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 doctoral degree will see several differences from their undergraduate experience. One of the most significant 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 careers with more knowledge, and others making career changes.
People should review these topics regardless of their financial situation before pursuing a graduate or professional education degree.
Create a plan
The plan will differ depending on an entering student’s educational and work background. This plan will also depend on the graduate degree a person pursues. 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. Understanding these requirements can help a student better project how many courses will be required, the time needed, and the additional cost.
Having a graduation plan 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. The cost of the program, along with the completed salary projection, needs to be analyzed so that the borrower can review whether 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, and 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 a degree, regardless of the program.
Diagnose current and future demands of a career.
We live in a supply-and-demand economy. More than selecting a potentially high-income career is required. Students must 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, which must be considered.
A law degree is an excellent example of how this supply and demand environment works. A few years ago, the need for elder law attorneys was relatively low. As people live longer, long-term care is becoming a factor, and estate planning grows more complex, the demand for elder law attorneys is growing. This market demand change is an excellent example of finding the niches within a degree.
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 175%.
An important item to remember is that your debt structure and amount will determine your repayment and forgiveness options. Having a plan and minimizing your debt will improve your investment return and financial future.
In most cases, federal student loans should be considered the first debt option due to their repayment flexibility. Federal student loans can be expensive compared to private loans. Federal loans have high fees and a semi-fixed interest rate. On the other hand, private student loan fees are usually 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 customize debt projection and loan repayment options and graphically displays their life after graduation financials.
Identify repayment options
There are currently several federal loan repayment options. Private student loans have 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 must be explored before the debt is incurred.
The decision to take out a student loan is unlike that of a mortgage or car payment. For those loans, a third party analyzes 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 is one of the reasons why the PayForED platform was created: this decision is self-driven.
A growing trend in student loan repayment is using Income-Driven Repayment (IDR) methods. There are four primary types: Income-Based Repayment (IBR), Pay-as-you-Earn (PAYE), Save on A Valuable Education (SAVE) (formerly Revised Pay-as-you-earn (REPAYE)), and Income-Contingent Repayment (ICR). The IDR methods use your adjusted gross income and not the amount of debt and loan terms. These methods can help borrowers stay current initially and are required for all federal loan forgiveness programs.
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 debt is to use the IDR methods and qualify for loan forgiveness.
Under the federal loan repayment process, there are two major loan forgiveness programs: Public Service Loan Forgiveness (PSLF) and IDR end-of-term forgiveness. Each has its own rules, which are discussed in more detail in our Student Loan Forgiveness Guide and Ultimate Guide to Student Loan Repayment.
With proper planning and the right employer, undergraduate and graduate school debt could be eliminated after ten 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 be flexible 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.
With the increased use of IDR methods, a new complexity arises regarding 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 married and separate couple. As a result, their tax bill may go up, but the IDR student loan repayment may go down substantially. If that situation exists, a couple will need to run their numbers to evaluate those options.
Paying For Graduate School Summary
These essential tips can help you improve the graduate school return on 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.
This journey is manageable with a plan and knowing your numbers. PayForED aims to help you identify your options and add transparency to making an informed decision.
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