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Take on graduate student loans
Question: My son graduated in December in one of the worst economic times. He was fortunate to land and entry level job in his field with an international company. One day shy of three months (the probation period) the company has laid him off. His goal was always to go onto graduate school after paying off his student loans (they would have been paid off in June if his job had lasted). Coincidentally a graduate school he had applied to has an unexpected opening in August. The bottom line: $91,000 for a 4 year doctorate program with little chance for a scholarship. When do you decide to take on this much debt? With his degree, when he graduates, he will start making $80,000/year.
Does he go on to graduate school or does he stay in the job market and try for another job? Thank you so much. Leslee, Boulder, CO
Answer: Traditionally, it has been a smart move to get additional education when the economy is down and jobs scarce. Then in several years you reenter a hopefully improved job market with a new degree.
However, the numbers you give tell me that your son needs to make a series of green eyeshade calculations, and then carefully think through the potential upside and the potential downside. For instance, with the numbers you sent in (and assuming a 6.8% interest rate) your son would end up putting over 15% of his gross monthly income toward student loan debt repayment. That's a very high percentage. It sets off warning bells. Most students carrying that much debt end up feeling oppressed by their debt burden, especially if they take out additional loans, say, to buy a car. To get that debt repayment figure down to a still steep but more reasonable 10% of monthly income he'd need a starting salary of about $126,000. We're living in an economy that is punishing for borrowers.
I just made a very simple calculation. He'll need to make a much more detailed budget to paint a more accurate picture. But once he has done that I would look into what steps might he take to lower the amount he borrows and cut down on living expenses. For instance, can he live at home while going to school or after he graduates? Are you in a position to help him out? Is there a cheaper school with a comparable graduate program that still opens up good career prospects? What if he got another job, lived frugally and saved money for a couple of years--would that make sense?
Then there is the long-term return on investment. Even when the job market recovers wage increases will be scarce in many professions. What is the experience of other graduates from the program he's thinking about attending? Are there reasons to believe he'll enjoy good jumps in pay? Or is the starting salary of $80,000 about what he should expect with 1% to 3% pay increases a year at most? Will this degree open the door to a career he really wants to do and is getting the degree now the best and fastest way to get in?
I don't know the answers to these questions, of course. My main recommendation is to really try and understand the financial and career risks and rewards of taking this step now, and make his decision from there.
About the author
Christopher Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media.
You asked on a recent NPR radio program for comments on the meaning of retirement. I have been retired now for 9 years from a teaching profession. I am 69. I view retirement as a change of focus.....one must develop hobbies and skills to later apply to part-time work and volunteer work. I average over 500 hours of volunteer work a year in a local Hospice program, teaching Junior Achievement in the schools, tutoring children in my home and teaching youth at church. I also work a part-time job 6-15 hours a week in a gift shop at a local Inn(for pay). Plus hobbies sewing, reading and swimming. One must keep busy to stay healthy and maintain stamina. I have noticed that bodily strength seems to be the first thing to go as if I fail to exercise. This county runs on volunteers, so there is always plenty to do. Being retired has been a real blessing in my life.....and I feel I am especially enjoying it because I have worked hard out of the home my entire life, since I was 9 years old. My husband is now also retired...we have 3 daughters and 10 grandchildren. There is life after retirement!!
This is an absurdly easy question to answer. Get a job and pay off the current student loan. Live on beans and rice (or - if you are left-handed - rice and beans) and save all the money needed to pay for the graduate program. Then quit the job and enter the graduate program.
Others have basically said this, but...the general rule is that if you have to go into debt to get a PhD, don't do it. The opportunity cost is generally high even for people who are well funded for grad school, and the idea of paying outright is ridiculous. I'm not sure how well-informed the son is, either, or if he has given his mother an accurate idea of the situation...I can't think of a field where either a PhD routinely takes only four years, or there's any sort of guarantee of a particular job afterward (PhDs are mandatory for very few fields outside of academia or some types of industry research -- and in no case are those jobs easy to get).
To reiterate: Grad school in this case is a very, very bad idea.
I am in a doctoral program and unless this is a MBA, JD or in the medical field you should never pay for a Phd. You might have to reapply to get funding but most schools will give you a tuition waiver and TA position. If the school has an opening, it sounds like someone might have decided not to go there and they think they can fill a seat without having to provide funding. Don't do it! In actuality, it might take longer than 4 years to write your dissertation so you might also be looking at more debt.
