A few weeks ago, I was eating a veggie sandwich before class when a troubling thought occurred to me: This sandwich does not really belong to me. It belongs to some bank!
I had paid for the sandwich using money from a student loan, which means that I was paying interest on my sandwich—interest that compounded daily. Curious to know exactly how much this sandwich would end up costing me, I plugged its price into a compound interest calculator and—voila!—17 bucks. I thought back: The bread and spinach had been soggy, the cheese mediocre at best, and worst of all, it had proved to be the most expensive sandwich of my life. What other kinds of terrible financial decisions was I making?
I called a financial advisor I knew to find out. Mercifully, he quickly found a mistake in my calculations: I’d forgotten to consider that I should be paying my loans down starting six months after graduation, in which case lunch wouldn’t be as much of a financial fiasco as I’d originally thought. Nevertheless, the whole situation underlined how confusing personal finance can be, and how important it is to be fiscally savvy when you are living largely on loans.
I’ve compiled a list of no-nonsense financial advice for graduate students based on my conversations with financial advisors and Internet scouring. I won’t waste your time with the completely obvious (it goes without saying that you should live within your means, for example). But here are some ideas you may well want to keep in mind:
Before You Go to Grad School
Ask yourself: Is going as urgent as you think? My biggest regret about graduate school is having a slim savings account when I arrived. If I had taken an extra year and saved, I could have greatly diminished the amount of money I needed to borrow.
When I was applying, going to grad school felt urgent. I was concerned about being an “old” graduate student—which was, in retrospect, absurd. Maturity is an asset in graduate school. It gives you a better sense of what you want and makes you more confident in pursuing it. Additional experience may also make you a more desirable candidate, potentially increasing your scholarship offerings. Really, there is little difference between 27 and 28 years old for most people, but I will pay for my impatience in the long run.
Negotiate. In a Forbes article offering financial advice for recent graduates, a young woman described her own big mistake: “thinking that if I kept my head down, was a ‘nice girl,’ and worked my backside off … there was no need to proactively negotiate my salary.”
That lesson—that no one is going to give you anything if you don’t ask—applies to soon-to-be graduate students as well. If you were offered similar fellowship or scholarship money from another school, let the program directors know. The same advice stands once you are in grad school, if there are opportunities to reevaluate your funding. For tips on how to negotiate, see this U.S. News & World Report article, which is written specifically with law school in mind, but is certainly relevant to all fields.
Loans suck. Get free money. Be ready to look outside your institution for money as well. Consider getting a copy of Peterson’s Scholarships, Grants & Prizes. While many of the offerings listed there come in smaller denominations (many of the prizes are for $1,000 or $2,000), remember that many institutions have matching programs, so your $2,000 could quickly turn into $4,000. Even if your school does not have a matching program, why would you turn up your nose at $1,000?
Once You’re in Grad School
Get a tax break! U.S. News suggests checking to see if you qualify for a Lifetime Learning Tax Credit—“which allows individuals to subtract up to $2,000 annually from their tax bill.”
Find out which social services you qualify for. You may qualify for health insurance through Medicaid. Don’t necessarily rely on your university’s health insurance. I was surprised to find that my university offered worse coverage at a higher cost than my individual plan. You may also qualify for food stamps.
Create a financial plan—and stick to it. You can use apps like Mint, which links to your bank account to track your spending. Manilla and Daily Cost offer similar services. Aside from helping you stay on track, having a plan can assuage the stress that can be so damaging to your sense of well-being and productivity.
Pay the interest on your loans while you are in school. Many experts suggest this. (Sallie Mae has a nice breakdown of why it might be a good idea.)
However, paying off your interest means having a job. And as one of the financial advisors I spoke to cautioned, it’s important to do a cost/benefit analysis on how you’re spending your time. If you think you’re better off knocking it out of the park with your studies instead of schlepping from school to work … well, maybe you are.
Use your student loans to pay off higher-interest loans (if you have any). This is a no-brainer. Wouldn’t you rather pay 6.8 or 7.8-percent interest than your credit card’s 19 percent (or thereabouts)? But beware: You should be careful not to fall into the trap of using your credit cards more often once they are paid off.
Educate yourself. Many states offer free debt counseling services. For example, in New York, the Office of Financial Empowerment offers just such a program. And StudentLoans.gov provides online counseling, debt repayment calculators, and clear information explaining loan structures.