Students borrowed $7.7 billion to finance their post-graduate educations in 1995, a 74 percent increase since 1993, a study shows.
The report was prepared by two nonprofit organizations - Boston's The Education Resources Institute and the Washington-based Institute for Higher Education Policy.The increase in borrowing - from $4.4 billion in 1993 - comes after the 1992 reauthorization of the Higher Education Act of 1965, which raised the amount graduate students could borrow through federally guaranteed loans from $8,500 to $18,500 annually, according to Ernest T. Freeman, TERI's president and CEO.
Once they earn their degrees, the bulk of new professionals spend 12 percent to 26 percent of their gross monthly income paying off college loans, the report said.
This debt burden may hurt their chances at a home mortgage and may steer some students toward higher-paying careers in the private sector, instead of lower-paying public service work, Freeman said.
"We're quite concerned about the amount of money that people have to borrow for higher education," Freeman said. "We need to recognize this and start to question what these people are going to do when they're done with school."
Because graduate students can now borrow more money for education, Freeman said, many young professionals may face a serious debt crunch. "It's partly because it's available," Freeman says of the extra funds. "Many students don't even understand they're taking out a loan."
With many students able to finance their graduate education with loans, the pressure may be off universities to bring down costs even as tuition costs continue to rise, he said. The number of as-sis-tant-ships, which pay graduate students to help professors with re-search or teaching, is down, Free-man added.
"Maybe, if money weren't so available, college costs wouldn't be where they are today," he said.
To be sure, the value of a professional degree to a student's future may well outweigh the difficulty paying off student loans.
"Those are pretty valuable degrees," said Brian Wesbury, an economist at Griffin, Kubik, Stephens and Thompson in Chicago.
"Investing in an education is a very good investment," he said. "The returns to four-year and advanced degrees are about 10 or 11 percent, higher than most bonds or alternative investments. You're not going to see returns impacted that greatly by paying off a student loan."
Lower-income and minority students are more likely to take out loans than other graduate students, according to the report. Wesbury pointed to the higher gains these students might attain with their degrees.