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    Dealing with Debt

    WanderLust Jul 7 '14 7

    I just got hit by my first semester invoice today. Even though I’ve gone over the calculations a hundred times in my head already, nothing really prepares you for what I call ‘THE Mail’ – the dreaded figure finally sitting in your inbox all ready to be coughed up. Up until now, even though you’re vaguely aware of the expenses involved with attending graduate school, it’s just so abstract – you’ll cross that bridge when you get there, right? Well, this is it. I’m at my bridge and I need to work up the courage (and work out a plan) to deal with it head-on.

    There hasn’t been a day since that acceptance letter came through that I haven’t obsessed over the finances of attending my dream school. I’m truly thankful for the generous financial aid, but that still leaves me with somewhere around 90k to account for. Damn.  That’s more money than I’ll be making for a couple of years upon graduating. I alternate between what-the-hell-am-I-doing and this-will-be-worth-it, but honestly, it’s hard to justify 90k staring at you in the face, especially in this economy and the very mediocre financial prospects of the profession.

    But I also know that I have been blessed with an opportunity that may well never present itself again. This school was nowhere on my application radar this time last year, simple because I thought that I didn’t stand an outside chance of getting in. I literally applied on a dare – a family member convinced me that I had nothing to lose and offered to pay my application fee just to get me to apply. I didn’t eventually take him up on his offer but I did end up hitting submit on that app. And so when the acceptance letter came, I knew that I was nothing short of lucky to be offered a place at a university that denies close to ninety four percent of its applicants. I also knew that these two years could turn my life upside down and open doors that I would simply not have access to with my undergraduate education from a small college in a developing country. The trade-off? I may not drive the swankiest wheels upon graduating; I may save a couple of hundred bucks a month less than my debt-free peers – but I will have a real, flesh-and-blood shot at things I could only have dreamed of from my current situation. And so I decided to pay that deposit, book my place, and tackle the finances as they come. My plan?

    Savings. Luckily, I've always been a big saver. There are two things that I try not to scrimp on – food and travel. With everything else I have a pretty sensible head. I’m careful with finances and make it a point to put aside a small amount of money each month. I've also been putting away most of my scholarship, prize, and gift money over the past five years, only occasionally dipping into it to treat myself to a vacation every once in a while. I recently worked out my finances and was happy to estimate that my savings should be able to cover my living expenses for much of the first year, even with some travel thrown in. That’s a huge relief. Since my goal is to graduate with as little debt as possible, I’m relieved to have a decent chunk of personal expenses covered, even if it means emptying my entire bank account into Yale’s. With the very high cost of living in the north eastern United States, I am especially grateful to have some cash to fall back on. My undergraduate education was pretty inexpensive and debt-free - a comforting thought as I navigate the expenses associated with grad school.

    Parental support. I thank my stars every day for having parents that offered to cover a significant amount of my tuition for the first year. The money will go a long way in cutting down my borrowing. I know people that have had their entire bill footed by their parents and I also know those that had to take on crippling debt and pay every dollar out of their pocket – and I’m happy to find myself in a position that is somewhere in the middle. I struggled with the idea of my parents dipping into their savings to cough up a chunk of my first year tuition (they recently purchased a new home) but things eventually worked out and I’m happy and grateful to have that kind of financial support.

    Work-study. I’m  hoping to land a work-study opportunity as soon as I can. Whether it’s a teaching assistant-ship or an on-campus job, a partial tuition waiver stipend or an hourly wage definitely does its bit to ease the pressure - or at the very least give you an extra few thousand bucks to cut down your living expenses. I fully intend to take this on and am keeping an eye out on the Yale student job search website. There’s not much I can do at the moment – I’m on the other side of the planet and have been told that I will be finding out more about such opportunities once the semester starts, but I’m keeping my fingers crossed that something  will work out.

    Loans. I absolutely dread student debt but do realize that this is inevitable. Assuming I do not get a decent work-study opportunity, I estimate my total student debt to be in the region of 30k. Luckily, these loans will have to be taken out during my second year and so I will have one year less of interest accruing. I fortunately also have the option of availing of a Yale loan with an interest rate far lower than what I would have to pay in my home country. On a repayment calculator, I will have to pay in the range of 380 a month on a 10 year repayment plan. Being in a non-medicine/law/business field, I cannot expect to make 100k+ on starting (more like half of that) and so need to consider even 30k in debt very carefully.  I intend on paying off my debt as soon as I can and hope that my habit of stretching cash comes of use here. Again, we’ll tackle it as it comes.

    What do y’all think? If you are currently in graduate school or planning on attending one, how do you plan on paying for it? If you have been through the drill, what are your thoughts on the subject and how has your experience in dealing with debt been?

     

     
    • 7 Comments

    • archanonymous
      Jul 10, 14 10:37 am

      What is your undergraduate degree in? Have you already spent some time working in the profession?

       

      I graduated with about 45k in debt. It has made it extremely difficult to save for a house or do anything except live month-to-month, even getting a salary that is 20%+ above my peers. I would recommend doing whatever it takes to pay as much money as possible up-front, as it will cost you more (in interest, and opportunity cost) if you wait.

      WanderLust
      Jul 13, 14 8:26 am

      Thank you for your insight. I have an undergraduate degree in architecture from a south Asian country and about a year of work experience (a full time position, not internships). Yes - then plan is indeed to minimize debt. I've been told its fairly common for pretty much everyone at the YSOA to work for up to 10 hours a week. With Yale's inflated hourly wages that could mean somewhere around 5k a year (working under 40 weeks). An opportunity like that could cut down my debt to 25k or so, which I fully intend to pay off as quickly as I can. 

      I absolutely despise debt and everything it comes with and am terrified at the prospect of dealing with it. All of these bits of advice from everyone who's been in the situation really help me understand the consequences better. Thanks!

      Matt KleinmannMatt Kleinmann
      Jul 14, 14 1:56 pm

      Plan to get on an income based repayment plan (IBR) tied to your salary. If your loans were all federally made, and not privately made, you can expect to pay no more than 10% of your salary per month. Makes it much more affordable (a couple hundred dollars a month), as long as you stay on top of payments. Good rule of thumb I was told is don't let your debt be twice your initial starting salary, or you'll never get it paid out comfortably over the 30 years of the plan.

      Also, if your primary employer is a public interest entity (university, non-profit, government) you can have your loans forgiven after ten consecutive years of repayment in good standing.

      jarvvy
      Jul 15, 14 2:00 pm

      To add to what Matt said above...yes, with IBR what you owe each month can be very small. However, if you have significant student loans and are paying only 10% of your salary each month to student loans, you may not even be paying off the interest. Which means you could be adding to your principal balance each month.

      WanderLust
      Jul 17, 14 1:31 pm

      The current plan is to take out a loan of 30k on an expected starting salary of 50k (if I'm lucky, I guess). I am debt free at the moment as I didn't have to take out any loans for my undergrad, so the 30k is the total loan I'd graduate with. An on-campus job would help cut down that figure further but I'm not counting those chickens until they hatch.

      I'm hoping to make larger payments towards the principal and pay off my loans as soon as I can, as opposed to a prolonging it over 10 years or so. I'll probably not end up saving much for the first two or three years, but I'd like to ease the burden quickly and move on to saving for other things (house/retirement). As opposed to being straddled with 10 years of payback where the interest continues to accrue. What say?

      bowling_ball
      Jul 19, 14 11:55 am

      As a Canadian, I'm always fascinated by the financial aspects of attending school in the US.  First, you have astronomically high tuition at private schools, but apparently that's ok because you get 30 years to pay it off - at insanely low interest - and repayment can be limited to just 10% of annual income. This is how banks make out like bandits - it's not hard to believe that you could be paying off interest only during much of your repayment, increasing your principal over the long term (and thus accruing even more interest, I suppose).

      you sound like you have decent financial sense, so be careful.  The school MAY open opportunites for you, but the only real guarantee you'll have at the end of your education is an extremely expensive framed receipt, which you'll be paying off for decades.

      WanderLust
      Jul 20, 14 8:37 am

      IKR? The tuition amounts never fail to boggle me and then I know people that take on 100K plus in loans to get an architecture graduate degree. I really do wonder how that sort of debt can be doable unless you're in the law/management/medical fields, and even there the bubble is bursting. 

      It's been very hard for me to justify the prospect of taking out 30K in loans but in my individual case I know its the right decision. In the worse case, I figured I could head off to the middle east (Dubai I'm eyeing you) where they're hiring left right and center, and pay it off tax-free :)

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