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Where student loan debt is a real problem

Politicians and reporters often trot out recent college graduates struggling to pay off their student loan debt to illustrate the dangers of runaway college costs. But usually ignored in the outcry over student loan debt — which has doubled since the Great Recession to nearly $1.2 trillion — is that it is disproportionately the result of going to graduate school.

A report released this week by the Urban Institute found that in 2015-2016, graduate students, including those pursuing professional degrees, accounted for 38 percent of federal education loans but just 17 percent of students. What’s more, those pursuing advanced degrees borrowed, on average, three times as much as the typical undergraduate — $18,210, compared with $5,460. Perhaps even more worrisome is that the share of advanced-degree recipients borrowing at least $75,000 more than doubled between 2008 and 2012.

Many students pursue a master’s degree to further their career prospects, and especially their earnings. But a separate report to be released Sunday by the American Enterprise Institute finds that the payoff from master’s degrees varies greatly, based on field of study, and often isn’t understood by prospective students who lack salary data typically associated with earning a bachelor’s degree over a high school diploma. Using new data from three states — Colorado, Florida and Texas — the study found that master’s degree graduates in fields such as philosophy, art and early-childhood education have the lowest median earnings, often less than graduates with bachelor’s or even associate degrees, who go into other fields.

“As more and more students pay ever-increasing tuition and borrow more and more money to pay for their studies, it’s remarkable how little information we have about the wage outcomes associated with different programs,” said Mark Schneider, vice president of the American Institutes for Research and one of the authors of the report. “This kind of information is essential for students to have before they enroll and before they borrow tens of thousands of dollars to pay for a degree that is not highly rewarded in the labor market.”

One reason graduate school debt has grown is that students have nearly unlimited borrowing capability from federal programs — with few credit checks or examinations of ability to repay, which are required for most other consumer loans. Knowing that, schools have continued to push their tuition up.

While undergraduates don’t need to go through a credit check or supply documentation that they can pay back loans, they do face limits in what they can borrow from the federal government — $57,500 over four years.

The imbalance between graduate and undergraduate debt has given ammunition to critics who argue that the federal government is indirectly causing higher tuition prices by increasing aid each year or not putting caps on it. This theory is known as the “Bennett hypothesis,” named after former U.S. education secretary William J. Bennett, who, in a seminal essay in 1987, touched off a firestorm of debate when he suggested that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions.”

His reasoning was that if families didn’t have access to financial aid, they would refuse to pay higher prices, in the same way consumers can control prices in other markets. The Bennett hypothesis has been tested by dozens of researchers over the past three decades, with conflicting results.

The theory is perhaps about to get another test on a grand scale. In a bill released last month to renew the federal Higher Education Act, which governs student aid programs, Republicans in the House of Representatives proposed capping the amount of money graduate students could borrow at $28,500 annually, instead of allowing them to borrow whatever schools charge. The bill also would reduce benefits for borrowers in income-based repayment programs and eliminate the Public Service Loan Forgiveness Program, which zeros out balances for borrowers who work for the government and at many nonprofit organizations after they make 10 years of payments.

If such changes are approved, they are likely to severely depress the market for graduate school, especially among those students who are not subsidized by their institutions because they also teach or do research, or those who continue to work elsewhere while pursuing their degree.

While the master’s degree used to be an academic backwater — seen as a rest stop on the way to a PhD or as a consolation prize for those who fell short of a doctorate — since the 1980s, it has grown in popularity as the bachelor’s degree has become more ubiquitous in the job market.

The number of master’s degrees awarded annually has more than tripled since the mid-1980s, and has grown from some 473,000 to nearly 800,000 since the turn of the century. Part of this has been the result of the proliferation of new programs designed specifically for students who want to get a leg up in the job market but don’t want to pursue a doctorate.

The growth in the 1990s and the first decade of the new millennium came as schools offered master’s degrees in fields as diverse as computer science, journalism, engineering and sustainability management. As enrollment of full-timers grew, schools created part-time options, which boosted the bottom line by filling classrooms that otherwise sat empty at night, and added online programs.

After the 2008 recession, overall graduate school enrollments increased across the board, as many young professionals went back to school to wait out the economic downturn. After reaching a peak in 2013, enrollment numbers started to flatten, however, and if not for an influx of international students, graduate school enrollments would have fallen in recent years.

Within specific fields, master’s degrees remain popular in computer science, engineering and the health sciences, but enrollment numbers have dropped precipitously in education as fewer students pursue teaching careers and more states eliminate automatic pay increases for teachers who acquire additional education.

Even the venerable MBA is falling on hard times. Globally, 43 percent of MBA programs saw their application numbers decline between 2015 and 2017. Full-time MBA programs seem to be in the most trouble, with fewer than half of business schools reporting application growth in 2016. Some business schools have pulled out of the full-time, on-campus MBA market after years of declining applications and enrollment. Last fall, one of the country’s oldest business schools, the University of Wisconsin, suggested it might end its full-time program. (It later reversed course).

The declining interest in graduate school goes beyond its cost, however. There is a much bigger change in how students want to learn. The realities of the job market now require workers to continue to get education and training throughout their lives. Many graduate programs are lengthy and require students to take requirements that are not necessary for what they need right now in the job market (requirements that also drive up the cost of the programs).

In recent years, a new set of providers — including “boot camps” that offer courses lasting from a few hours to several weeks and low-cost online courses from top universities — have demonstrated the growing market for “just-in-time” education. Like the students enrolled in the programs, these providers have realized that most graduate programs offer a buffet of options when all students might need is one entree at a particular point in their lives.

As a result, several universities, including name-brand institutions such as the Massachusetts Institute of Technology, the University of Pennsylvania and Boston University, have launched MicroMasters degrees, which are shorter and less expensive than a traditional master’s degree and can be combined to earn that degree later on.

More such innovations in the graduate market are going to be needed in the coming years even if the federal government doesn’t put limits on graduate borrowing. As enrollment numbers are beginning to show, students seems to be losing their appetite for borrowing at any cost for a graduate degree that might not pay off in the job market.