Graduate programs that don’t pay off in the face of scrutiny

With graduates accounting for nearly half of total student loan debt, policy experts are increasingly pointing to graduate school as a risky investment.

Over the past year, there has been growing evidence that postgraduate degrees do not always pay off, particularly after the Department of Education released information in August 2023 revealing a “weak” link between student debt levels and earnings outcomes, “raising concerns about the value financial” of master’s programs.

Another report by the Higher Education Advisory Group, a research and consulting agency focused on college access and success, also found that “ultimate pay can vary significantly” depending on the college a graduate attends and what they study.

“Many horror stories about student debt often come from students who have graduated from college,” said Michael Itzkowitz, founder of the HEA Group. “It’s not surprising. Postgraduate education is currently one of the most unregulated markets within higher education. We have just started peeling the onion in terms of the types of results these programs produce.”

The Department of Education is already working to crack down on graduate programs that can leave students in debt that cannot be repaid. Under new rules that came into effect this summer, graduate programs will have to report data on enrollment, total costs and private and institutional loans. The department will then use this information to determine whether the student’s debt is worth the student’s time and money. If a graduate program fails the debt-to-earnings test, students must sign a form confirming they have read the data before they can enroll.

Now, researchers at Georgetown University’s Center on Education and the Workforce are using similar data to support calls for even greater scrutiny of graduate programs and the consequences for those that keep students drowning in debt.

“Pursuing a graduate-level education will continue to be a high-risk endeavor as long as prospective students lack the information to distinguish between programs that are worth large graduate debts and those that are not,” says the report, “Graduate Degrees: Risky and uneven paths to the top,” published last week.

Researchers analyzed federal College Scorecard data to determine student earnings by majors and programs, which revealed highly variable debt-to-earnings ratios.

“This uncertainty discourages graduate enrollment among students from lower socioeconomic backgrounds and marginalized racial/ethnic groups, increasing the social stratification and chronic equity challenges that afflict higher education and the labor market.”

The report’s authors pointed to federal Grad PLUS loans, which account for 32 percent of graduate student loan disbursements and allow graduates to borrow enough money to cover the cost of attending the program, as part of the problem.

“The high level of borrowing allowed under the Grad PLUS loan program,” the report said, created “limited incentive” for graduate programs “to keep costs in line with expected profits.”

To create greater incentives for transparency, the report recommended cutting off a graduate program’s eligibility for federal Grad PLUS loans if it does not consistently pass the debt-to-earnings ratio test or the field earnings premium test, which compares how much more a college graduate earns than an employee with only a bachelor’s degree in the same field.

However, this is not as extreme as calls by some Republicans in Congress to eliminate Grad PLUS loans altogether.

“Some critics are calling for ending the Grad PLUS program altogether, but that would be like using an ax when a scalpel is a more appropriate tool,” said Artem Gulish, lead author of the report and senior federal policy advisor at CEW. “Our approach would ensure that valuable programs can continue to operate while curbing runaway costs and borrowing.”

HEA Group’s Itzkowitz said this type of graduate-in-charge programs have seen tuition and fees almost triple since 2000, he said.

“There is a strong argument that if programs receive federal funding in the form of grants and loans, they should be expected to produce good outcomes for enrolled students,” he said. “Not only is this important for students, but it is also critical for taxpayers who help subsidize their investments.”

He added that providing information about a program’s return on investment at the beginning of a student’s decision to enroll in college has much greater potential to alleviate student debt than politically controversial proposals to settle existing student debt.

“Some relief for borrowers underwater is like putting a Band-Aid on a cut,” Itzkowitz said. “It is critical that students earn enough to be able to reasonably repay their debt within a few years of completing any degree program. This is the first step that will help solve this problem and move the conversation forward.”

However, policymakers will need to develop these potential solutions in a market that needs college-educated workers. According to the report, employer demand for college-educated workers has nearly doubled over the past 40 years – from 8 percent in 1983 to 14 percent in 2021 – and is expected to continue to grow.

In a situation like this, “all of us in the higher education community must think about addressing student debt and the affordability of graduate degrees,” Suzanne Ortega, president of the Council of Graduate Schools, said in a statement to Inside the Higher Edition. “We all benefit from transparency. Universities and students can better understand both the direct and indirect costs of graduate education, make informed decisions about where and how much to invest, and better align resources and time with career aspirations and community needs.”

In some fields with high earning potential, there is no doubt that taking out large loans pays off.

Compared to workers with a bachelor’s degree in the same field, the report found that workers with advanced degrees in social sciences – including law – and health care have the highest job bonuses in these fields, at 54% and 47%, respectively. Meanwhile, the same report found that for workers in the education, public services, STEM and arts and humanities sectors, earning a degree only increases earning potential by 10-30%.

And among programs for which earnings and debt data are available, the report found that 41 percent of master’s degree programs and 67 percent of professional degree programs failed the debt-to-earnings ratio test, meaning students do not have sufficient discretionary income to repay your loans in a reasonable manner.

The most risky public service grades

The report found that programs in social work, school counseling, teaching and communication disorders – fields in which many professions require workers to have a college degree – had the highest failure rates on debt-to-earnings tests.

For this reason, the report also recommends grants to cover the education costs of people who want to work in “these key but often underpaid professions” without “exposing them to unnecessary financial risk”.

Jordan Matsudaira, a professor of public policy at American University who previously worked at the Department of Education in the Biden-Harris administration and co-author of the agency’s report on graduate debt, said the front-end grant is “reasonable” and a possible alternative to a forgiveness program Public Service Loans, which pays off student debt after an employee works for a government or nonprofit organization for ten years and makes 120 loan payments.

“We still don’t know enough about whether students truly understand public loan forgiveness when deciding which program to participate in,” he said. “People may not be willing to pay high prices up front, even if they don’t have to pay it all off.”

And while there is growing skepticism among the public about the value of a college degree, data shows that earning a bachelor’s degree in any discipline can increase a person’s lifetime earning potential compared to peers who do not have one.

Jason Delisle, senior policy fellow at the Urban Institute’s Center for Education Data and Policy, said the report’s findings illustrate why this skepticism may be misplaced.

“Bachelor’s degrees seem to offer the most mobility. In fact, it is the master’s degree requirements that should be of greatest concern,” he said. “We would all be better off if people shifted their focus from waiving bachelor’s degree requirements to waiving master’s degree requirements.”