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Email ThisI often hear grad students discussing the strange and curious life of a grad student. The demands of grad school coupled with the depressing economics are often seen by many as factors that make it impossible to live a good, quality life during post Baccalaureate education. There are many enigmas and riddles along the voyage through grad school. Despite this, with some foresight & planning, some frugality and cutting corners, and some creativity, I’ve lived a prosperous and fulfilling life as grad student. Let’s face it, one isn’t going to live in the lap of luxury that is possible while in the working world. But, being in grad school doesn’t have to mean choosing between living well and racking up debt. It is the aim of this series of blog posts, The Prosperous Grad Student, to unpack some of the mysteries, provide practical tips and actions you can take, and begin a discussion about how best to master the grad student lifestyle.
There is no time better, and no time worse to be in graduate school. We need only think of the cost of fuel to know that living these days ain’t cheap. Add in the mortgage crisis, skyrocketing food costs and throw in the falling power of the dollar internationally, not to mention…. well, you get the picture.
On the other hand, interest rates are down making the thought of paying back a loan a little more bearable and the rise of unemployment could spawn people to consider heading back to school.
Economic woes or not, grad students have always been self-inflicted “starving” intellectuals. Today it seems even harder to scrape by on our salaries that are often teetering on the border of poverty. Since entering grad school about 4 years ago, I’ve never had it so difficult trying to sustain the minimalist lifestyle I strive for. And still, I get by and prosper (although, admittedly less so now than before). Just because you aren’t working, at least in any capacity you’d consider official, doesn’t mean you can afford to ignore your finances, broader economics and the state of the market.
Let’s discuss a few points essential to becoming a financially-minded grad student:
You should exit graduate school with a plan of financial goals. The two main goals you want to accomplish are to graduate with:
1) Minimal Debt
2) A Savings Pot
Today, let’s talk about Minimal Debt
Minimal Debt
For many in grad school, student loans are not an option…they are essential. We need them to finance our tuition and pay for things we need. Understandable. I am not advising you not go to grad school unless you have an offer with a tuition waiver and a nice stipend.
The point is to borrow ONLY WHAT YOU NEED. Too often people borrow money now with the attitude, “What’s it matter how much I borrow? I want to live good now. Plus, I can pay this back later when I have a good job.” In this way, people borrow $ to have amenities they don’t need or live a lifestyle they can’t afford. These are gold-collar grad students, and they are primarily the younger grad student. I’ve known a few in my day and you probably do too. These are the people who seem to be living in the lap of luxury, going shopping for new clothes or smart phones, buying expensive drinks at the bar or often going out to eat. Come to find out, they’re living this lifestyle either entirely off their student loans or have exceeded their stipends and are dipping into their loans.
In our consumer society, it seems normal to consume now, pay later. Yet, consider this: According to MSNBC, Americans were $2 trillion dollars in debt as of 2004. Approximately 43% of American households spend more than they earn. The average American household carries $8,000 in credit card debt. To avoid being swallowed by debt in the years after getting that higher degree, be proactive:
1) Change your perspective about loans!
- Never think of the money as “yours.” Its not! I had an old buddy when I was getting my MA in Miami who always talked about, “When my money comes in…” I can’t begin to tell you how bad his spending habits were when it came to wasting borrowed money. This habit of his was something I noticed. From time to time I reminded him that it wasn’t his money. But, he never got out of the habit of talking about it that way, and thus thinking about it that way. The money belongs to the lender. Rightly acknowledge that when talking about loans. Use terms like “borrowed” to describe the money you’re spending. Sometimes I even say the name of the lender, “I spent $X of LENDER’S NAME for tuition this year.” When you start talking about loan money for what it really is, you’ll start treating it that way too.
2) Loans are a safety net, not a pillow
- You should take out a loan only as a last resort. If you don’t have a TAship and don’t have time for a job, you’ll need a loan. If you can get by without it, even if that means “roughing it” a little bit, you’ll find its well worth it in the long run. Commonly, people take out loans to have “a little bit more spending money” or to maintain that standard of living they had when working or when their parents were paying for college. Don’t expect to live like you did, unless you want to pay for it later in interest. And, don’t worry. There are plenty of ways to get by and live well that we’ll talk about in later posts.
3) Use your loan like you should use salt: sparingly
- This one is simple and builds off #2. Borrow only for tuition expenses when possible. If you must borrow for personal spending, make a modest monthly budget and stick to it. After you figure out your budget, return all surplus money to the lender immediately. You can’t spend what you don’t have. With what’s left, find the bank paying the highest interest and keep the money you loaned in it (often online banks such as ingdirect have better rates).
Remember, the most important thing to do to take hold of your financial future as a grad student and ensure you dig yourself the smallest possible hole to climb out of is to begin with the basics. It’s tempting to borrow on credit and pay later. Problem is, later comes sooner than you think.
The last comment I should make for this, the first post in this series, for those serious about getting in charge of your finances as a grad student is to get familiar with economics and begin following economic news. This is not to say you need to read The Wall Street Journal every day or watch Mad Money. There simply isn’t time for additional reading in grad school. You can begin simple. The very best financial blog I know of is called ‘get rich slowly’ and I strongly encourage you to subscribe to it. The author takes the same approach to finances that I do and will advocate in these posts: wealth is not accumulated overnight. It is earned here and there, and the most effective means of getting there is wise decision making.
Next post we’ll talk about accumulating a savings pot.
I’d like to know… what are your experiences or advice with loans in grad school?! How have you been dealing with them?!
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This is great advice. My wife and I are both in grad school and are just about to take our first loans out for tuition. It’s a stressful thing, since we’ve never liked the idea of going into debt for anything besides a house, but the fact that we’re both working and should be able to use the money just for tuition makes it a tad more palatable.
I like your suggestion to always remember it’s the lender’s money, not yours, even if it’s sitting in your bank account.
And though ING’s interest rates have gone down over the last year since we got accounts there, it’s still a few percent, which means we can make money off of our subsidized loans without any risk. Good times.
As someone who paid my way through undergrad and grad school (and ended up with 6 figures in student loan debt), I would tell any student to READ this blog and LIVE it!!!!
Paying back student loans takes the fun out of getting paid at your “good job” after graduation.
Thanks! Debt is terribly stressful but something we can’t afford to ignore out of fear. I’m glad I can be of help!
I managed to have most of the cost of my MA covered by tuition remission/stipend (I worked as a teaching assistant for my school), but walked away with a $5000 loan. So I don’t really get to complain about student debt.
As it’s been pointed out to me, since my interest on student loans is tax deductible, so the priority should always be bad debt (credit cards, etc) before good debt. Once you’re in the clear on bad debt, then you can start making larger than minimum payments on the good debts.