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Chris Farrell on good debt

Libby from Seattle plans on going to back to school. She's 28, has no debt, good credit, a BS and an MS. She's been working in her job for a little over a year and sets aside about 25% of her income into savings.

Question: BUT, I'm thinking about going back to school to get a second Masters degree. Unlike my first one, I will not have the opportunity to get RAs or TAs. It's an evening program, allowing for folks to work part or full time while attending school. I'd like to only have to work part time (in order to keep my sanity!!), and I may have the opportunity to stick with the job that I currently have while I'm going to school (at 50 or 75% time). But, alas, I have to pay for the schooling. Estimates range from about 16-18K for the whole two-year program (really, seems like a good deal).

The bloke that I am with has been very supportive and generous, saying that he is ready to help me and support me through the education (however, we're not married...). I am a person who has never had any debt... I have never kept a balance on my credit card.... I am nervous about undertaking this kind of student loan debt. I have enough in my savings account to pay for a couple quarters of the degree, but I am reluctant to use that (I'm a saver!). So, I am looking to how to deal with this. Plus, I don't have that much time to save up more. If I'm accepted, I will be starting the program next June.

Also, I'm going to be getting my Masters in Teaching... I seem to remember that with the education bill that was passed earlier this year, there is some forgiving of loans for people who go into public service.... after 5 years? So, I'm also curious about that. Any insight would be fantastic!

Answer: We usually deal with people who aren't good savers. You're terrific. It affects my advice.

*This is an investment in your career. I assume will pay off in greater income or, at the very least, better career satisfaction.

*Let's say you borrowed the full $18,000. That's $1,800 a year over 10 years or 150 a month. Be a bit more because I didn't add in interest... but still pretty manageable.

*But let's be more realistic... you pay some from savings, some from current earnings since your working and some with borrowed money--maybe $5,000 to $10,000?. Seems like a small investment for a lifetime of return.

*You can go to the website of the American Federation of Teachers. The website has a section on loan forgiveness programs by state for teachers. Most of the loan forgiveness programs are geared toward teachers willing to work in low income neighborhoods. Check it out.

*The student loan forgiveness program for those who go on to public service is good, but won't really help you out. It discharges any remaining debt after 10 years of full-time employment in public service. The borrower must make 120 payments as part of the Direct Loan program to qualify for the benefit. Your debt will be long retired. Those interested can learn more about at at: www.finaid.org/loans/publicservice.phtml

(These notes are edited. You can listen to the question and answer segment here.)

About the author

Chris Farrell is the economics editor of Marketplace Money.

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