New income-driven repayment plan could lower student loan debt bills

The idea of pursuing a graduate degree is to supercharge your lifetime earnings, but some students come out of their programs buried in debt and unable to earn enough to pay down their interest, allowing their loan balances to snowball, a new analysis finds.

Five years after graduation, students from about one-third of graduate school programs owe more on their loans than they initially borrowed, according to the new study from the HEA Group and Student Defense, a nonprofit that advocates for students' rights. Founded by Michael Itzkowitz, the former director of the Department of Education's College Scorecard, HEA provides data on college costs and other topics. 

While policy experts and families are increasingly scrutinizing the cost of a bachelor's degree, less attention has been placed on grad programs, which are often professional degrees geared toward helping students learn work-focused skills, such as through a medical program or an MBA. But one-third of grad schools may not be providing much of a boost to earnings, while also leaving their students deep in debt, the study suggests. 

"We have little accountability around graduate programs," Itzkowitz told CBS MoneyWatch. "We've heard tons of stories about students leaving graduate programs while drowning in debt. These data suggest that many of them are probably true."

That prompted HEA to systematically examine 1,661 institutions and 6,371 separate programs to see how graduates were handling loans after getting their degrees. The findings "raise a lot of cause for concern," Itzkowitz said.

"It means that grads are not making payments that are large enough to at least cover the minimum payment," he noted. "What that also means is that they now owe more than the amount that they originally borrowed five years prior."

The worst offenders: For-profit schools

Among the 1,661 institutions analyzed, students at 528, or 32%, owed more on their loans five years after graduation than they had first borrowed. The worst offenders are for-profit and private non-profit institutions, the analysis found. 

For instance, graduate students at Walden University saw their loan balances grow the most, as their students accumulated $289 million in additional loan interest within 5 years of graduation, according to the study. Walden is a for-profit, online institution that offers masters and PhD programs in fields such as nursing and criminal justice. 

For instance, Walden grads with psychology PhDs earn about $72,000 after receiving their degree, but typically also carry debt of $175,000 — meaning that they owe two and a half times as much as they earn annually. 

"One of the things that Consumer Financial Protection Bureau recommends is that you should at least be making as much, if not more than, the amount of debt that you are taking out," Itzkowitz noted. 

That metric means that psychology PhD should ideally have no more than $72,000 in debt upon graduation, or they could risk not being able to make their minimum payments. 

Walden didn't immediately return a request for comment. 

It's not only for-profit schools that load up grad students with debt. One of the programs with the highest debt-to-earnings ratio is Columbia University's master's degree in film and video, the analysis found. Grads typically earn about $28,000 annually but have debt of almost $164,000. 

Columbia didn't immediately return a request for comment.

"This data gives an indication of which programs are serving students well, and whether or not they're earning a high enough salary and whether or not they're borrowing a reasonable amount of debt in order to be able to pay down their loans over time," Itzkowitz noted.

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