The decision to go to graduate school is a complex one.
Applicants must weigh the opportunity cost of stepping out of the workforce against student loan debt and their ability to pay it off in the future.
To get a more clear picture of the personal economics of graduate school, we examined the relationship between the risks (student loan debt) and rewards (future income) of various advanced degrees.
In Earnest’s new data study, we looked at data on debt and income from tens of thousands of Earnest clients with the following graduate degrees: MDs (medicine), DDS (dentistry), Pharm D (pharmacy), MBA (business administration), JDs (law), Masters in Science or Engineering, Masters in Arts, and other masters degrees. We have analyzed thousands of student loan refinance applications to define the relationship between earning power and student debt.
There were several key findings:
- Medical professionals take on the most debt—even when their high salaries are accounted for. However, their debt-to-income declines the fastest in the decade following graduation.
- MBAs enjoy a low debt burden relative to their income relatively consistently over time.
- Graduate program prestige comes with tangible financial benefits for all disciplines except medicine and graduates of top-100 programs enjoy lower debt relative to their income.
How much debt will you take on?
In our analysis, we first considered how much debt the typical graduate degree holder carries. This data is supplied by respondents looking to refinance their debt. While it is self-reported, users must be reasonably accurate if they wish to receive realistic rate estimates. Average student loan debt—which could comprise any student loan debt acquired from both undergraduate and graduate—is reported for each degree type below.
Future medical professionals—a category that includes doctors, dentists, and pharmacists—can expect to take on the most debt to finance their degrees. Future lawyers, too, take on six-figure debt to finance their degrees. Masters programs of all stripes are the cheapest, though graduates’ debt still ranges from around $60,000 all the way up to nearly $90,000.
This ranking lines up with degree program duration: MD programs typically take four years to complete, JDs three years, and full-time masters programs one or two years.
How much income will you earn after graduating?
Even with a hefty price, a degree program may be worth it if it confers the earning power to match. If we account for income, do doctors still have the highest debt compared to other graduate degree-holders?
To answer this question, we divided average debt by our respondents’ average self-reported income to calculate a debt-to-income ratio for each group of graduates.
Debt-to-income ratios below 1 mean these degree-holders make more than they paid for their degree in one year. Values over 1 mean the degree cost more than what the typical graduate makes in a year.
Even if we take income into account, medical professionals still bear the greatest burden when it comes to paying for their degrees. These graduates make a solid income, but it’s not enough to balance out their formidable debt.
Graduates with Masters of Arts degrees take second place in our debt-to-income ranking despite paying the least for their credentials. These graduates can expect relatively low starting salaries that handicap their ability to pay down debt.
At the other end of the spectrum, MBAs enjoy the lowest debt-to-income ratio. These degrees are relatively affordable and high-earning power often follows.
The relationship between income and debt changes over time as graduates climb the career ladder and pay down their loans. We wanted to see how debt-to-income ratio changes as graduates establish themselves in their careers, so we broke our sample down by years post-graduation to chart a debt-to-income trajectory for each degree type.
Graduates with all degree types experience a decrease in debt-to-income ratio after graduation, but in some professions, those ratios come down faster than in others.
Medical professionals have the highest debt-to-income ratio immediately after graduation. This is likely because MDs begin their careers in residencies, which are essentially low-paid apprenticeships lasting three to six years. Once residents become practicing physicians, they can expect comfortable six-figure salaries and subsequently make fast progress on their debt.
In contrast, MBAs have the flattest trajectories toward debt freedom. Though they have the lowest debt-to-income ratio across the entire post-graduation time period we considered, they make the least progress in the decade or so after graduation.
By mid-career, what does the financial picture look like?
The chart below highlights in on the last data point in our chart, ranking debt-to-income ratio for mid-career professionals 11 years removed from graduation.
Even in the middle of their careers, graduates with Masters of Arts degrees earn relatively little compared to their debt. Costly law and medical degrees hold debt-to-income ratios near 1 for lawyers and doctors, as well.
Professionals with degrees in business, science, or engineering fare comparatively better, making comfortably more than the cost of their degree in one midcareer year.
The Power of Prestige
Of course, not all degrees are created equal. Stanford’s Graduate School of Business, for example, grants its MBA recipients access to a higher-powered network than does the average public college. This advantage could translate to a real difference in earnings and, in turn, debt-to-income trajectory.
To see the difference a grad school’s reputation can make, we broke our sample down based on whether a its degree program landed in the top 100 for the field, then charted debt-to-income trajectory over 11 years post-graduation.
School reputation matters. Across a variety of disciplines, professionals who graduate from higher-ranked schools begin their careers with less debt relative to their income. And for the most part, this trend is still apparent a decade after graduation.
However, medical professionals have more or less the same debt-to-income trajectory regardless of their school’s reputation. With respect to student debt, it appears that all medical degrees are created equal.
In the end, the decision to attend graduate school is based on a variety of factors. The economic ones, while significant, are not the only ones—and some understanding of your decision-making process may help applicants sort out what is really important.