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 increasing.
Today more people take on a larger amount of debt for master’s, MBA, law, medical, and dental programs than ever before. So what do borrowers need to know about the current state of graduate student loans? Here are some essential learnings:
The Increase in Graduate Borrowing
According to a recent report from the New America Foundation, debt for students who earned a range of master’s and professional degrees has surged in recent years. There isn’t one specific reason for this, of course, but one impetus for going back to school seems to be that some regard a master’s degree as the new bachelor’s degree .
It comes as no shock then that the average graduate student loan debt has skyrocketed. In the 2016 to 2017 school year, graduate school loan disbursements accounted for more than a third of the total federal loan program. In fact, $35.7 billion was disbursed to grad students for the 2016 to 2017 school year.
And for those pursuing professional degrees, including those studying law or medicine, the current average debt load is $159,000 per student. But the increase in graduate student debt isn’t necessarily due to a higher number of borrowers—it’s that students are borrowing more for graduate school.
And while people with graduate degrees tend to earn higher salaries and experience lower unemployment rates than their counterparts with undergraduate degrees, 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 More Debt than Undergrads
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.
Students in professional degree programs have the “highest rates of annual borrowing, taking on an average of $40,624 from all sources for a single academic year.”
Graduate Loans Come with Higher Interest Rates
As of this writing, 58% of graduate students borrow money to help cover graduate school costs. Most graduate borrowers use a combination of federal unsubsidized Stafford loans (currently at 6.6% interest) and Graduate PLUS loans (currently at 7.6% interest) to pay for degree programs—and sometimes still need to dip into higher interest rate private loans. That’s compared with undergraduate federal loans, which are currently at 5.05% (until June 30, 2019).
How Refinancing Can Help
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.
Even a small change in interest rate can make a big difference in the long run. Refinancing student loans at a lower rate may allow borrowers to save a significant amount of money on interest while potentially lowering monthly payments—or borrowers can possibly reduce their loan term.
Since federal loan benefits (like forbearance, income-based repayment plans, and loan forgiveness) don’t transfer to private lenders, borrowers would be wise to first check to see if they’re eligible for one of the government’s loan benefits before deciding to refinance. But for borrowers who are looking for a potentially lower interest rate or have 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 more of their loans and move on to bigger and better things.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.