Biggest Offender in Outsize Debt: Graduate Schools

The signs are hard to miss in downtown San Francisco: two stylized A's inside a red circle, symbolizing the Academy of Art University. The for-profit school occupies more than 40 buildings throughout the city and has made its family owners very rich.

Where does the Academy of Art’s money come from? About $100 million per year arrives as tuition and fees financed by federal student loans. The full scope of the borrowing was revealed May 21, when, for the first time, the Department of Education released information about how much debt students are taking on to earn degrees from various academic programs at American colleges and universities.

The data shows one sector in particular with outsize debt: graduate school. And while the Academy of Art fosters unusually high burdens, many public universities and nonprofit schools have also gotten into the debt-fueled graduate school business.

In releasing the college loan data, Education Secretary Betsy DeVos described it as part of President Trump’s executive order to address the student debt crisis. Access to the loan amounts, she said, will allow students to make informed decisions about choosing colleges. At the same time, the department is preparing to uproot the Obama administration’s approach to the debt crisis, by repealing regulations that cut college programs out of the federal financial aid system if students don’t earn enough money to pay their loans back.

Within the graduate school sector, the fast-growing master’s degree market is replete with debt levels that make little sense. An accredited university can essentially create a master’s degree in anything, set whatever price it likes, start signing up students for federal loans, and market the program as “accredited.”

At the Academy of Art, people with federal loans who graduated in 2016 and 2017 with a master’s degree in design and applied arts owed an average of $100,252. The university offered nine other master’s programs with average loan balances above $90,000.

The Academy of Art is expensive, charging over $1,000 per credit, with thousands more for materials, supplies and fees. The numbers also reflect a key fact about federal financial aid policy: Although undergraduate student loans are limited to $31,000 for students who are financially dependent on their parents and $57,500 for those who are not, there are no hard caps on how much someone can borrow for graduate school.

That means that students can borrow not merely for tuition, but also for living expenses, notoriously high in cities like San Francisco. (The Academy of Art makes extra money by renting out student housing.) Anyone who passes a credit check is eligible to borrow the full cost of attending any accredited graduate school, regardless of how much money a person has, or doesn’t have, in the bank.

Borrowing for graduate school can be a sound financial decision, if the degree reliably leads to a well-paying career. But the new federal data suggests that the graduate school market often behaves in strange and erratic ways. It is not a classic Econ 101 situation in which demand and prices rise with the value of the services received. Sometimes, it seems the opposite.

Yale, for example, has a highly ranked master’s of fine arts program. The admissions criteria are rigorous and include the submission of a portfolio of work that the faculty evaluates. The average debt for master’s of fine arts students at Yale turns out to be $21,573 — a significant but manageable sum in a field that doesn’t offer the gold-plated salaries of, say, investment banking.

The Academy of Art does not evaluate student portfolios for admission to graduate school, or for its large undergraduate programs. Its success in placing graduates into jobs in their field is unknown, because the university doesn’t disclose that information. Its M.F.A. graduates earn only about $35,000 year. On average, they borrow more than $85,000. (The typical debt for an M.F.A. graduate nationally is around $45,000.)

Joe Vollaro, executive vice president of financial aid and compliance at the Academy of Art, said the university provides students with loan counseling before and after they enroll. He added that the university is not legally allowed to limit how much money graduate students borrow from federal loan programs to pay for living expenses.

There are many more examples of the complicated, seemingly dysfunctional graduate school market. People don’t become social workers to get rich — most earn less than $50,000 per year — yet $109,486 was the average amount borrowed for a master’s in the subject at the University of Southern California.

That’s unusually high even though a large majority of the program’s students learn online. In fact, most of the $275 million in debt incurred by the roughly 2,500 people who earned a master’s degree in social work at U.S.C. in 2016 and 2017 didn’t go to the university itself. It was funneled to a publicly traded for-profit technology company called 2U, which provides marketing, recruitment, course design, clinical placement and advising services for online graduate programs, in exchange for which it receives 60 percent of all tuition revenue.

Veterinarians are not extremely well paid: Half earn between $73,580 and $122,180 per year. Yet veterinary programs often graduate students with enormous debt burdens, a factor, some have speculated, in the abnormally high suicide rate within the profession. A number of high-debt veterinary schools are abroad. Ross University (St. Kitts), St. George’s University (in Grenada), and the universities of Glasgow, Edinburgh and Prince Edward Island all have vet schools that American students are borrowing over $230,000 on average from the federal government to attend.

Incurred debt can vary widely for the same fields. Students borrowed $153,000 on average to get a master’s of dispute resolution from Pepperdine University. The next-highest amount for the same degree, from Creighton University, was $88,000. Logan University, a chiropractic school in Chesterfield, Mo., has a master’s in dietetics and clinical nutrition that students borrowed $150,000 on average to receive. The same degree at Utah State University produced average debt of $17,000. A Pratt Institute master’s of architecture resulted in average borrowing of $157,000, while the same degree from Ohio State produced average debt of $38,000.

Master’s degrees in fields like computer engineering, education, English, history and math seem to have fewer outlier programs and lower borrowing amounts over all. It’s the less mainstream programs, where vague promises of a lucrative career are easier to make, that seem to encourage irrationally large debt.

This matters because the assumed efficiency of the higher education market is the keystone of the Trump administration’s deregulatory agenda. The timing of the data release was deliberate: The Department of Education is expected to issue a final rule to cancel the Obama administration regulations within the month. At an education journalists conference, Diane Auer Jones, a high-level department official, said, “Because we will put information out there, we think consumers will make good decisions.” Ms. Jones added, “We do not think it’s the role of the federal government to make a decision on behalf of a student.”

But the Academy of Art, among others, suggests that approach may not work. The Department of Education has been publishing college graduation rates for over a decade. The latest numbers show that only 28 percent of Academy of Art undergraduates earn their diploma within eight years; most transfer or drop out. Yet thousands continue to enroll. The Academy of Art master’s of fine arts program failed the Obama administration criteria because of high debt and low earnings (a possible punishment was avoided when the Trump administration suspended the Obama-era rules). But that information has been available for over two years. Students continue to enroll.

A handful of numbers on a government website can be no match for trained recruiters who get a bonus from colleges for enrolling more students. (This is an illegal practice that the Academy of Art stands accused of in a federal lawsuit that may soon go to trial.) Universities also spend millions on perfectly legal marketing campaigns to convince students that taking out large debts for graduate school will pay off in the long run.

The federal government has typically financed those loans, no questions asked. But as outstanding student debt rises above $1.5 trillion and as one million people default on student loans every year, lawmakers will have to decide whether that approach should continue.

Kevin Carey directs the education policy program at New America. You can follow him on Twitter at @kevincarey1.