How I'm Planning to Get Ahead of Graduate School Debt

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As first published on Ready For Zero.

Even though I'm not yet in grad school, I'm already looking forward to being completely debt-free. In fact, I am debt-free now, but I'm considering pursuing a graduate degree in the next year or two, and if I do, I'll be on the hook for the bill. This will probably mean tens of thousands of dollars in student loans—no small investment, especially so early in my career.

I'm looking to minimize the cost of my education by getting ahead and identifying my best financing options. One bonus of working at a student lending startup is that I've learned a great deal from my teammates at CommonBond about the nitty gritty details of student loans and about how they financed their own educations. Whether you're looking for graduate school loans or trying to pay them off, I'd like to share my plan of attack for maximizing my investment in my education a few years down the line.

1. Decide on your target programs early, and watch the costs over time.

If you have an idea of what degree you want, don't wait until the year you apply to determine your top schools. Compile a list of schools early and familiarize yourself with the cost of attendance the schools publish each year for their programs. Then evaluate them critically each year based on your evolving grad school preferences and other life events. For instance, if you move from San Francisco to New York but all your schools are on the West Coast, figure that you'll need to cover the cost of moving back into your total grad school bill. And while the schools' published costs of attendance are more realistic figures than tuition alone, you may well wind up paying thousands more depending on your approach to graduate school admissions. Will you need plane tickets to fly out for interviews or tutoring for standardized tests in order to apply? By logging down these expenses early, you won't be caught flat-footed when you're admitted and face more student debt than you bargained for.

2. Start saving now. 

I first considered graduate school the year after I earned my bachelor's degree, which was great timing because I was able to easily keep "living like a student" without feeling I was sacrificing my lifestyle. Bringing lunch to work and renting within my means allow me to save some money each month for my financial goals, one of which is graduate school. I set up automatic monthly transfers so that I don't even see the money I've earmarked for savings before it leaves my checking account. By saving a relatively small amount for graduate school each month, you can accumulate a tidy sum of money that's regularly earning interest, too, and so minimizing the amount of loans I will need to borrow. I am not a financial planner, but I'll share that I personally like using Vanguard and Betterment, which offer very low fees and easy-to-use accounts for users with any level of investing experience.

3. Be smart about where you invest your savings.

I do not keep most of my grad school money in savings accounts. Inflation rates in the U.S. are now at 1.7%, meaning that if your savings account is not earning at least 1.7% annually—and many savings accounts are earning more like 0.017% annually—you're actually losing money. I looked into investing accounts and immediately came up against the classic challenge: you can make more money when you have a high risk tolerance, which is typically when you don't need your money for awhile and can handle some market fluctuations. However, in my case I would need to use my grad school investment in approximately the next 5 years. Still, interest rates on savings and money market options were not cutting it for me, so I decided to research investing accounts that could give me a high return with relative security. This blog post offers a great rundown of the considerations you need to get started if you think this short-term investing path might be right for you.

While I'll still be applying for scholarships and grants when the time comes, all of these steps have allowed me to feel more confident in the face of the high cost of graduate school. I also know that when the time comes to borrow loans, I won't be stuck with my interest rate or term if my needs change: I can refinance my student loans after graduation and probably get a better rate in the process.

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