Before You Go To Grad School
OH WOW - it's been a very long time since I wrote and I'm so sorry.
I've been meaning to write on this topic for a while, but I keep getting stuck. I don't want to ruffle any academic feathers, but I do believe that a lot more thought should be had about the way we spend our money on educational institutions, not to mention secondary education reform needs overall.
I taught elementary math for 7 years. IN FACT, I still teach part time at a charter school in North Austin. I went to The University of Texas, Austin and I had a great time during my 4.5 years of undergrad. I received an Elementary Education degree, which is one of the more practical degrees, as I was trained on a specific job and then I got said job right out of college.
I took out maximum student loans every semester because I was 18, 19, 20 etc. and I needed money and even as a somewhat budget savvy person, I 100% did not understand the implications of having so much debt upon entering the world.
I AM SO PRIVILEGED, which in this case, strengthens my point. My mom took on HALF of my school loans (bless her!), leaving me with just half to pay back on my own. So. There I was at age 22, with $40,000 in student loan debt, which is on the VERY low end compared to some of my peers. As I've mentioned before, my starting salary in Austin ISD was $43,000.
At a 5.75% interest rate, my payment was $300/month. Luckily, my big-picture brain somehow got it together to apply for a program which allowed me to teach in a low-income school for 5 years to get $5,000 off my loans at the end of that 5 years, which just recently came off.
I'm 29 now. I've aggressively paid down my school debt, which was made possible by my side hustles, my house hacking, my real estate ventures and the sheer thrill I get from paying down debt (nerd alert). These are all situations that not everyone finds themselves in. If I had paid the minimum payment every month, I would still have $30,000 in student loan debt. I only have $8,000 currently, which is a damn miracle. They will be paid off by January 2019.
Am I happy that I have a degree from a reputable establishment, yes. Do I need my degree for what I'm doing now? No. Do I wish I were smarter with my debt choices? Yes. Do I feel the need to go to graduate school in any capacity? Absolutely not.
This whole long-winded story to say, BEFORE YOU TAKE OUT MORE LOANS ON MORE SCHOOL, GET CLEAR ON YOUR GOALS.
I've been in the spot about 5 years out of undergrad, where you're feeling restless in your chosen career and unsure about your life's path. I studied for the GRE (for one day). I looked into education masters programs. I get it.
IF you feel the need to go to graduate school to have a higher salary afterward, please run the numbers. Calculate the debt you'll take on, your monthly payment after and the actual salary you'll be earning post-degree.
THEN, calculate the numbers if you aggressively invest your money. Maybe into real estate (obviously my favorite choice and the highest yield choice), maybe in an aggressive index fund. For my example, I'm going to calculate your earnings and holdings if you put the money you would spend on a degree into a rental property.
It's not unreasonable to spend $40,000 on a masters degree - most would be more. SO. here's what would happen if you put that roughly $40,000 into a rental property. This is a real example of an investment property a client of mine just bought in far east Austin and rented.
Rental Property Scenario
Sales Price: $180,000 (this is assuming you're buying on the outskirts of Austin. This number could be a lot lower if you chose to invest in a smaller town a bit farther away from a big city or if you're in a different market)
Down payment 20% due to this being a rental property: $36,000
Closing costs: $6,000
Monthly payment: $1500
Rented BY THE ROOM, total monthly income: $2475
Property managament +saving for incidental repairs: 10% = $248
TOTAL MONTHLY TAKE HOME CASHFLOW: $727
TOTAL YEARLY TAKE HOME CASHFLOW: $8,724
Cash on cash return in the first year: 21%
Average appreciation 4%: +$7,200, which puts your value at $187,200
This rental property adds $51,924 to your net worth in the first year. With tenants paying down your debt and the market appreciation, this number will likely increase each year.
Bigger Pockets has been a huge part of my education around real estate investing, and it's so cheap or can even be free! You can buy The Book on Rental Property Investing from Amazon for a mere $20 and the return on this investment is infinite.
Graduate degree scenarios vary so much, but I encourage you to really flesh out the numbers. If you want to go to graduate school because you love learning and you want to make connections in your field and you feel like the tuition will be worth every penny, then you absolutely should. There are also free grad school options, which I'm fully into.
Just know that there are other options. The world makes us feel like more education is the only way to go, but I'm here to tell you that it's not. We also get so entrenched in our fields thinking that advancement in this career is the only way, but sometimes it's a career that we're not fully happy in. A graduate degree in a field you're not happy in will not necessarily bring more happiness. In fact, it may only bring more debt.
If you're already drowning in a million student loans, it might be worth a loan refinance and consolidation. This is a situation where you also have to run the numbers like crazy, but if you have a higher interest rate on a couple student loans, it might save you some money to refi into a better rate. I've partnered with SoFi to bring you a refinance option if you already feel bogged down with your monthly payment. Click here to visit their website and check out their rates.
I'm also happy to help you run the numbers on any scenario. I'm not an accountant, but I love considering scenarios, thinking about interest rates and then finding a solution that best suits your situation. Shoot me an email :)