Federal-Loan Changes May Curb Graduate Study

As the nation’s student-loan debt surpasses the $1-trillion mark, alarming students, parents, and politicians, few are thinking about the effects it is having on people like Michael J. Trivette, a 28-year-old graduate student in higher education at the University of Georgia.

He has taken out $8,000 in loans for his Ph.D. program in higher education even as he works diligently to finish paying off his undergraduate debt. The debt that Mr. Trivette and other graduate students like him have accumulated to pay for their postbaccalaureate studies accounts for a third of the total student-loan debt in the United States, but much of the national conversation is about undergraduates.

Two-thirds of Ph.D. and other doctoral students and nearly three-quarters of master’s students graduate with loan debt, according to the Council of Graduate Schools. On average, the cumulative debt of master’s-degree students is over $50,000; for doctoral students, it is about $77,000.

And now, the debt burden on graduates is set to grow, beginning July 1. After that date, students pursuing advanced degrees will no longer qualify for the in-school interest subsidy on Stafford loans. That means they will have to start paying the interest on their loans while they are enrolled or let it build up, adding to their debt.

The rules are not changing for subsidized loans borrowed before July 1. The interest rate on graduate loans will remain at 6.8 percent, and there will be no change in the maximum yearly amount that students can borrow.

The total debt borne by graduate students is expected to increase as about $125-billion in graduate-student borrowing is shifted from the subsidized to the unsubsidized program, costing students $18.1-billion over the next decade, according to estimates by the Congressional Budget Office.

Mr. Trivette, who will enter the third year of his Ph.D. program, has paid back all but $1,300 of the $26,000 he owed for undergraduate student loans. In his first two years of graduate school, he took out loans for books and student fees. He earns about $19,000 a year as a teaching assistant, which covers basic living expenses but not other rising costs, including student fees, which went up by $400 this academic year.

He says he’s not a spendthrift and uses his student-loan options sparingly, yet he feels like Sisyphus, condemned to an eternity of rolling a massive boulder up a steep hill, only to have it roll back down each time he nears the top.

Mr. Trivette’s boulder, student-loan debt, probably will get heavier as he and thousands of other graduate and professional-school students with federal loans face new types of costs because of changes in the law. After the July 1 changes, he says he will be less willing to take out loans because, unlike under the older rules that defer paying interest, the interest will start accruing while he’s enrolled. But he still may have to borrow from the federal government to make ends meet, and he is bracing for the higher monthly payments that would result.

With the elimination of the subsidized-loan option, graduate students who take out large amounts of loans could owe hundreds of dollars more per month. For example, a graduate student who has borrowed $65,000 in subsidized loans from the federal government—the maximum amount now allowed—would have to take out an unsubsidized loan, requiring $207 more in payments per month in interest over the course of 10 years, including while still enrolled in school.

Graduate students also will no longer be eligible for special incentives for repaying their loans on time. Students now pay a 1-percent origination fee when they take out a loan but are given a refund equal to half that amount when they make 12 successive on-time payments in the first year after graduation. The Congressional Budget Office estimates that eliminating this credit would save the federal government $3.6-billion over the next 10 years.

The changes to graduate students’ loan programs are the result of the debt-ceiling deal signed into law last summer. They are projected to save the federal government $21.6-billion over the next 10 years, money that will be put toward Pell Grants for financially needy undergraduates. This is the first time in the history of the federal student-loan program that an existing borrower benefit will be eliminated for a particular group of students, according to organizations that represent graduate and professional-school students.

Graduate students are worried about what this will mean for their wallets and for their ability to finish their degrees. And some of their advocates say that enrollment and retention rates may drop.

‘Glossed Over’

Andrew S. Belasco, also a second-year doctoral student in higher education at the University of Georgia, says the problems of debt taken on by graduate students are glossed over because people often perceive graduate school as a privilege.

“To secure employment, a graduate degree is a necessity if you want job security or to advance in certain fields,” Mr. Belasco says. “Those in favor of the subsidy cut tend to believe that graduate students can take on more debt because they will have a higher income when they finish school.”

Mr. Belasco and Mr. Trivette have been researching borrowing patterns among graduate students nationwide, something they say is grossly understudied. They compared borrowing for the periods 1999-2000 and 2007-8, the last year for which data were available. They presented their findings in June at the annual meeting of the Association for Institutional Research.

They found that a higher proportion of graduate students took on student-loan debt. In 2007-8, 57 percent of graduate students said they had borrowed for school, compared with 49 percent in the earlier period, based on data from the National Postsecondary Student Aid Study.

The greatest increase in borrowing occurred among master’s students. Of those who completed their degrees in 2007-8, 55 percent had taken out student loans, compared with 42 percent in the earlier period.

Students in master’s programs generally do not get fellowships, Mr. Belasco says, and universities continue to expand those programs, which are often revenue generators. “Colleges are going to find ways to capitalize on this new demand for graduate education and will look seriously at M.A. students because they are more willing to pay their own way and at a higher rate than other types of grad students,” Mr. Belasco says.

For doctoral students, Mr. Belasco and Mr. Trivette found a significantly higher amount of average borrowing, from $19,178 in 1999-2000 to $42,828 in 2007-8. The increase was attributed mostly to loans among those who completed degrees in education, psychology, science, engineering, and the ministry.

At the start of their study, Mr. Belasco and Mr. Trivette expected to see a significant rise in the average amount that graduate students borrowed for their education, given the steady rise in tuition. They did not see a sharp rise, although the time period of 2007-8 came just before the onset of the economic crisis. They will be able to analyze graduate-student borrowing patterns since the 2008 recession when the next National Postsecondary Student Aid Study is released in early 2013, and the data should indicate whether borrowing levels have increased as a result of changing economic conditions and state cuts in support for higher education.

The Council of Graduate Schools’ research on how graduate-student debt affects different groups of students suggests that eliminating the in-school interest subsidy is likely to have the greatest effect on the debt levels of women and of students from underrepresented minority groups. At the master’s and doctoral levels, black and Hispanic students have higher average cumulative loan amounts than their white and Asian counterparts. And women have higher debt levels than men.

Heavier Burdens

Organizations representing graduate students and those in professional schools say that taking benefits away from people who pursue advanced degrees will negatively affect students and graduate education in both the short and long terms.

“We are deeply concerned and disappointed,” says Joanne Canyon-Heller, president of the National Association of Graduate Admissions Professionals.

Ms. Canyon-Heller is worried that the subsidy cut will affect retention more than enrollment. Because women and minority students tend to come from lower income brackets than their peers, they often have to take out more money to finance their education. “Anything that causes them not to be successful, like taking on more debt, is going to affect their ability to finish,” she says.

Mr. Belasco, who is married with two children, says that despite a full fellowship and stipend, he must still find a way to support his family while he attends graduate school. “I’ve already had to dig into savings,” he says. “Until now, I was able to meet our living expenses through subsidized loans. I no longer have that option.”

He says he’ll be reluctant to take on more loans after the subsidy cut takes effect. He expects to complete his degree in four years and hopes he won’t be forced to shorten his time in the program because of increased costs. The fourth year, he explains, is crucial to expand publications and strengthen the research skills needed to get a faculty job or policy position.

Eliminating the in-school interest subsidy also will increase the cost of attendance at a time when the job market is sluggish and advanced degrees offer little shield from unemployment.

Patricia McAllister, vice president of government relations and external affairs at the Council of Graduate Schools, says the subsidy cut comes as growing numbers of jobs require people with postbaccalaureate credentials. By 2020, the Bureau of Labor Statistics projects, 2.6 million new jobs will require people with advanced degrees.

“We should be encouraging more students to pursue graduate studies,” Ms. McAllister says. “But at the very time we are seeing the bureau’s data, this new policy will make it more difficult for people to pursue advanced degrees.”

Graduate students and their advocates see the new changes adding yet another layer to a vicious cycle.

“A lot of parents helped out their kids for their undergraduate education but can’t help with grad school because they don’t have the money,” Ms. Canyon-Heller says. “People are graduating from undergrad with more debt and can’t think about how to pay for grad school at the same time that they are being told that they need to get a good job.