What Borrowers Need to Know About Rising Grad School Student Loan Debt

Despite all of the conversation the student loan crisis has inspired in recent years, one important piece of the puzzle has often been missing from the dialogue.

While most of the headlines have focused on undergraduate student debt and borrowers, the percentage of graduate student loans has been steadily and stealthily increasing.   Today more people take on a larger amount of debt for master’s, MBA, law, medical and dental programs than ever before.

And now, with a recent report from the New America Foundation putting the spotlight on graduate student debt, it’s becoming clear that this trend is here to stay.  So what do borrowers need to know about the current state of graduate student loans?  Here are the essentials:

Graduate student loans account for 40% of outstanding student debt in the U.S. today.

According to the New America report, debt for students who earned a range of master’s and professional degrees has surged in recent years, with the trend gaining significant momentum between 2008 and 2012.  This was partially due to a dismal job market sending a lot of college grads back to school in order to bolster job prospects.

But the increase in graduate student debt isn’t only due to a higher number of borrowers – the average amount borrowed has skyrocketed, as well.  Between 2004 and 2012, the typical debt load of a graduate borrower jumped an inflation-adjusted 43%, from $40,209 to $57,600.  And for those pursuing law or medical degrees, the current median debt load is much higher – $140.616 and $161,772, respectively.

However, the increase in graduate borrowing is not limited to law, medicine and other traditional “high cost” credentials.

According to New America, the rise in debt load was actually sharper for those pursuing advanced degrees in the social sciences and humanities versus professional programs such as MBAs or medical degrees.  For example, the median level of indebtedness for a borrower who earned a Master of Arts degree increased an inflation-adjusted 55% between ’04 and ’12, compared to the median debt level for MBA borrowers, which remained relatively flat over the same time period.

And while people with graduate degrees tend to experience higher salaries and lower unemployment than their college grad counterparts, the earning potential for each type of degree can vary widely.  As with any investment, borrowers should consider their likely return (in the form of future salary potential) when choosing how much debt to take on for higher education.

Grad students are taking on much more debt than undergraduates

While undergrads have limits on how much they can borrow in federal loans, students pursuing graduate or professional degrees can use Grad PLUS loans to cover the entire cost of attendance (determined by the school), minus any other financial assistance received.  In a sense, grad students have had a blank check from the government to pay for their degrees – no matter how costly they are.

Graduate loans often come with higher interest rates than undergrad loans

Most graduate borrowers use a combination of federal unsubsidized Stafford loans at 5.41% and Graduate PLUS loans at 6.41% to pay for degree programs, and sometimes still need to dip into even higher interest rate private loans.  That’s compared with undergraduate federal loans, which are currently at 3.86%.
In fact, before the Student Loan Certainty Act was passed in 2013, unsubsidized and Graduate PLUS loan rates had remained flat at 6.8% and 7.9%, respectively, for seven years.  Meanwhile subsidized undergrad loans – and prevailing interest rates – dropped to rock bottom.  As a result, a large percentage of outstanding graduate student loan debt is made up of relatively high interest rate federal loans.

For some grad school borrowers, refinancing may be a cost-saving option (yes, even for federal loans).

Many borrowers are aware that they can refinance private student loans, but it comes as a surprise to many that they may also be able to refinance federal student loans with a private lender like SoFI (in fact, about 89% of our $500 million in loan volume is made up of refinanced federal loans).  Refinancing at a lower rate can allow borrowers to save a significant amount of money on interest while potentially lowering monthly payments or reducing loan term.  And even a small change in interest rate can make a big difference.

Since federal loan benefits don’t transfer to private lenders, borrowers should first check to see if they’re eligible for one of the government’s forgiveness options before deciding to refinance.  But for borrowers who don’t qualify for these benefits, and who’ve improved their financial situations since leaving school, refinancing can be a great option.


For many grad school borrowers, student loans can be a powerful investment in their career and financial future.  But a big loan balance means big responsibility, making it crucial to balance the cost of an advanced degree program with its related earning potential.  And when the time comes, refinancing can help borrowers knock out the rest of their loans and move on to bigger and better things.


ABOUT Anna Wolf Anna Wolf is a financial writer and content strategist based in San Francisco. After 10+ years of writing, thinking and talking about personal finance and investing, she still learns something new every day.

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