The Wall Street Journal. March 25, 2014.
Many students consider a graduate degree a necessity for scoring a plum job. But how is a student to know which degrees are worth the expense?
Outstanding student loan debt hit $1.08 trillion at the end of last year, a $114 billion increase in 2013 alone, according to the Federal Reserve Bank of New York. And we can look to grad students -- whom the federal government gave about 40% of its federal loans in 2012 to -- for a lot of that surge, a study released Tuesday suggests. Indeed, between 2004 and 2012, the amount of debt carried by a typical borrower who had a master of arts degree rose an inflation-adjusted 70%, according to an analysis of data by the New America Foundation. The report says this surge may be thanks to a 2005 congressional move that lets grad students borrow nearly unlimited money for school.
Of course, if students were able to pay all this debt back, the problem wouldn’t be so severe, but that’s not the case. More than one in 10 student loan balances are more than 90 days delinquent -- a higher rate than for credit cards, mortgages or auto loans. What’s more, a report by Edvisors found that nearly two-thirds of people with a master’s degree graduated with debt (an average of $41,400 in grad student loans alone), 53% of those with MBAs ($38,579) and 85% of those with professional degrees in law ($121,889), medicine ($163,154) and pharmacy ($111,307). Furthermore, the percentage of graduate and professional students with six figures in student loan debt climbed to 15% in the 2011-2012 school year, compared with just 6% in the 2007-2008 school year. “While undergraduate student loan debt at graduation increased at typical rates (i.e. more than $1,000 per year), debt at graduation for graduate and professional school students has increased at much greater rates than previously, especially for professional degrees,” a report by Mark Kantrowitz, the senior vice president and publisher of Edvisors, concluded.
No doubt, the economy plays a role in these delinquencies, as unemployment still hovers around 6.7%, far above the roughly 4.7% before the recession hit -- so even those with advanced degrees are struggling to get jobs. But some degrees seem to fare better than others. Take a master’s in finance, which data from Payscale.com shows comes with a median salary of about $120,000, with those who advance to vice president of finance making $170,000 and those who advance to finance director making $154,000. Not only does this job pay significantly higher than the median -- those with master’s degrees in liberal arts and sciences make a median of just $83,300—the future job prospects are good. The Bureau of Labor Statistics predicts that the job growth outlook for financial analysts from 2012 to 2022 will grow 16% and for personal financial advisers 27%, compared with just 11% for jobs overall.
Now compare that to getting a master’s degree in music. The median pay for this degree is just $56,900 with music directors making only about $43,000 and secondary school music teachers $55,300. Not only is the pay low, the job prospects for the future are pretty abysmal: Job growth for music directors, composers, musicians and singers is just 5%, significantly below the 11% average. Because of these less-than-stellar job prospects and low pay, even if the music degree is less than half the cost of a finance degree, graduates still might struggle to pay down their loans.
So what can students do to determine whether a grad program is worth the cost? First, they should understand the median pay and likely job prospects for their major. In general, engineering and technology master’s degrees pay better (a median of $110,000) than do arts and sciences degrees, with degrees in electrical engineering, finance, chemical engineering, economics, physics, computer science, mechanical engineering and civil engineering among the top paying. Some of the worst paying degrees include counseling, social work, music, library and information science and education. Once students know that, they should look at the Bureau of Labor Statistics Occupational Outlook Handbook -- as well as other job resources -- to determine what their future job prospects might be.
Finally, the student must look at the cost of the program to determine how likely it is that they could afford student loan payments on their future salary. The rough rule of thumb is this: Your total debt at graduation -- including your undergrad loans -- should be less than your annual starting salary, and ideally much less, says Kantrowitz. So, a person getting a master’s in music would want their total debt load to be less than $56,900 (that’s the median starting salary for that degree). Even those in high-paying professions should be worried: The average law student graduates with a total of $137,527 in debt, according to Edvisors, but starting salaries are only about $114,000 and job growth is simply average, according to government data.
For those who have already enrolled in or completed a program, there are things you can do to better manage the debt. Those in school should look for a fellowship, teaching assistantship or part-time job to offset the cost. Those who are finished with school should, if they have extra money, use that to pay off the principal on their highest-interest loan (this is only after they have saved up a three to six months’ salary savings fund), says Kantrowitz; this will help them pay down the loan faster, which can save thousands in the long run. To possibly lower interest rates, students may also want to consider consolidating loans, says Sande Taylor, a senior financial consultant for Charles Schwab; Kantrowitz recommends that people sign up for automatic payment plans, for which some lenders give a break on interest rates. And if you’re having difficulty paying, look into repayment programs like income-based repayment, extended repayment or a temporary forbearance or deferment.