When Graduate School is a Bad Idea

Graduate school can be one of the biggest financial mistakes if you’re not careful.

The problem is that the federal loan program for graduate students (and parents of graduate students) does not set any limit on borrowing. You can borrow as much as you need to pay for graduate school. Doesn’t matter what your credit score is, or how little you make. The system is set up to greenlight borrowing as much as is needed to cover the “cost of attendance.”

That’s a recipe for debt overload. 

According to a report from a consortium of think tanks pushing for reform of the federal graduate school loan program, graduate students account for just 21% of all students enrolled in higher education. However, for the 2021-2022 academic year, Grad PLUS loans (the federal loan program for post-undergrad borrowing) accounted for nearly half of the loans given out for that academic year. The median loan balance for Grad PLUS has nearly tripled over the past 10 years to $57,800.

The report notes that the average grad student who takes out loans borrows $70,000 and about 1 in 5 grad school students will borrow more than $100,000. 

And that’s just for grad school. Plenty of borrowers also have student loans from their undergrad years. Leaving academia with six-figures in student loans can be a huge financial mistake.

I want to be clear: I am not saying an advanced degree is a bad idea. But borrowing too much to get that degree is the worst idea. 

What’s too much? 

A great rule of thumb from college financing expert Mark Kantrowitz is that your total borrowing should not be more than what you can reasonably expect to earn your first year out of school. If you follow that advice you should be able to pay back your loans within 10 years, using a standard repayment plan. That’s a solid game plan.

The problem is that many grad school degrees cost way more than what any new graduate can expect to make. Borrowing $80,000 for a master’s degree in education to land a teaching or administrative job that pays $50,000 or $60,000 the first year is a problem. Borrowing $200,000 for a law degree when you want to go into a field of law or live in a part of the country where earning $150,000 your first year might be a stretch, is a problem.

I am not here to talk you out of grad school. But I really hope you avoid this financial trap. Find the grad programs that are so eager for you to attend that they will give you a ton of financial aid (not loans, actual aid that reduces your out-of-pocket). 

Before you apply to any graduate program, ask what the average (not the star) grad from that program makes in the first year after graduation. Any program that doesn’t share this info should be a yellow flag.

And please don’t push yourself to go to grad school if you’re not sure. The worst outcome is to borrow money and then not finish the degree. You still must repay the loan, but now you don’t have the credentials that may make it possible to earn enough to handle the debt repayment.