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June 21, 2012


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What are your reasonable salary expectations after you complete the grad program? The program benefits must out weigh the costs.

Could you not defer your acceptance another year and pile up cash (continue living at home) and pay cash?

I'd suggest you keep working and pile up cash or liquidate your investments and pay cash for grad school. Alternatively, you can just skip grad school entirely if the benefits don't out weigh the costs.

I am the original poster:

my expected salary out of grad school is not much higher immediately, maybe $85k....

I can defer acceptance but I think graduating ASAP is a better decision?

It sounds like your decision is how to pay for your MBA which you have already decided to obtain. Is it $50k per year, or $50k total? Also, you say you have "no debt" but $70k of student loans which your parents are paying.

If your parents are really taking care of your student loans such that, for all intents and purposes, they aren't yours, then I would take out 4% loans to cover as much of the MBA as possible. I would probably also pay them off on the prescribed schedule (rather than more quickly) unless they interfered with the ability to qualify for a mortgage (not likely). Note that this is what I would do as someone who is both comfortable with having low-interest debt and capable of paying it off much faster but would prefer to have the cheap cash. Based on your current $70k job and what I assume are good prospects for future employment, I wouldn't sweat a $50k student loan debt at 4%. Your own preferences (or your reality as opposed to my assumptions) may differ.

I would consolidate the loan and extended out as long as possible to minimize the payment. With the tax deduction on interest and the rate of inflation from the Feds QE - you would be better off putting as much of your money into savings and letting the gov't drown in their low interest loan with devalued currency.

no this is a masters degree in analytics, which is different from my MBA. It is 50k total.

Is the tradeoff looking at 4% a year in my investment portfolio (non retirement) vs the 4% loan?

Does your employer offer tuition reimbursement? That could help with costs. Also, Federal subsidized loans ($8.5k per year) do not accrue interest until 6 months after you graduate.

This is what I would do, I would use the 25 K to pay for the first year of the program and save up starting now for the second year to pay then. IT should be easy if you live at home and make 70K.

You said your taxable brokerage account was doing "very well" I assume that you probably have some capital gains upon liquidation, which would be taxed at either the long term or short term rates (15% if held over a year). Factor that in when determining if you want to liquidate that.

In my view, if you will make more than 50k plus the interest costs on the graduate loans over your working career, pull the trigger and do the degree.

Plus, if your parents will continue to make payments on your undergrad, go ahead and let them do that.

You may be able to use the basis in your Roth to pay for education. The ordering rule in Roth IRAs is that earnings come out only after you've withdrawn all your contributions, making it possible for you to withdraw contributions for college and leave the earnings in the account to grow tax-free for your retirement. However, this may affect your financial aid status - the tax-free return of your Roth IRA contributions is treated as income in the financial aid formula, and up to 47 percent of parental income will be deemed available to pay for college!

With Student Loan rates being so low - 4% is pretty good - I would just take those and leave your other investments to grow. Plus, you may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid in a given tax year. This would effectively bring your interest cost down by 4% times your effective tax rate (up to $2,500). I would imagine you are probably doing better than 4% in all your accounts even after the tax effect comes into play. Plus, you have time on your side - let those accounts compound.

When you graduate, just aggressively pay off the 50k. If you took the difference between what you earn now and what you will earn upon graduation, you could probably have them all paid off before age 30.

The only thing I would be concerned about is living expenses while in grad school. Either remain with your parents and work to cover those or live as cheap as possible.

My employer does not offer tuition reimbursement.

Jake thanks for taking the time to write that out!

interesting that there is such a difference of opinions, for those that suggest pay off grad school immediately / liquidate and pay it down.. why? can someone explicitly discuss the trade-offs?

tax rates may change this year so selling may make sense in that regard. some also feel that I should sell out my personal portfolio anyway (efficient market theory) and it should all be retirement money so..

really appreciating all the help

"Is the tradeoff looking at 4% a year in my investment portfolio (non retirement) vs the 4% loan?"

I would suggest that this is considerably more than a math problem.

Since you would "love" to help your parents with the $70k in loans already taken out to benefit you, I think you should take on this debt, whether or not they're your legal obligation. Given that premise, going to grad school and emerging into uncertain economic circumstances with $120k in non-dischargeable student debt is something I'd sure seek to avoid.

If you want more education, pay for it with cash, not debt. If you can't afford it, then don't buy it. And I don't think you should move out of your parent's home (and more than double your living expenses) unless the financial plan that precedes the move includes a monthly payment on the $70k in undergrad loans.

live at home as long as you can stand it. I would allow my kids to stay at home as long as they were saving and not being wasteful. Its a huge head start on saving. The MBA is a must as long as it is a good school. You have on chance to get a big jump in salary after grad school. However, the better the school, typically the bigger the oportunity when finished. If the school doesnet cary much weight, you are better off contining to work and saving money. Set a move out goal number. $150k should suffice.

Michael - this is not an MBA. this would be in addition to an MBA.. I would likely pursue an MBA later on my in my career, after mahybe 5 years of work experience - when I think it would drive more value.

More student loan insanity by a brainwashed educational consumer. Whatever graduate degree you obtain (unless it is a professional degree), it will potentially increase your value only with a certain group of employers - the same group of employers that may someday downsize you out of a job without hesitation. Don't venture further down that path. Kill your debt, move out of Mommy and Daddy's house, save your money, start your own business, and build wealth through your own innovation and sweat equity. Also, you should be ashamed of sticking your parents with your debt. Jeez.

Are the student loans private or subsidized? What interest rate are the loans your parents are paying on?

Personally I wouldn't be in a rush to pay down fixed rate subsidized loans.

If you want to help your parents with the existing loans, can you make the payments on them?

Something nobody has mentioned yet - if you make $70k and only spend $13.5k ($1100/mo) - you should have enough money to pay your tuition of $25k per year as you go.

If you're already owe 70K for undergrad, want to spend 50K for a Master's and then presumably spend another 50-100K for an MBA, then financing out of loans-or-savings isn't the issue. That's 170-220K on an education.

In all honesty, starting MBA jobs from the elite schools pay $150K salary at best, unless you have a very rare or highly specialized skill set, and more typically $100-130K with brutal working hours for the higher salaries. You can't support your total education costs on that level of salary.

I think your real question is, how can I get the actual cost of the education for less? Will your employer pay for it? Can you get a scholarship? Can you find a cheaper program?

I'd suggest at least paying half of the 50K grad program by cashing out of your personal investment portfolio. It's great to have a good portfolio like that,but I don't think you need another big student loan to pay for.

How about first paying YOUR 70k in loans your parents are paying for YOU. they are saddled with that. Once those are paid off, by you, then decide if you want another 50 k or so.....

Take your own responsibility.....

You have found a job in a tough climate so what is the reason for the additional credential?

Based on your earlier comments it sounds like you have already decided on the graduate degree but your post doesn't explain why you want or need it.

If you parents had the money then they would have paid for school and not taken out loans. My advice is simple: stay home and pay off your student loans. Skip this graduate degree and make sure you find a compnay that will pay for your MBA when you are ready for it.

I'd skip this degree if you plan on doing your MBA in five years. The only upside is a potential 15K salary bump for five years until you go get your MBA (75K total), which isn't guaranteed, and you're also looking at the opportunity cost of two years salary at 70K. Unless this degree will will make you a much, much more desirable MBA candidate (i.e., guaranteed entry into a top five business school), it doesn't make sense financially and the risk outweighs the potential reward. I agree with other commenters that you should focus on either finding a new employer that will help you pay for an MBA by the time you're ready to go, saving up cash for said MBA, or at least making yourself super attractive to top tier MBA programs.

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