Mastering Your Finances in Grad School

Several years ago, a friend showed me a detailed Excel model he built to evaluate whether he should attend graduate school. He had built several scenarios comparing the costs/benefits of choices he had to make (e.g. which degree would be worth it, which schools would he target, full-time vs. part-time programs, etc.) The model had considered everything – including the tuition and fees associated with each program, potential salaries for jobs after graduation, and the opportunity cost for not working during a full-time program. 

At the time, building a model seemed a bit excessive. (After all, the world tells us to “follow your passion!”) But now, halfway through my own full-time MBA, I’ve realized how useful that approach was. Money Under 30 has an online model very similar to my friend’s, which is a great tool for evaluating if grad school is worth it in the end. However, once you decide to enroll, I’ve found that there aren’t as many resources for strategically managing your finances while in school – including knowing when to take out student loans, how to adjust your budget, and optimizing taxes. 

Unfortunately, most university financial aid departments prioritize administration over education – they’ll answer questions if you ask them, but they typically aren’t very proactive about helping admitted students understand the process. That’s why I’ve put together four key areas to think about as you begin a graduate program. Though some points may be more targeted toward a full-time, two-year program (such as the one I am currently enrolled in), the general principles should be easily applicable to other programs as well.

Redo your Budget for Grad School

Two-thirds of Americans have no idea how much they spent last month. If you attend grad school, make sure you’re in the other third. Before you start school, it’s important to build a high-level budget to estimate the amount of loans you’ll need to take out. (Feel free to use this template I built for a full-time, two-year program. ) You don’t have to document every last detail, but estimating your high-level expenses (including new things for school like tuition and  club membership dues as well as existing expenses like rent, food, etc.) and comparing them to your sources of financing (savings, student loans, scholarships, help from parents) will help you determine how much you need to borrow each year and make sure that’s a number you’re comfortable with.

Understand Student Loan Trade-offs

The actual process of applying for / receiving graduate student loans has gotten much easier over the last decade, but you need to make sure you are comfortable with the debt you are taking on. (Hopefully you already considered this when evaluating whether or not you were going to continue your education!) The next step is deciding between federal and private loans, or a mix of both. 

1. Federal loans offer some benefits, including income-based repayment plans (if you don’t have a very high salary) and student loan forgiveness (if you work for the government or a non-profit). During COVID-19, the Administration actually paused interest accumulation on federal loans. Federal loans also have one consistent rate for all applicants – although you can only borrow up to $20,500 / year with the best rates on Federal Direct Unsubsidized Loans. Any more than that (up to your university’s estimated “cost of attendance”) must be borrowed under the Federal Direct PLUS Loan program, which has higher interest rates and high origination fees.

2. Private loans allow you to shop around a bit and compare rates. If you have strong credit and a co-signer, you could very likely get lower rates than your federal loan options (and often no origination fees!) For people who don’t expect to use any of the federal “protections” because of their career / income plans, private loans can be a good way to save money. A new startup, Juno, helps thousands of graduate school students get the best private loan rates by negotiating on behalf of students as a group to lock in the lowest guaranteed rates. 

Optimize Taxes During School

1. Lifetime Learning Credit – Most grad school students don’t realize that they are likely eligible for the Lifetime Learning Credit that could reduce their taxes by up to $2,000/year (20% of eligible education costs up to $10,000/yr, including the cost of tuition, fees, and required books/supplies). Though there are income limits (if you are single and made more than $69k in 2021 you won’t be eligible), though it changes. If you’re in a full-time program and have little income during your middle year, 

2. State 529 Plan – When people hear “529 plan,” they typically think of saving for a kid’s college. However, 529s can also be used for continuing your own education! You can easily open a 529 plan with yourself as the beneficiary, then withdraw the money as necessary for qualified education expenses (including tuition, fees, and even room/board if you are a full-time student!) Forbes has a great article on some of the key considerations when opening a 529 plan (each state sponsors its own, so be sure to do your research before choosing which one to open). For many states, if you contribute to that state’s 529 plan, you can deduct up to $10,000 (single) or $20,000 (married) in contributions from your income for state tax purposes. (A few states will let you get the tax benefit regardless of which state’s 529 plan you contribute to.) For states with a high state income tax, this could save you hundreds of dollars each year.

3. Selling Investments – Especially if you’re in a full-time program and planning to sell some investments to pay for graduate school, make sure you think about capital gains taxes. Without getting into too many details about how these taxes work, just note that you’ll likely pay lower taxes in a year where you have little income (e.g., the “middle” year where your only income might be from a summer internship). Depending on how much you are planning to sell, this could also save you hundreds or even thousands of dollars in taxes – which makes it that much easier to pay back your loans quickly!

Student Discounts 

Though student discounts will likely have a marginal impact on your overall financial security, they are still worth looking into! 

1. Spotify, Hulu, and Showtime offer a joint subscription for students for $4.99/month (allowing you to convert one or all of your existing subscriptions into this lower price).

2. Even if you already have Amazon Prime, you can convert to the Student subscription and save 50%.  

3. If you plan to buy a new computer for grad school, check out your school’s education pricing. Often you can save $100 or $200 on a new laptop or iPad – just for being a student!

4. Get into the habit of asking “do you have a student discount?” whenever you’re buying clothes – if you don’t ask, the answer is always no! 

5. Check out local museums, symphonies, theaters, and other attractions for student discounts or even free tickets.

Going to grad school is challenging enough without having to stress about your finances. These tips should help you feel more confident about your financial life, so that you can focus on classes and making new friends!