Despite more than a decade of research showing the money has little impact on student achievement, state lawmakers and other officials have been reluctant to tackle this popular way for teachers to earn more money.
That could soon change, as local school districts around the country grapple with shrinking budgets.
Just this week, U.S. Education Secretary Arne Duncan said the economy has given the nation an opportunity to make dramatic improvements in the productivity of its education system and to do more of what works and less of what doesn't.
Duncan told the American Enterprise Institute on Wednesday that master's degree bonuses are an example of spending money on something that doesn't work.
On Friday, billionaire Bill Gates took aim at school budgets and the master's degree bonus.
"My own state of Washington has an average salary bump of nearly $11,000 for a master's degree -- and more than half of our teachers get it. That's more than $300 million every year that doesn't help kids," he said.
"And that's one state," said Gates, the co-chair of the Bill & Melinda Gates Foundation, at a speech Friday in Louisville to the Council of Chief State School Officers. Gates also took aim at pensions and seniority.
"Of course, restructuring pay systems is like kicking a beehive," he acknowledged.
As of 2008, 48 percent of public school teachers in this country had a master's degree or above, and nearly every one of them got a bonus of between $1,423 and $10,777 each year, according to research from the University of Washington.
Most school budgets have been tight for years, with districts trimming everything from printing to teachers.
Michael Podgursky, an economics professor at the University of Missouri, said the economic downturn may force payroll reform in some places where the political will has been lacking. And they don't have to blow up the old system to do it, he said.
"We're experimenting now," he said, noting pay-for-performance experiments in New York City, Houston and Nashville.
Ninety percent of teachers' masters degrees are in education, not subjects such as English or math, according to a study by Marguerite Roza and Raegen Miller for the Center on Reinventing Education at the University of Washington.
Their colleague, research professor Dan Goldhaber, explained that that research dating back to a study he did in 1997 has shown that students of teachers with master's degrees show no better progress in student achievement than their peers taught by teachers without advanced degrees.
Goldhaber said his findings were criticized vehemently in the 1990s, but repeated studies since then have confirmed the results.
Roza and Miller found more than 2 percent of total education spending in 13 states -- Alabama, Alaska, Arizona, Connecticut, Delaware, Kentucky, Minnesota, Nevada, New York, Ohio and South Carolina, plus Washington and Nebraska, where the dollars topped 3 percent -- went to masters degree bonuses.
The American Federation of Teachers, the nation's second largest teachers union doesn't oppose changes in the way teachers are paid and is willing to talk about just about any reform idea, said Rob Weil, deputy director of educational issues.
"We're not opposed to looking at compensation systems and making sure our compensation moves forward and changes with the times," he said. But, he adds, "Change for change's sake isn't what we ought to be doing."
Weil said the problem is that most school districts don't know what they want to do instead of the traditional salary schedule that gives teachers more money for years of service and additional education.
"I go into school districts all the time and say, 'What do you want to pay for?' and that's when nobody's home," he said.
The National Education Association, which is the nation's largest teacher's union, has floated the idea of paying higher starting salaries for teachers to attract more and better teachers to the profession. Others have suggested rewarding teachers for student achievement gains.
American teacher pay has been structured the same way in every state since before World War II. Before then, high school teachers were paid more than primary school instructors. Establishing one pay rate was a feminist issue since teachers in the younger grades used to be mostly women and most high school teachers were men.
Even in states where teacher pay is set by the school district according to market factors, the pay schedule has been the same way for many decades, Podgursky said.
Debating a change could be more controversial and unpopular than cutting chocolate milk from the school cafeteria menu.
But education economists believe this idea can't be ignored forever, because teacher pay is the biggest part of education budgets and the salary schedule drives that spending.
Erick Hanushek, senior fellow at the Hoover Institution at Stanford University, said this kind of contract change would be difficult but not impossible, despite teachers unions being among the most influential lobbies in many state capitols.
School districts won't save much money because they won't be able to cut teacher pay overall, but they could start redirecting cash to the most effective teachers, as measured in ways other than what degrees they have earned, he said.
Teachers may need to accept a two-tiered system at first to grandfather in those getting the bonuses. The biggest losers will be university education schools, because they make a lot of money on master's degrees, Hanushek said.
"There's a relationship between education schools and teachers that is not particularly healthy," he said.
Hanushek said the University of Washington estimate of the $8.6 billion annual cost of master's degree money is low.
"It's what you would call free money, but not from a political standpoint," he said.
(Copyright 2010 by The Associated Press. All Rights Reserved.)