Why is Graduate School So Expensive?

On May 13, Preston Cooper published Why is Graduate School So Expensive? on the FREEOP substack called The Tassel.

At the beginning of the article, Mr. Cooper provides a few hard-hitting facts.

  • Graduate students will account for 48 percent of new federal student loans in 2023.
  • Graduates of master’s degree programs owe more than $55,000 in federal student loans.
  • Graduates of professional degree programs owe more than $190,000 in federal loans.
  • Grad students are allowed to borrow almost unlimited amounts through GradPLUS.
  • Prior to 2006, grad student loans were capped at $18,500 per year.

Research Paper Examines Impact of GradPlus Program

Mr. Cooper writes that a new research paper authored by economists Sandra Black (Columbia University), Lesley Turner (Vanderbilt University), and Jeffrey Denning (Brigham Young University) examines the impact of GradPLUS on borrowing and tuition. In the years immediately following the creation of GradPLUS, students increased their borrowing by more than $6,000. Universities captured most of the additional loan funds by increasing tuition for graduate programs. The economists calculated that 64 percent of the additional loans went straight to the universities.

The economists revealed other findings. Access to graduate programs by disadvantaged students did not increase following the creation of GradPLUS. The loan expansion did not increase racial diversity. The paper’s authors found evidence that minority and first-generation college students encountered steeper tuition hikes than the average.

Mr. Cooper writes that FREOPP is concerned whether higher education yields a financial return for students. His research indicates that 40 percent of master’s degree programs do not generate a high enough increase in earnings to justify the cost of tuition, not to mention the opportunity cost of the time taken to earn the degree. The economists’ research indicated that GradPLUS increases student debt but has no impact on earnings, meaning that students’ ability to repay loans decreases.

After the creation of the GradPLUS loan program, Mr. Cooper writes that universities created new and expensive degree programs that few private lenders would view as a good investment. Eliminating GradPLUS and restoring a more reasonable cap on loans would constrain universities’ abilities to create cash-cow graduate degree programs that provide little economic mobility for students. The change would also save $22 billion over ten years.

Elite Universities’ Grad Students Borrow Substantially

According to Mr. Cooper, colleges with endowment assets exceeding $50,000 per student enroll 29 percent of all grad students but draw nearly half of all GradPLUS dollars borrowed. The University of Southern California takes in more GradPLUS dollars than all HBCU’s in the U.S. combined. Mr. Cooper writes that the Biden administration should drop its focus on the Gainful Employment rule which only impacts for-profit schools and career programs and instead, revamp the rule’s accountability to target all programs with a low return on investment regardless of the tax status of the institution offering the program.  I think his proposal is excellent and it mirrors points that I have argued for years.

Almost three years ago, the Wall Street Journal (WSJ) published two articles about the Elite Master’s Degrees that Don’t Pay Off and Is a Graduate Degree Worth the Debt?. Using data from the tool that they created, I wrote six articles about graduate debt including a summary article titled Graduate School Loans: An Overview of Problems and Solutions .

The WSJ tool exposed the relatively high ratio of debt to earnings, with debt sometimes exceeding earnings by a ratio of 5:1. I wrote that I was surprised that graduates of the medical-oriented professional programs incurred such high levels of debt. Defenders of those institutions were quick to respond that the earnings measurement data was low and eventually, graduates earn much more money than reported.

Final Thoughts

I have never been a fan of the GradPLUS or ParentPLUS loan programs and have always stated that these programs encouraged colleges to increase tuition. I am glad that Mr. Cooper wrote about this recent economist-researched paper quantifying the negative impact of the GradPLUS loan program. Given the substantial lobbying capabilities of the elite colleges that benefit from this program, I doubt that the GradPLUS program will be eliminated anytime soon.

The ParentPLUS program allows institutions with small endowments to push parents or grandparents without extensive financial resources to borrow money to send their children or grandchildren to the college that charges more than the undergraduate federal loan caps. Again, why aren’t we looking out for the interests of the students and not the institutions? Sadly, the answer lies with the special interests culling favor with our Congress and Administrations.

Many politicians and their staff members in Congress and in the White House attended elite institutions, likely earning a graduate degree from one as well. Elite universities are often held out by policymakers as the “gold standard” for their graduation rates despite the well-known fact that their highly selective admissions process recruits students most likely to graduate.

It’s ironic that many of these staffers (or politicians) are able to have their loans forgiven through a ten-year public service loan forgiveness program. Perhaps they should declare themselves as lacking independence on decisions involving the GradPLUS loan program. At the end of the day, our country and our citizens would be much better off if financial aid programs and tuition focused on the best outcomes for students, not institutions.


Subjects of Interest


Higher Education

Independent Schools


Student Persistence