Today, many more careers require advanced educational degrees. Paying for graduate school is becoming more of a norm for students. The fear of this additional debt can be intimidating and confusing for most people. This article will explain the steps you need, to avoid costly mistakes and maximize this investment in yourself.
People pursuing a graduate or doctorial degree will see several differences from their undergraduate experience. One of the biggest differences is the financial aid process. In most cases, scholarships or free money are less available. The other major difference is the student body. The student body will include students just out of college, people with experience trying to advance their career with more knowledge, and others who are making career changes.
Regardless of your financial situation, a person should review these topics before deciding to attend a graduate or professional education degree.
Create a plan
Depending on an entering student’s educational and work background, the plan will be different. This plan will also depend on the type of graduate degree a person is pursuing. Unlike the current undergraduate trend of minimizing standardized testing, this is still required for graduate school due to the diversity of entering students’ backgrounds.
In addition to the testing, certain courses may also be required on a student’s transcript before they can be considered for admittance. Depending on the degree and program, many schools offer foundation courses that can be taken as alternatives. A student can better project how many courses will be required, the time needed, and the additional cost by understanding these requirements.
Having a plan to graduation will improve your financial outcome. The first step should include your total cost, debt, and income potential.
Understand the income potential
A graduate degree is an investment in yourself and should be treated that way. There needs to be an analysis of the cost of the program with the completed salary projection so that the borrower can review if it generates the income needed to support the student loan debt. This step is often minimized or overlooked.
A great example of this is the medical student. The cost to complete medical school is significant. Many incur hundreds of thousands of dollars of student loan debt. Initially, they move into their medical residence and make a minimal salary in comparison to the debt level. After their medical residence, the income potential is measurable and will support the earlier debt incurred.
This process should be done for each person pursuing degrees no matter what the program.
Diagnose current and future demand of career
We live in a supply and demand economy. Selecting a potentially high-income career may not be enough. Students need to evaluate the demand for that career and how competitive the job market will be after graduation. The work environment is changing very quickly due to a multitude of factors. The internet has changed how we do business today and that needs to be part of your consideration.
A law degree is a great example of how this supply and demand environment is working. A few years ago the need for elder law attorneys was relatively low. As people are living longer, long-term care is becoming a factor, and estate planning grows more complex, the demand for elder law attorneys is growing. This is a great example of finding the niches within a degree that you need to be successful.
Determine the cost and total debt
I talked about having a plan as the first step for a borrower. As part of the plan, you need to determine the program’s cost and include the living expenses needed until graduation. The majority of students will need to finance a significant amount of this cost. Since 2014, Federal Grad Plus loans are up 119%.
An important item to remember is that your debt structure and the amount of debt will determine your repayment and forgiveness options. By having a plan and minimizing your debt, it will improve the return of investment and your financial future.
In most cases, federal student loans should be considered the first debt option due to the loan repayment flexibility. Federal student loans can be expensive when compared to private loans. Federal loans have high fees and a semi-fixed interest rate. On the other hand, private student loan fees are normally lower and have traditional loan underwriting rules making the interest rate based on the borrower’s credit score. The PayForED In-College Payer helps students customizes debt projection, loan repayment options, and graphically displays your life after graduation financials.
Identify repayment options
There are currently 9 different federal loan repayment options. Private student loans have very limited repayment options. Your student loan structure will dictate which options are available to you after graduation. These early decisions will impact your financial future after graduation and are why they need to be explored before the debt is incurred.
The student loan decision is unlike a mortgage or car payment. Those loans have a third party analyze the future payment as part of the approval process. With a student loan, the borrower needs to do that analysis themselves and determine if it is possible. This one of the reasons why the PayForED platform was created since this decision is self-driven.
A growing trend in student loan repayment is the use of Income-Driven Repayment (IDR) methods. There are 4 major types: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). The IDR methods are based on your adjusted gross income and not the amount of debt and loan terms. These methods can help borrowers stay current initially and are also used for the loan forgiveness options.
Analyze Loan Forgiveness Possibilities
Initially, I discussed the increased fear of taking on the associated debt to reach your dream career. As part of the plan review, a person should review the possibility of loan forgiveness. A great way to mitigate the amount of debt is to use the IDR methods and qualify for loan forgiveness.
There are two major loan forgiveness programs under the federal loan repayment process. One is Public Service Loan Forgiveness (PSLF) and the other is IDR end-of-term forgiveness. Each of these loan forgiveness programs has there own rules. A more detailed discussion is available in our Student Loan Forgiveness Guide and Ultimate Guide to Student Loan Repayment.
With proper planning and the right employer, both undergraduate and graduate school debt could be eliminated after 10 years or 120 on-time payments.
Plan for life events
I have mentioned a few times, the importance of a plan. They are needed but life is not a straight line. The plan needs to have the flexibility to meet today’s changing environment. Most people will face life events like marriage, children, and home purchases to name a few. You need to include these events as possibilities within your plan.
As an example, with the increased use of IDR methods, a new complexity is tax filing status for married couples. If one spouse has student debt and the other does not, they may need to file their taxes as a couple married and separate. As a result, their tax bill may go up, but the IDR student loan repayment may go down substantially. A couple will need to run their numbers to evaluate those options if that situation exists.
Monitor Changes and Adopt
As with anything, life is an evolution and changes happen all the time. We are currently living through a perfect example of this, COVID. Who would have thought life would have changed this much in the past 12 months. The impact of this event will change how things are done going forward and you need to prepare for these events.
For some COVID has devastated their business and yet others have prospered. As you move through your graduate program, you need to continually monitor the environment and evaluate the opportunities that may exist at graduation.
Paying For Graduate School Summary
These 8 key tips can help you improve the graduate school return of investment in yourself. Paying for graduate school can be complex and expensive. To help you navigate the process, PayForED’s In-College Payer generates the customized numbers discussed in the article. It will properly identify your debt structure, loan repayment options, and life after graduation.
By having a plan and knowing your numbers, this journey is manageable. PayForED’s goal is to help you identify your options and add transparency to making an informed decision.
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Variable Rates*: 6.12% – 16.45%
Fixed Rates*: 4.50% - 15.49%*Lowest rates shown included auto debit discount
Variable with ACH: 6.15%- 16.08%
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Variable Rates: 4.98% - 12.79% (APR)*
Fixed Rates: 4.48% - 12.29% (APR)*