A report from New America sheds light on graduate school debt

The drumbeat of criticism of the federal government's policy on the financing of college and graduate school education hit a new pitch with the release of the excellent report from New America.  New America identifies itself as a nonpartisan, nonprofit public policy institute, and is funded by grants from various organizations, including the Bill and Melinda Gates foundation. 

The conclusion that New America's makes is that the debt crisis in America's graduate education should be separated from problems stemming from America's undergraduate education, even though many media accounts seemingly equate them.

Perhaps the most interesting part of the report is the figures themselves.  When law schools report debt figures to US News and World Report, they report the total amount of debt that a student has accrued while in law school, sans interest.  However, the debt levels that New America reports on include the total debt that a graduate has at the point they completed their degree.  In other words, a law graduate's undergraduate debt, law school debt, and interest on the two would count.




Another very important facet is that it reports what college graduates going specifically into law school owe in student loans before going into law school.  Legal education reformers like Professor Brian Tamanaha or Lawprof were usually stuck using a median for college graduates to calculate what a 0L's pre-existing student loans were.  No longer.

I encourage you to look at the report itself, as it has a lot of interesting information that goes even beyond law students.  For those of you who want the low-down, I have included a brief summary of the four main data tables that New America includes at the end of the report.

Table 1: Undergraduate Debt Levels

Perhaps one of the most interesting things that the report sheds light on is the percent of law graduates who begin law school with debt.  The report seems to indicate that in 2004, 2008, and 2012, the years that the report has data on, the students entering law school with debt was slightly less than one-half.  In other words,we should not assume that the average law graduate should tack on an additional $20,000-25,000 in student loans when we try to calculate their aggregate debt, because roughly half of the students entering law school do so without any pre-existing student loans.

As for the actual undergraduate debt levels, the study looks at the 50th percentile, the 75th percentile, and the 90th percentile.  The report shows that that student debt among college graduates hasn't been uniformly increasing.  While it seems counter-intuitive that the amount of debt that a college graduated ended up with between 2004, 2008, and 2012 decreased in some instances, as well as the percent of graduates who even ended their college career with student loans, the simplest explanation is that the economy was healthier when the students graduated college (note that the graduates included in the three data points would have graduated college at the minimum 3 years earlier), and they and their parents were able to pay their loans off while they were in school at a higher rate.

However, at the margins, at the 75th and 90th percentiles college graduates with debt who went on to law school, there was an increase from $26,486 to $35,000 at the 75th percentile, and nearly $20,000 at the 90th percentile, from $47,676 to $67,500.

Table 2: Graduate Debt Levels

What this Table shows is the effect that the Great Recession had on student borrowing specifically for law school.  Increases at the three measured percentiles for the amount still owed was rather small between 2004 and 2008 for the 50th and 90th percentiles, and the measured amount actually decreased for those at the 75th percentile.

However, for graduates in 2012, the total amount borrowed for law school was $128,125 for those at the 50th percentile (roughly $45,000 more from 2008), $173,105 at the 75th percentile (roughly $57,000 more), and $200,392 for the 90th percentile (roughly $53,000 more). 

Just incredible.

One final takeaway from all of this, however, is that it reveals the effects of the more aggressive tuition discounts that law schools began to undertake to attract "higher qualified" students during the Great Recession.  In 2004, 86.5% had law school debt, increasing to 87.3% for 2008, and decreased to 85.6% in 2012.  While people at the three percentiles saw great leaps in debt between 2008 and 2012, the overall amount with law school debt decreased in 2012 to less than the number in 2004.

 Table 3: Combined Undergraduate and Graduate Debt Levels

The figures here are very similar to the previous tables in year-to-year changes, obviously.  The percent with debt shows the effects of tuition discounting in 2012.  The changes of total debt levels between 2004 and 2008 are much smaller, compared to the changes between 2008 and 2012.

The kicker is that total law graduate borrowing at the 50th percentile increased by about $50,000 between 2008 and 2012.

To put it mildly, that is a shocking number.  If you graduated from law school in 2008, you would owe about $90,000 in college and law school loans, but if you were unfortunate enough to graduate four years later from law school, you would owe $140,616!  Talk about being born in the wrong year, or deciding to pursue your law school dreams a few years too late!

At the 75th and 90th percentiles, the increases were about $60,000 between 2008 and 2012, for a total of $193,823 at the 75th percentile and $224,061 at the 90th percentile, in 2012.

Standard ten year monthly loan payments for those at the 50th percentile of $140,616 is about $1600 a month, or  $19,200 a year, and a $2,577 monthly payment at the 90th percentile at $224,061, or roughly $31,000 a year!  Just incredible.  And in 2012, 1 in 10 law student graduates owed MORE than $224,061!  I don't even need to include the recommended salary for repaying these loans.

Table 4:  Graduate Program Overview

The last table is simply a measure of what percent a graduate program is represented as a share of graduate degrees conferred.  Law graduates have declined from 5.4% in 2004, to 4.3% in 2008, to 3.5% in 2012.  Since the "other" category is so large, I think it's hard to take too much away from this, but interestingly, Master of Science graduates increased as a total share 5.1%, from 13.0% in 2004 to 18.1% in 2012.  This seems to support those who criticize the conventional wisdom of the US not having enough STEM graduates.

Conclusion

The report gives some numbers that challenge some of the conventional wisdom, such as people who pursue law school graduate college with the median debt, and shows the massive increases in student borrowing between 2008 and 2012.  It also shows the redistributive effect that the massive increases in law student borrowing had on the students who were "bought" by the lure of tuition discounts.

By compiling debt figures for those who go on to graduate programs, New America may help the conversation about the higher education bubble shift a little more to the graduate programs, and help law students in the process.