Graduate-Level Debt Fueling Rise in Student Loans: Report

By Amilda Dymi April 07, 2014, 3:58 p.m. EDT 1 Min Read

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Correction: The original version of this story stated most graduate-level student loans are provided by private lenders. The Fitch study states that most graduate loans are concentrated in federal Plus programs.

Graduate school financing with high balances are driving the overall growth of the nation's student-loan debt.

The increase in student loan volumes "has been skewed" toward graduate lending, Fitch Ratings said Monday. Such lenders remain "more focused on professional schools, such as MBAs and medical degrees."

Part of the attraction is that graduate loans have lower default rates compared to undergraduate loans, Fitch said. The three-year default rate for Grad PLUS loans is 1%, compared to 5.1% for the Parent PLUS loans, and the overall federal student loan default rate of 14.7%, the agency said. Graduate students tend to have lower default rates due to lower drop-out rates, improved employment prospects and "potential for higher income" than undergraduates.

At Dec. 31, outstanding student loan debt increased by $22 billion from a year earlier to $1.08 trillion, according to the Federal Reserve Bank of New York, making student loans the second-largest consumer debt after mortgages.

Fitch said it expects these trends to continue "if enrollments and tuition increase further and household income growth remains steady."

Amilda Dymi