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When Nicole Armbrust decided to earn a master's degree in social work, she wasn't particularly worried about the cost.
"I had always heard from faculty, staff, students that if you wanted to go to grad school, there's so much funding available that you wouldn't have to take out as many loans as undergrad," she recalled.
Wrong. The aid was not available, so Armbrust wound up taking out both a federal Stafford loan and a $30,000 private loan. She earned her degree, but salaries in her field are relatively low. So Armbrust has struggled to keep up with loan payments—not always successfully—even though she has one full-time job and two part-time ones. Her private lender offers no income-based repayment options, she said.
"I really feel like I will die, despite how hard I work, with my loans," she said.
Student debt is straining millions of students' finances, and it is a hot-button topic on college campuses across the country. But if you look at who is really borrowing heavily, it's the graduate students.
Graduate students made up less than 18 percent of all the students receiving federal loans in the academic year 2012-2013, but they received about 40 percent of the federal money, according to an analysis of Department of Education data. And a study released in March by the New America Foundation found that for the roughly 64 percent of graduate students who take out loans, the median debt for their undergraduate and graduate education was over $57,000 in 2012, up from just over $40,000 in 2004.
"The people who are borrowing are borrowing everything," said Jason Delisle, director of the federal education budget project at the New America Foundation and the author of the recent study. "If you're going to borrow for graduate school, it's generally not people who are borrowing just to fill in the gaps."
The growth in graduate student borrowing has many roots. First, overall graduate student debt has increased as graduate school enrollment has risen. Between 2002 and 2012, applications to graduate school grew at an annual average rate of 4.5 percent, according to the Council of Graduate Schools. The growth was 3.8 percent at public universities and colleges, and 6.1 percent at private, nonprofit ones.
Tuition has been rising as well, though it varies widely depending on what a student is studying. Average tuition and fees at several top-tier business schools were close to $59,000 for the 2012-2013 school year, according to a U.S. News & World Report survey, up more than $6,000 from 2010.
Debra Stewart, president of the Council of Graduate Schools, said that on average, graduate school tuition increased 14 percent from 2004 to 2012, but that was far less than the 25 percent increase in undergraduate tuition over the same period.
Still, even a 14 percent increase over eight years can bite—especially when there is less aid available with tuition. Consider, for example, what is happening with masters degree programs in education.
Both in education and in areas such as social work and public health, students often come from public sector jobs, and many of those public sector employers provided tuition assistance in the past. But government budget cuts have slashed tuition assistance programs, as Armbrust found, so borrowing by students in these fields has skyrocketed. Stewart said borrowing increased 38 percent from 2004 to 2012 for students seeking a master's in education.
The good news is that the federal government, far and away the biggest provider of graduate student loans, offers various kinds of help with graduate student debt. For example, students who graduate and have low initial salaries can qualify for income-based repayment plans. If their income never rises above the federal ceiling, they can stay in the program for 25 years, at which point their loan will be forgiven—though they may wind up paying more total interest over that time. (If they start earning more, they can pay off their loans earlier.)
Students who graduate and go into public service have other options. For example, if they make 120 complete and timely income-based monthly payments, they may have their federal loan balances forgiven after 10 years.
Some critics say those programs are actually contributing to the rise in graduate student debt. Partly that's because people making income-based payments may take longer to pay off their loan, and wind up paying more in interest. But mainly, these critics say, it's because the federal loan assistance programs create the wrong incentives for students.
"Essentially anybody can go to graduate school, no money down," said Delisle. Because the federal government offers basically unlimited borrowing for graduate school, even for related living expenses, students can take on large amounts of debt—even for degrees that may never lead to salaries that will make loan repayment easily manageable.
But others say the repayment programs are a useful tool for students with low starting salaries to get on their feet. Charles Pruett, assistant dean for financial aid at Georgetown University Law Center, says students who graduate from Georgetown may land clerkships that are prestigious but low paying. Income based loan payments let them have the experience, and they can then repay their loans more quickly if they move into more lucrative work.
Pruett argues that much of the increase in graduate student debt may be a product of the financial crisis and the recession. "People lost their jobs and went to graduate school," he said. "They didn't have money, and it's one of the few times in your life that you are able to borrow money to live."
Debra Mollen, now an associate professor at Texas Woman's University, doesn't regret borrowing to pay for her master's degree in counseling psychology. She took out roughly $20,000 in loans to pay for her master's, and received full funding from her university for her doctorate. Now 42, she says she finished paying off her loans a few years ago. "My professional life is very fulfilling and I'm pleased with the way my career has been going," she said.
Certainly, data on earnings make graduate school look appealing. Unemployment rates decrease with every level of schooling, according to Bureau of Labor Statistics data, and median weekly earnings for those with master's degrees, professional degrees, or doctorates are more than double those of high school graduates.
Still, while borrowing may be the move that makes more education possible, it almost never comes without a cost. And right now, graduate students are learning the hard way how high those costs can be.
—By Kelley Holland, Special to CNBC.