'm serious about it, OK? - went to journalism school, paid a ton of money for a degree that has not so much earnings power, sad to say.
HERSHIPS: Idea - new grad program to figure out how schools can pay for their undergrad programs without raising grad school tuition. And I will write you a letter of recommendation if you're in.
GARCIA: Well, thanks so much. I'm definitely going to get in then. Appreciate it.
HERSHIPS: Any time.
GARCIA: Sally Herships, always a pleasure. This episode of THE INDICATOR was fact-checked and produced by Emily Lang and edited by Paddy Hirsch. THE INDICATOR is a production of NPR.
HERSHIPS: Hi, this is Sally again. We have an episode coming up on sports that are newly recognized by the Olympics. And, athletes, we want to hear from you. How do you feel that your sport has gained official recognition? Are rules changing? Are you preparing differently? Are costs going up? We want to know. Email us - firstname.lastname@example.org - or @theindicator on Twitter.
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