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Opinion Fix this graduate-student loan fiasco


Zack Morrison is 29 years old and makes up to $50,000 a year from movie and photography jobs. He is a 2018 graduate of Columbia University’s Master of Fine Arts program, specializing in film.

Unfortunately, Morrison suffers from what he calls “2 a.m. panic attacks,” due to the $300,000 he owes in principal and accrued interest on student loans for his graduate degree. “How the hell am I ever going to pay this off?” he wondered in a recent interview with the Wall Street Journal.

Good question. And there should be more attention to the plight of Morrison and others like him if we’re going to solve student debt issues, instead of administering Band-Aids such as the extension of a covid-related payment suspension that the Biden administration announced Aug. 6.

Graduate school enrollment accounts for a disproportionate share of federal student loans. Borrowers for post-bachelor’s degree programs make up a quarter of those with federal student loans, but owe half of the $1.5 trillion outstanding, according to a 2020 Brookings Institution report. New federal loans for grad school grew from $35.1 billion in 2010 to $37.4 billion in 2017, according to a Center for American Progress report, while new undergraduate borrowing declined from $70.2 billion to $55.3 billion.

A widely held — and still largely accurate — view is that borrowers for graduate school are inappropriate candidates for public sympathy, much less wholesale debt relief, because law, business and medical degrees are tickets to high earnings later in life.

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Morrison’s predicament shows, however, that certain programs do not confer above-average future earnings, or even enough extra money to enable debt repayment, condemning their graduates to a lifetime of economic insecurity. To make matters worse, the universities that market these high-priced credentials are responding rationally to incentives that federal law creates.

Specifically, the Grad Plus loan program, created by Congress in 2005, essentially made it possible for prospective graduate students to borrow whatever schools charge for tuition, fees, room and board, and other expenses. By contrast, undergraduates face borrowing caps of up to $12,500 per year and $57,500 total, depending on individual circumstances. (Grad Plus borrowing totals $82.8 billion, distributed among 1.5 million individuals.) Fees and interest for Grad Plus are higher than for undergrad loans; the government covers any unpaid balance after 20 years.

It didn’t take long for universities to figure out that this system imposes little or no pricing discipline on them — and to shape their graduate programs accordingly, especially master’s degrees, which enrolled 49 percent of all Grad Plus borrowers in 2017, according to the Government Accountability Office. (That figure includes business school, often the prelude to high-paying work.)

Recent film program graduates of Columbia University who took out federal student loans had a median debt of $181,000, yet two years out of school, the borrowers’ median income was $30,000. New York University’s master’s in publishing grads borrowed a median $116,000 and earned a median of $42,000. Students in the University of Southern California’s marriage and family counseling program borrowed a median $124,000, but half earned $50,000 or less, as the Journal reported in a superb series on the phenomenon.

Borrowers in traditionally lucrative law, medicine and dentistry programs accounted for 43 percent of the Grad Plus population in 2017, according to GAO. Yet law school is no longer the certain ticket to a high income — and affordable debt service — it once was, the Journal found: Big-name law schools routinely graduate students who owe more than $100,000 but can’t find high-paying jobs as lawyers.

What to do? Congress enacted Grad Plus thinking it would make graduate school more affordable, to the benefit of students and of the larger society. Instead, it enabled some universities to turn their master’s programs into cash cows and (some of) their graduates into modern-day debt peons.

Canceling $50,000 in debt for almost all borrowers, as progressives such as Sens. Charles E. Schumer (D-N.Y.) and Elizabeth Warren (D-Mass.) suggest, would make taxpayers shoulder the entire cost of fixing this screw-up — from which many well-endowed universities profited. That hardly seems fair, especially since most taxpayers do not have a bachelor’s degree, let alone a master’s or higher.

Unless accompanied by structural reform, student debt write-offs would simply clear the deck for an eventual replay of the whole process.

The Education Department should consider rating graduate programs based on their students’ debt-to-earnings ratio, as Ben Miller of the Center for American Progress has proposed. Congress should set borrowing limits for Grad Plus. GAO found that a $100,000 lifetime cap would suffice for 90 percent of borrowers, and $50,000 would meet the needs of 71 percent. Quite possibly, schools would respond by moderating their charges.

Policy must reflect the lessons of the United States’ various student loan debacles. First, beware of unintended consequences; second, incentives influence behavior. Or maybe: Beware of unintended consequences because incentives influence behavior.