These days, grad school debt is all but inevitable. These expert tips will help you deal with the student loans left in the wake of that hard-earned graduate degree.
Just in case you weren’t already painfully aware: grad school is expensive. If you’re lucky, federal or private graduate school financial aid will offset some of the expense—you might even get some tuition reimbursement from your employer. But even so the remaining costs are usually substantial. And for students paying for their entire grad school bill, total costs can be daunting.
The good news about grad school debt is that it represents a genuine investment in your future. (And the return on investment for graduate school is often worth the cost.) The bad news is, well, it’s still debt. Owing substantial sums of money can have a chilling effect on your lifestyle. If your post-grad school salary doesn’t even make a dent in your student loan debt, then it’s hard to justify a graduate degree. Obviously the more money you owe, the less you will have for other purposes. And the longer you take to pay it off, the more interest you will pay.
Fortunately, the problems posed by graduate school debt are manageable with a little strategy. Of course, individual circumstances vary, but anyone can develop a plan for paying off their graduate school loans. According to Sean-Michael Green, Associate Vice President for Graduate Enrollment and Marketing at the University of New Haven, a smart first step is to try to minimize the amount you owe if you can. “Try to maximize the ‘free’ money you can receive in the form of grants and scholarships,” he says. “Many institutions offer assistantships that come with a partial or full tuition waiver in exchange for providing service to the university, often in the form of teaching or research.”
Green also advises keeping living expenses to a minimum while you’re pursuing your graduate studies. “Being a graduate student entails living a spare lifestyle, struggling to make ends meet at times,” he says. “I advise folks that while they are destined to go through this phase, they can either do it while they are actually grad students, or they can suffer through it as professionals paying back their loans.”
Once you complete your studies—and finish accumulating grad school debt—be sure to follow these strategies offered by Mark Kantrowitz, current Publisher and Vice President of Strategy for Cappex.com and former VP of financial aid super network Edvisors (with sites like FastWeb.com and FinAid.org. These tips can help you deal with the grad school debt you have accrued.
- Get organized. Make a list of all your grad school loans (and undergrad loans, for that matter) with due dates and lender contact information. Be forewarned too: the loan payment is due even if you don't get a statement or other notice from the lender. Undergraduate loans that were deferred while you were in graduate school will also resume repayment sooner than new loans obtained in graduate school; new loans typically have a six-month grace period, while other loans will re-enter repayment within 60 days.
- Sign up for auto-debit. Not only are you less likely to be late with a payment if they are automatically transferred from your bank account to the lender, but many lenders offer discounts, such as interest rate reductions, as an incentive for enrolling in auto-debit. This can save you money.
- Claim the student loan interest deduction. Up to $2,500 in interest on federal and private student loans can be deducted from income on your federal tax returns. The deduction is an above-the-line exclusion from income, so you can claim it even if you don't itemize.
- Accelerate repayment on loans with the highest interest rates. If you find yourself with some extra money (Holiday bonus? Grandma still sends a birthday check? Surprisingly lucrative yard sale?), put it toward an additional payment on the loan with the highest interest rate. Do this even if some of your other loans have higher balances. This will save you the most money over the life of the loans and lead to quicker repayment of all your loans. Be sure to include instructions too, specifying the ID number of the student loan and that the extra payment should be applied to the principal balance and not treated as an early payment of the next installment. You do not want the lender to skip installments, especially if you're signed up for auto-debit.
- Manage your money responsibly. This means paying all your debts on time (not just grad school student debt), so your credit scores should improve within a few years of graduation. At that point you can shop around for a better interest rate on a private consolidation loan and consider refinancing some or all of your student loans. Generally, private lenders cannot match the interest rates on Federal Stafford loans, but you might be able to get a better deal on your private student loans and Grad PLUS loans if you have excellent credit. You should also create a budget if you don’t have one already. Account for your graduate student loan payments, all of your recurring payments like rent and insurance, your incidental expenses, emergency fund savings—everything.
- Get other people to pay your grad school debt. Are you eligible for income-based repayment on your federal student loans? Can you get a job with a company that offers tuition reimbursement or student loan forgiveness? Do you have a super rich relative looking for a new philanthropic cause?! Okay, we’re joking with that last one (mostly). Although it does raise an interesting, if slightly controversial, point about using crowdfunding to pay back school student loan debt.
The point is: be smart, methodical, and leave no stone unturned when it comes to paying back your grad school debt.
Do you have any questions about grad school financial aid, loans, and/or student debt? If you’re already done with grad school, how are you dealing with your debt? Share your story and tips in the comments or get in touch with us on Twitter.