Author Topic: Case Study: Best Way to Pay Down My Student Debt?  (Read 10279 times)

jfssiii

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Case Study: Best Way to Pay Down My Student Debt?
« on: February 16, 2015, 08:10:54 PM »
Hello fellow Mustachians! I have recently stumbled upon this gold-mine of a site. My apologies in advance if I break with etiquette or have posted incorrectly. I am still new, but eager to learn! I was hoping to post my situation, in great detail, and receive any of your thoughts and advice.

I am a 23 year old recent college graduate who has racked up considerable college debt. Undergrad expenses (with interest to date) currently stand around $92,000 and most of the loans carry about 7.9% interest. I just started a job that has a gross yearly income of $53,500. In the near term, I intend to buy a car under $14,000 and attend school for a graduate degree that will likely cost around $33,000 sans any interest considerations. (I know. Before I am berated about being un-Mustachian, I have set my mind to getting the masters degree and I will need the car to get from work to class in the evenings.) Lastly, I am living at home with my parents in order to avoid living expenses (Lucky for me, they also pay about 75% of my food bills).

Topic Title: What is the best way to tackle a large amount of student debt?

Income: $53,500

Current Expenses:  Less than $200 a month (Live with parents, 3 mile commute)

Expected Expenses: Buy used car less than $14,000, Attend graduate school  ~$33,000

Assets: $0

Liabilities: $92,000 Student loan debt

Summary:

Assets : $0
Debt: $139,000
Monthly Expenses: $200
Income: $53,500

Specific Questions:
It has been suggested on the site that debt should be treated like an emergency. Should I forgo all 401k and IRA contributions until my debt is paid down?

Alternatively, should I forgo 401k contributions, but attempt to max out the $5,500 yearly max in Roth IRA contributions since I am young?
« Last Edit: February 16, 2015, 08:28:08 PM by jfssiii »

caliq

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #1 on: February 16, 2015, 08:59:09 PM »
With that amount of debt at that high of an interest rate, I'd want to buy a car at less than like...1400.  Basically 8% guaranteed return is going to trump anything you can get out of your 401k/IRA except for the company match on the 401k. 

If you stay at home for a couple years, even with adding to your debt, you should be able to pay it off or down considerably.  If I were you, I'd get really ambitious and set a stretch goal of paying all of your undergrad loans off before graduating your master's program ;)  You do have an emergency. My student debt is half of yours and I'm freaked out about it.  No way should you be spending anywhere near 14k on a car.  (I'm trying to *sell* my husband's car that's worth ~14k to get something older/higher miles/cheaper). 

Cwadda

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #2 on: February 16, 2015, 09:13:49 PM »
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car under $14,000
So like...$5,000? No...even less.

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attend school for a graduate degree that will likely cost around $33,000
Can you get your employer to help out at all?

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$92,000 and most of the loans carry about 7.9% interest.
The good thing is that all the interest payments can be deducted from your taxes :)

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Should I forgo all 401k and IRA contributions until my debt is paid down?
Does your employer offer any matching? It's free money; you might as well. Also, contributions will decrease your taxable income.

Quote
Alternatively, should I forgo 401k contributions, but attempt to max out the $5,500 yearly max in Roth IRA contributions since I am young?
My thinking is that a Traditional IRA would be better since you get the tax benefit and then later converting over to a Roth. Hmm...not 100% sure on this one though.

MDM

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #3 on: February 16, 2015, 10:02:55 PM »
Quote
$92,000 and most of the loans carry about 7.9% interest.
The good thing is that all the interest payments can be deducted from your taxes :)
Unfortunately, only up to $2,500 can be deducted.  Even more incentive to pay down those loans ASAP.

Quote
Quote
Should I forgo all 401k and IRA contributions until my debt is paid down?
Does your employer offer any matching? It's free money; you might as well. Also, contributions will decrease your taxable income.
Yes, as caliq said the employer match is the only thing guaranteed to have a better return than your loan payments.

Quote
Quote
Alternatively, should I forgo 401k contributions, but attempt to max out the $5,500 yearly max in Roth IRA contributions since I am young?
My thinking is that a Traditional IRA would be better since you get the tax benefit and then later converting over to a Roth. Hmm...not 100% sure on this one though.
In case the horse isn't dead yet: 1) take any employer match.  2) pay down the loans.  There is no 3 (until #2 is close to done).

ShoulderThingThatGoesUp

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #4 on: February 17, 2015, 06:55:11 AM »
You can't take the bus to/from class? If I were your parents I would be a little annoyed if you bought a fancy car while they were paying for most of your food.

GetItRight

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #5 on: February 17, 2015, 07:28:43 AM »
Your car budget is about $1000, maybe $2000 for the right car, $14000 is absurd if you want to pay off that debt any time soon. Take the 401k match but not a penny more, funnel everything else into those loans. Don't drag it out and don't get carried away on spending or luxuries and you can have this gone in 3-4 years at most, likely less.

Also 7.9 is nuts, over 6 grand a year interest. You can only deduct $2500 and it only saves you peanuts on taxes compared to the interest you're paying. You'll also likely not be able to claim that deduction at all in another year or two when you're earning more. I know what it's like because I was paying over twice the interest you are on student loans for a few years. Eventually I was able to refinance and get the interest down to a few thousand a year at rates from 4.5% to 6.8% with the bulk at 4.5% and 5.75% (will refinance again soon to hopefully under 5%). Look at Wells Fargo and Citizens Bank.

Also focus on work, increasing your income, and doing some side hustle. Your first few years into your career are great opportunity for rapid pay increase as you prove your worth or move on to greener pastures, and you're young enough to have the energy to work around the clock both at your day job and side hustle. Just stay focused and get it done, you don't want to be in your 30s with massive student loan debt.

GetItRight

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #6 on: February 17, 2015, 07:41:49 AM »
In the near term, I intend to ... attend school for a graduate degree that will likely cost around $33,000 sans any interest considerations. (I know. Before I am berated about being un-Mustachian, I have set my mind to getting the masters degree and I will need the car to get from work to class in the evenings.)

Holy crap how did I miss that part! You cannot afford school, you have a hair on fire debt emergency from your previous luxury spending. If you want to go back to school you need to first pay off your existing debt then save up enough to pay for school. You also should be doing ROI calcs and projections for any money spend on school. In my experience school was a tremendous waste of time and money that got me absolutely zero ROI while costing me dearly. I would suggest not tightening your own chains.

Bracken_Joy

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #7 on: February 17, 2015, 07:47:25 AM »
Your loan rate is awful. You're incurring negative on this loan what some people incur positive on their investments. Just let that wash over you, and then find a nice $1-2000 old car that you can nurse alone. Personally, I would not go near grad school until my undergrad debt was paid down, unless there is a sure thing $100k/yr job waiting at the other side of that debt rainbow. Instead, I would delay grad school and work a side hustle (or two) until things are less emergency proportions.

Wishing you luck.

Cwadda

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #8 on: February 17, 2015, 08:43:19 AM »
Quote
Unfortunately, only up to $2,500 can be deducted.
Oof, did not know this. That's roughly a third of the yearly interest OP needs to pay. I shudder to think of how much worse $200k+ debt is.

OP, what is the value of the degree in your field? IMO your employer should be helping out if you really need it.

tlars699

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #9 on: February 17, 2015, 08:57:42 AM »
If you're not getting employer to help pay for school, pay off at least half your debt first, if not all of it.

That way you don't need the car- the only solid reason you list that you're getting one is to go to school after work.

Then you can contribute an additional 100$ to your parents a month for food stuffs, and end up paying for half of your meals.



LadyStache

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #10 on: February 17, 2015, 09:28:15 AM »
Your situation is very similar to mine a few years back, except I made far less per year.

Be sure to get the maximum match on your 401k. After that, I would stop and focus my efforts on paying for school.

I would probably open up a Roth with the min. deposit needed to start the 5-year clock on it (after which, the rules loosen for making withdrawals without penalty).

Definitely try to spend less on a car. When I purchased a car during grad school, it was really important to me to get something reliable because I would need to pass through REALLY bad areas to get to and from school, and I usually returned pretty late from my evening classes. Not somewhere I would ever want to break down during the day. I DEFINITELY would never want my car to break down in that area at night. I spent about $12,000 and I still drive the car to this day. It's important to get a car you feel safe using which gets decent gas mileage, but don't overspend. If you're financing a car, you might be able to get a pretty low rate with a credit union.

Also, the interest rates for my grad school loans were higher than my undergrad loans. If that will be the case for you as well, I suggest focusing on paying for grad school over repaying your undergrad loans.

jms493

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #11 on: February 17, 2015, 09:30:42 AM »
Here is some motivation...granted this person is in a different situation but he had about the same amount.

http://nomoreharvarddebt.com/


jfssiii

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #12 on: February 17, 2015, 09:40:02 AM »
I appreciate all of the honest advice. I definitely agree that I could buy a cheaper car. My logic in the $14,000 number was to avoid buying a junker that would inevitably require a large repair.

I have truly considered trying to make mass transit work, but the location of my job and the school make it extremely difficult and only really possible if I chose to forgo significant amounts of sleep, which may not look so good on job performance.

As I have been informed, the company match does not kick in until year 2 (4.5%) and then I am not vested in the matched funds until year 3. Being young, I don't have much reason to leave, but there is always the possibility of a greater income by being flexible in the position I choose to hold.

I think my overall takeaway from all of the comments is to attack the loans as aggressively as possible. In terms of the graduate program, do you all believe it is truly smarter to put this off until the loans are paid down? To me this seems the best opportunity to increase my lifelong earning and have some more upward mobility in terms of income. My employer will match up to $5,250 each year. I believe I could net out about $15,000 from the employer toward the graduate degree.

Lastly, and I know I am about to receive a huge amount of flack for this, I am an economics major with a math minor. My graduate degree would be in applied economics (very statistics heavy) so I hope there would a much larger income payout at the end of the rainbow. The reason I racked up huge amounts of debt as an undergrad was traveling to study at Oxford for a brief stint. Now however I must agree that the payoff does not seem worth the costs I incurred. I think that my resume is decent. Would everyone still advised against the graduate degree?
« Last Edit: February 17, 2015, 09:50:24 AM by jfssiii »

SantaFeSteve

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #13 on: February 17, 2015, 09:51:10 AM »
I appreciate all of the honest advice. I definitely agree that I could buy a cheaper car. My logic in the $14,000 number was to avoid buying a junker that would inevitably require a large repair.

I have truly considered trying to make mass transit work, but the location of my job and the school make it extremely difficult and only really possible if I chose to forgo significant amounts of sleep, which may not look so good on job performance.

As I have been informed, the company match does not kick in until year 2 (4.5%) and then I am not vested in the matched funds until year 3. Being young, I don't have much reason to leave, but there is always the possibility of a greater income by being flexible in the position I choose to hold.

I think my overall takeaway from all of the comments is to attack the loans as aggressively as possible. In terms of the graduate program, do you all believe it is truly smarter to put this off until the loans are paid down? To me this seems the best opportunity to increase my lifelong earning and have some more upward mobility in terms of income. My employer will match up to $5,250 each year. I believe I could net out about $15,000 from the employer toward the graduate degree.

See Bold Comments:
1.  Your assertion is false.  There are MANY very reliable automobiles available for $4,000 to $5,000 that can be expected to provide many years of reliable service.  There is never a guarantee - new cars wind up in the repair shop too- but there are many options.  I would even recommend spending a few dollars to have a reputable shop perform a pre-purchase inspection on a potential used car purchase.  This can provide peace of mind, and also help you avoid a vehicle with some existing challenges.

2. Yes, you should not take on another $33,000+ in debt at this time.

3.  If your employer will pay up to $5,250 per year, then how about going to graduate school part-time, say enough credits that you do not exceed $5,250 per year by any amount you would have to borrow?  Then you get to aggressively pay down your existing - Yes your hair is on fire- debt while still working towards your goal of a masters degree.

TrulyStashin

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #14 on: February 17, 2015, 09:52:42 AM »
I have $153k of law school loans.  I got a BA in 1990.  A MA in 1998 (fully paid for with fellowship) and my JD in 2011.  Yes, I am old.  Heh.

You already have a debt emergency.  Do not keep digging.

Pay off your current debt before going back to school.  Without doubt this is the best favor you can do to your future self.  If you're disciplined, you can have your current loans paid off in just a couple of years.  In that time, you'll also grow and mature.  Your 27 year old self might realize that the grad program you want now is not so important after all.  In general, your 20's are a volatile time.  Go forth with the degree you have and work for a while -- it's good seasoning.

The grad program can be your reward for paying off your current loans -- if you still want that when you get there.  You might want something else.

Meanwhile, consider refinancing your current SL's.  I used SoFi and cut my interest rate in almost half.  My referral link is in my signature and we each get a little $$ if you use it.  It might not be right for you, but it's worth considering.

I just caught the bit about having an econ degree.  Absolutely no need to go to grad school at this point.  You can get a great, high-paying analyst job with that degree -- you have lots of options with it.  In fact, a more-focused grad degree might lock you into a path that you may not like so much, once you've done it.   
« Last Edit: February 17, 2015, 09:55:37 AM by TrulyStashin »

tlars699

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #15 on: February 17, 2015, 10:05:44 AM »
I appreciate all of the honest advice. I definitely agree that I could buy a cheaper car. My logic in the $14,000 number was to avoid buying a junker that would inevitably require a large repair.

I have truly considered trying to make mass transit work, but the location of my job and the school make it extremely difficult and only really possible if I chose to forgo significant amounts of sleep, which may not look so good on job performance.

As I have been informed, the company match does not kick in until year 2 (4.5%) and then I am not vested in the matched funds until year 3. Being young, I don't have much reason to leave, but there is always the possibility of a greater income by being flexible in the position I choose to hold.

I think my overall takeaway from all of the comments is to attack the loans as aggressively as possible. In terms of the graduate program, do you all believe it is truly smarter to put this off until the loans are paid down? To me this seems the best opportunity to increase my lifelong earning and have some more upward mobility in terms of income. My employer will match up to $5,250 each year. I believe I could net out about $15,000 from the employer toward the graduate degree.

See Bold Comments:
1.  Your assertion is false.  There are MANY very reliable automobiles available for $4,000 to $5,000 that can be expected to provide many years of reliable service.  There is never a guarantee - new cars wind up in the repair shop too- but there are many options.  I would even recommend spending a few dollars to have a reputable shop perform a pre-purchase inspection on a potential used car purchase.  This can provide peace of mind, and also help you avoid a vehicle with some existing challenges.

2. Yes, you should not take on another $33,000+ in debt at this time.

3.  If your employer will pay up to $5,250 per year, then how about going to graduate school part-time, say enough credits that you do not exceed $5,250 per year by any amount you would have to borrow?  Then you get to aggressively pay down your existing - Yes your hair is on fire- debt while still working towards your goal of a masters degree.

3. If that amount doesn't entirely cover a class's tuition, I would say that it's better to take out a small loan to cover the remainder of the tuition and then pay that off asap while still paying off undergraduate loans.
However, you may need to prove to your employer that you're worth the money they're spending, aka needing a positive review after a year, which would make this moot for a year.
Which means a little less than halfway to debt free after a year's worth of work.
Granted getting the degree right away means you'll have more time to get a good ROI for the graduate, but it will most likely be a wash in the timeline versus paying off the UG loans right away and waiting to go back to school.

MDM

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #16 on: February 17, 2015, 10:06:33 AM »
In terms of the graduate program, do you all believe it is truly smarter to put this off until the loans are paid down?
Your yes/no choice on the graduate program should be independent of whether undergraduate loans have been paid.  By analogy, you wouldn't need to drop out of college after freshman year until repaying freshman year loans, etc.

Quote
To me this seems the best opportunity to increase my lifelong earning and have some more upward mobility in terms of income. My employer will match up to $5,250 each year. I believe I could net out about $15,000 from the employer toward the graduate degree.
...
 I think that my resume is decent. Would everyone still advised against the graduate degree?
This is the real question: are you making a good investment in your education, or not?  Same question applies to any undergraduate degree.  I can't answer that for you. 

Talking to people in your field, both those "a few" years older than you who have/haven't done the grad work, and hiring managers who evaluate up and comers, is the best way to understand the likely benefits.  The use of the word "likely" is intentional: there is no 100% guarantee no matter which direction you pursue.  But with some due diligence on your part you can make a reasonable guess.

ShoulderThingThatGoesUp

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #17 on: February 17, 2015, 10:08:10 AM »
What's the graduate degree? Do you think it will make you better at your job, or do you think it'll just make your base pay higher in an employer's formula? If the latter, don't go, because you can beat that by being good at your job, usually.

jfssiii

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #18 on: February 17, 2015, 10:12:40 AM »
What's the graduate degree? Do you think it will make you better at your job, or do you think it'll just make your base pay higher in an employer's formula? If the latter, don't go, because you can beat that by being good at your job, usually.

The graduate degree is a 15 month masters in applied economics. It may allow me to jump into a higher paying field.

jfssiii

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #19 on: February 17, 2015, 10:14:33 AM »
In terms of the graduate program, do you all believe it is truly smarter to put this off until the loans are paid down?
Your yes/no choice on the graduate program should be independent of whether undergraduate loans have been paid.  By analogy, you wouldn't need to drop out of college after freshman year until repaying freshman year loans, etc.

Quote
To me this seems the best opportunity to increase my lifelong earning and have some more upward mobility in terms of income. My employer will match up to $5,250 each year. I believe I could net out about $15,000 from the employer toward the graduate degree.
...
 I think that my resume is decent. Would everyone still advised against the graduate degree?
This is the real question: are you making a good investment in your education, or not?  Same question applies to any undergraduate degree.  I can't answer that for you. 

Talking to people in your field, both those "a few" years older than you who have/haven't done the grad work, and hiring managers who evaluate up and comers, is the best way to understand the likely benefits.  The use of the word "likely" is intentional: there is no 100% guarantee no matter which direction you pursue.  But with some due diligence on your part you can make a reasonable guess.


I think that is a very good point and I will definitely begin to ask those around me. Thank you.

ioseftavi

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #20 on: February 17, 2015, 10:38:24 AM »
What's the graduate degree? Do you think it will make you better at your job, or do you think it'll just make your base pay higher in an employer's formula? If the latter, don't go, because you can beat that by being good at your job, usually.

The graduate degree is a 15 month masters in applied economics. It may allow me to jump into a higher paying field.

STOP.  STOP, STOP, STOP. 

"May allow me to jump into a higher paying field?"  What?   What?

This is awful, bullshit, hand-waving reasoning.  If I was your professor in some econometrics course, I would circle this sentence and write NEEDS CITATIONS / SOURCES TO BACK UNSUPPORTED ASSERTION in your paper margin.

This is like when people say, "Well, it's a risk...but it's a CALCULATED risk!"

Bullshit.  Insurers make calculated risks.  Horse-racing bookies make calculated risks.  Real Estate investors following stringent investment deal criteria take calculated risks.

Answer me the following questions.  If you haven't already answered these in your own analysis of a graduate degree, I'd suggest you do so:

1)  How well is the school ranked
2)  How well is your specific program ranked
3)  What percentage of your specific program graduates within 3 years
4)  What percentage of your specific program finds jobs within their specialty within 12 months of graduation
5)  What is the salary breakdown (mean, median, quartiles) for graduates from your specific program, for several recent years?  Your estimated salary for when you graduate the program should be based off of the most recent year's median.  Don't pick numbers from the top of the range, or use the average, because both of those will be skewed.
6)  What is the cost of the program per year, gross (advertised price)
7)  What is the cost of the program per year, net (what you'd expect to actually pay when you factor in any scholarships, grants, or other people's money in gifts)?  How much debt do you actually think you'll take on as a result of gradschool?
8)  How much money are you currently making?  How many years will you NOT make that salary while you're in school?  Estimate a raise, too (i.e. I will make X in 2016, and 1.05 times X in 2017).  This is your opportunity cost.
9)  How much money do you think you could realistically make per year if you were really aggressive in looking for new opportunities, getting non-grad school degrees (technical certifications), and promoting yourself?  Where would your salary max out?
10)  How much do you expect your post-grad school salary to grow, and where do you think it might cap out at?  If you're not sure, you can use something like "5 years at 10%, 5 years at 5%, and thereafter at 2-3% to keep pace with inflation".  That sounds low but that's actually pretty aggressive, due to compounding.

Jfssiii, my point is this: Grad school is no longer something you can do in America because you don't have your life figured out, or simply because the program interests you.  The extremely high price of higher education means that you need to be a cold, calculating, badass when it comes to deciding on a higher education degree.  Don't just wave your hand and say "what's another $33,000 in debt, compared to a potentially higher paying career?"  Run the numbers.  Be realistic.  Think critically about the decision.

ShoulderThingThatGoesUp

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #21 on: February 17, 2015, 10:43:32 AM »
What's the graduate degree? Do you think it will make you better at your job, or do you think it'll just make your base pay higher in an employer's formula? If the latter, don't go, because you can beat that by being good at your job, usually.

The graduate degree is a 15 month masters in applied economics. It may allow me to jump into a higher paying field.

That sounds like clown school master's, which is what I suspected when it cost $33k. I highly doubt that it's worthwhile. No research/publication involved, I'm guess? Just courses?

jfssiii

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #22 on: February 17, 2015, 10:55:32 AM »
What's the graduate degree? Do you think it will make you better at your job, or do you think it'll just make your base pay higher in an employer's formula? If the latter, don't go, because you can beat that by being good at your job, usually.

The graduate degree is a 15 month masters in applied economics. It may allow me to jump into a higher paying field.

STOP.  STOP, STOP, STOP. 

"May allow me to jump into a higher paying field?"  What?   What?

This is awful, bullshit, hand-waving reasoning.  If I was your professor in some econometrics course, I would circle this sentence and write NEEDS CITATIONS / SOURCES TO BACK UNSUPPORTED ASSERTION in your paper margin.

This is like when people say, "Well, it's a risk...but it's a CALCULATED risk!"

Bullshit.  Insurers make calculated risks.  Horse-racing bookies make calculated risks.  Real Estate investors following stringent investment deal criteria take calculated risks.

Answer me the following questions.  If you haven't already answered these in your own analysis of a graduate degree, I'd suggest you do so:

1)  How well is the school ranked
2)  How well is your specific program ranked
3)  What percentage of your specific program graduates within 3 years
4)  What percentage of your specific program finds jobs within their specialty within 12 months of graduation
5)  What is the salary breakdown (mean, median, quartiles) for graduates from your specific program, for several recent years?  Your estimated salary for when you graduate the program should be based off of the most recent year's median.  Don't pick numbers from the top of the range, or use the average, because both of those will be skewed.
6)  What is the cost of the program per year, gross (advertised price)
7)  What is the cost of the program per year, net (what you'd expect to actually pay when you factor in any scholarships, grants, or other people's money in gifts)?  How much debt do you actually think you'll take on as a result of gradschool?
8)  How much money are you currently making?  How many years will you NOT make that salary while you're in school?  Estimate a raise, too (i.e. I will make X in 2016, and 1.05 times X in 2017).  This is your opportunity cost.
9)  How much money do you think you could realistically make per year if you were really aggressive in looking for new opportunities, getting non-grad school degrees (technical certifications), and promoting yourself?  Where would your salary max out?
10)  How much do you expect your post-grad school salary to grow, and where do you think it might cap out at?  If you're not sure, you can use something like "5 years at 10%, 5 years at 5%, and thereafter at 2-3% to keep pace with inflation".  That sounds low but that's actually pretty aggressive, due to compounding.

Jfssiii, my point is this: Grad school is no longer something you can do in America because you don't have your life figured out, or simply because the program interests you.  The extremely high price of higher education means that you need to be a cold, calculating, badass when it comes to deciding on a higher education degree.  Don't just wave your hand and say "what's another $33,000 in debt, compared to a potentially higher paying career?"  Run the numbers.  Be realistic.  Think critically about the decision.



I really appreciate the thought and time you have put into your response. I want to make it clear that I am not trying to be "hand wavy" about this. I am at the very beginning of a process to answer many of these questions you have brought up.

1-2. The school is Johns Hopkins and it has been ranked 5th in stats and 24th for econ. How would you suggest delineating the ranking of the school at this level? Often time people talk about the top 10 and then after that many schools do not get much attention. Is a 24 all that much better than a 30, a 60?
3-6 are all excellent questions that I have vague understandings of at this point, but is something I intend to pin down over the coming months.
7-8. I do want to clarify for you and any others that have been following the thread that I intend to both work and do school at the same time. Currently that means I would continue to make $53k a year and the overall cost of the program after employer matching help would be slightly above $15k.
9. Is a great question and I really think a linchpin in this decision making. It is something I will have to work to figure out and determine the probability of over the coming months.

ShoulderThingThatGoesUp

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #23 on: February 17, 2015, 11:03:58 AM »
I really appreciate the thought and time you have put into your response. I want to make it clear that I am not trying to be "hand wavy" about this. I am at the very beginning of a process to answer many of these questions you have brought up.

1-2. The school is Johns Hopkins and it has been ranked 5th in stats and 24th for econ. How would you suggest delineating the ranking of the school at this level? Often time people talk about the top 10 and then after that many schools do not get much attention. Is a 24 all that much better than a 30, a 60?

Unfortunately a lot of respected universities trade on their name to get people to pay a lot of money for non-research graduate degrees. But a "professional master's" won't get you the same respect a full-time research master's will.

Numbers Man

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #24 on: February 17, 2015, 11:28:46 AM »
First of all, you're smart enough to recognize that living with your parents can help you out financially. Don't forget to thank them. I'm having a hard time believing that all the loans are at a 7.9% interest rate. If this is the case, you need to refinance your loans to a lower rate. Accelerate your loan payoffs by paying the highest interest rate loans first. Since your still living with your parents, take advantage of the 401(k) plan ASAP. This is what the power of compounding is all about. Let those dollars that you contribute keep making money year after year. I suggest 15% to your 401(k). Make sure you sock away some money into your bank account as well to give you flexibility in case your situation changes. Also, you can get a beast of a car for around $2k-$3k. For example, my son drives a 1993 car that is worth $2k. He doesn't have any problems with the car since it is regularly maintained.

My advice differs from some because I try to avoid the all or nothing approach such as all debt is bad and should be attacked at all cost to the detriment of everything else. So in the end this approach would yield the following spending (all amounts rounded): Federal Taxes $5k, FICA $4K, Student Loan $13k (assumes 10 yr payback), Car $3k, 401(k) $5k. That leaves you with about $23k for living expenses, state taxes and to accelerate the student loan.


LadyStache

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #25 on: February 17, 2015, 11:58:13 AM »
If you have subsidized and unsubsidized undergrad loans, it's usually best to pay off the subsidized loans last because they have additional benefits. One of which is that if you return to school at least half time you do not pay interest on the subsidized federal loans while you are in school. I saw a few people suggesting that you refinance, but you would lose this benefit (if you are eligible) by refinancing.

civil

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #26 on: February 17, 2015, 12:18:03 PM »
I really appreciate the thought and time you have put into your response. I want to make it clear that I am not trying to be "hand wavy" about this. I am at the very beginning of a process to answer many of these questions you have brought up.

1-2. The school is Johns Hopkins and it has been ranked 5th in stats and 24th for econ. How would you suggest delineating the ranking of the school at this level? Often time people talk about the top 10 and then after that many schools do not get much attention. Is a 24 all that much better than a 30, a 60?

Unfortunately a lot of respected universities trade on their name to get people to pay a lot of money for non-research graduate degrees. But a "professional master's" won't get you the same respect a full-time research master's will.

I live near JHU. A lot of people here call the Professional after-hours program a diploma mill. It's not like that, but it is not a research degree and local employers may frown on it if they want you to have a "real" masters. Lots of people go there for box-checking, though I have heard the stats and materials eng classes are no joke (on the other hand, CS, env mgmt and EE students I know have said it's worthless. seems very dependent on your major). Since you get a JHU diploma, I think far-away employers would value it more. Consider where you want to end up.
« Last Edit: February 17, 2015, 12:50:36 PM by traffic girl »

civil

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #27 on: February 17, 2015, 12:48:14 PM »

Oh, and another thing to consider is the cost. When I moved here ~4 years ago, JHU was something like $3300 a class. Now it is over $3600 per class. I think they do this because employers are paying for people to get STEM masters degrees, and this is kind of the only after-hours engineering program in the area. However, the employer $5250 will cover only one class per year before it is reported in your income, and the cost will go up substantially each year. Something that starts as a "36k degree" could be a 40k degree by the time you are done.

The other after-hours option is UMUC online/hybrid, but there is no engineering there, it's also not a research degree, and you have to deal with employers' perceptions of an online degree. Pick your poison. I did UMUC for a 2nd bachelors in CS because of the cost ($800 per class), paid $4k out of pocket after employer assistance, and found it comparable to or better than what my friends learned at UVA undergrad CS. Cost has little to do with the quality of education.
« Last Edit: February 17, 2015, 12:52:59 PM by traffic girl »

ioseftavi

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #28 on: February 17, 2015, 12:48:52 PM »
I really appreciate the thought and time you have put into your response. I want to make it clear that I am not trying to be "hand wavy" about this. I am at the very beginning of a process to answer many of these questions you have brought up.

I'm glad that you didn't take my response badly.  Re-reading it, it comes off a bit harsher than I meant it to.  I'm glad you understood that my point wasn't to try and make you feel bad.

1-2. The school is Johns Hopkins and it has been ranked 5th in stats and 24th for econ. How would you suggest delineating the ranking of the school at this level? Often time people talk about the top 10 and then after that many schools do not get much attention. Is a 24 all that much better than a 30, a 60?
3-6 are all excellent questions that I have vague understandings of at this point, but is something I intend to pin down over the coming months.
7-8. I do want to clarify for you and any others that have been following the thread that I intend to both work and do school at the same time. Currently that means I would continue to make $53k a year and the overall cost of the program after employer matching help would be slightly above $15k.
9. Is a great question and I really think a linchpin in this decision making. It is something I will have to work to figure out and determine the probability of over the coming months.

It sounds like my questions might have made you see a bit more of "what you don't know, that you don't know."

Further suggestion: Change your phrasing around grad school.  Try using the phrase "I'm running the numbers on Grad school and considering it as one choice", instead of "I intend to go to Grad school."  This small tweak to your vocabulary will help you remind yourself that Grad School is an investment.  You need to see a decent return on investment.  Approach the process with an attitude of "I'm running the numbers on this potential investment".  You will likely make a more informed, better long-term choice.

jfssiii

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #29 on: February 17, 2015, 05:14:06 PM »
Thank you everyone for your time and thoughtful responses. I'll admit some of the advice was tough, but necessary. I have a lot to consider and research. I hope to update you all in the future with fruitful success.

Cwadda

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #30 on: February 17, 2015, 05:54:38 PM »
Would it make sense for the OP to ask parents to take out a HELOC for some of the SL refinance? Education qualifies if I'm not mistaken. Might be able to get a nice rate at 4% or so.

darkadams00

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #31 on: February 17, 2015, 05:59:18 PM »
Experienced analyst here with two master's--both Econ and Stats.

If you have to choose between Econ and Stats, choose Stats over Econ. There are few jobs that would require a master's in Econ that couldn't be handled by someone with a Bachelor's. And employers in such cases will give a pittance for the difference if anything at all. Many jobs that would require a master's in Stats could not be filled by a new master's in Econ, ie clinical trials, sampling/survey, quality control, non-econ modeling. However, many jobs that would be open to a master's in Econ would also be open to a master's in Stats, ie analyst, econ-related modeling. Also, most Stats jobs require at least a master's so there is a definite pay increase for that bump in degree level. So all in all, the Stats degree is usually very flexible and dependable if you want a technical/mathematical job in industry. Time to job from a good program is likely less than a couple months post-graduation at worst. Pay depends on the specific area you choose for your work.

Finally, $33k for tuition/fees only for a master's in Econ? No way, regardless of whether the BS loan is paid down. I would recommend a good state-school MS in stats for ~$20-25k and put the balance towards that quality used car. More flexible, more rigorous, more valuable to folks in the field who will read your resume (and know how to assess value from a one-pager).

Goldielocks

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #32 on: February 17, 2015, 06:09:36 PM »
IMO
You already make $53k per year.  Therefore I would put off the masters degree and car purchase for a few years until you have actual cash saved up for those things.  You do not NEED another degree, especially one that will cost you over $47k (car + tuition + other expenses like extra time to payoff existing loan).      Do you realize how long it would take to pay off that extra $47-$55k?

Black hole of statistical financial purgatory (many handcuffed years) awaits you at the end of this path!
« Last Edit: February 17, 2015, 06:19:42 PM by goldielocks »

theonethatgotaway

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #33 on: February 17, 2015, 09:34:50 PM »
Econ is a good degree. If you're in financial services you should be seeing big pay increases over the next 5 years of your career.

You don't need grad school.

ShoulderThingThatGoesUp

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #34 on: February 18, 2015, 04:36:14 AM »
I would recommend a good state-school MS in stats for ~$20-25k and put the balance towards that quality used car.

What is with all this paying for grad school? At least in geology, the ones that pay you to go not only save you a lot of money, they are better programs in the first place.

KD

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #35 on: February 18, 2015, 06:19:53 AM »
Postpone grad school.

Your expenses are INSANELY EXTREMELY LOW and you live w/i 3 miles of work.  Bike it! Bike it! Bike it!  Even walk it! (PRESENT)  Health benefits and frugal muscles exercised here can help you make a lifetime of (FUTURE) great choices for yourself.

I'd refinance the subsidized loans to lower interest rates. (PAST)  Frees up more $s for faster repayment on other loans.

I'd have an emergency/get out from home cash stache of $3000.00 to 5000.00. (FUTURE)

I'd stash some in a 401K.  Compound interest baby! (FUTURE)

I'd take classes up to the employer match or CE what I could online w/o having to have a spendy clown car.  I'm OLD and I don't spend that much on a newer car.  I have that level of a car, but I didn't spend that much on it.  Learn to save & trade up.  No cash outright for car?  YOU CAN'T AFFORD IT!!!!  I know it looks like you can, but ummmm, NO!!  If you just MUST, take the PERFECTLY SANE way forward that everyone else has pointed out to you and take on a $3-4k cash car paid for in CASH. Read Millionaire Next Door on the car issue.

Still I would BIKE & WALK. 

I'd brown bag all the way except for whatever SMALL amount of 'work socializing' is required/needed.  THANKS MOM & DAD!!!!  (Do your fair share around the house.)  (PRESENT)

And dude/dudette, take the rest of that perfectly decent income and PAY DOWN THOSE LOANS!!!! (PAST) With living at home you could be free of them in 2-3 years time if you put your head down and keep your wallet closed for fancyspendypants crap.

YO' HAIR IS ON FIIIIIIIIIIIIIIIIIRE!  Divide your budget into these categories of Past/Present/Future.  While expenses are low concentrate on getting FREEEEEEEEEEEEEEEEEEEEEEEEEEEEEE of the past and then go forward on a cash basis.  I can see a scenario of your percentages being 75PA/5PR/20FU. 


TrulyStashin

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #36 on: February 18, 2015, 09:56:05 AM »
Postpone grad school.

Your expenses are INSANELY EXTREMELY LOW and you live w/i 3 miles of work.  Bike it! Bike it! Bike it!  Even walk it! (PRESENT)  Health benefits and frugal muscles exercised here can help you make a lifetime of (FUTURE) great choices for yourself.

I'd refinance the subsidized loans to lower interest rates. (PAST)  Frees up more $s for faster repayment on other loans.

I'd have an emergency/get out from home cash stache of $3000.00 to 5000.00. (FUTURE)

I'd stash some in a 401K.  Compound interest baby! (FUTURE)

I'd take classes up to the employer match or CE what I could online w/o having to have a spendy clown car.  I'm OLD and I don't spend that much on a newer car.  I have that level of a car, but I didn't spend that much on it.  Learn to save & trade up.  No cash outright for car?  YOU CAN'T AFFORD IT!!!!  I know it looks like you can, but ummmm, NO!!  If you just MUST, take the PERFECTLY SANE way forward that everyone else has pointed out to you and take on a $3-4k cash car paid for in CASH. Read Millionaire Next Door on the car issue.

Still I would BIKE & WALK. 

I'd brown bag all the way except for whatever SMALL amount of 'work socializing' is required/needed.  THANKS MOM & DAD!!!!  (Do your fair share around the house.)  (PRESENT)

And dude/dudette, take the rest of that perfectly decent income and PAY DOWN THOSE LOANS!!!! (PAST) With living at home you could be free of them in 2-3 years time if you put your head down and keep your wallet closed for fancyspendypants crap.

YO' HAIR IS ON FIIIIIIIIIIIIIIIIIRE!  Divide your budget into these categories of Past/Present/Future.  While expenses are low concentrate on getting FREEEEEEEEEEEEEEEEEEEEEEEEEEEEEE of the past and then go forward on a cash basis.  I can see a scenario of your percentages being 75PA/5PR/20FU.

+1

Love this!

Goldielocks

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #37 on: February 18, 2015, 11:06:16 PM »
FREEEEEEEEEEE


Free( of debt) is so awesome!

Jack

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #38 on: February 19, 2015, 10:40:53 AM »
I feel compelled to pile on the face punches about the car.

I appreciate all of the honest advice. I definitely agree that I could buy a cheaper car. My logic in the $14,000 number was to avoid buying a junker that would inevitably require a large repair.

$14000 would be enough money to replace my daily driver five fucking times, and I rely on it to commute to work without worry. Your fears of getting a "junker" are WAY, WAY overblown.

Also, every car "eventually" requires a large repair. But for the amount of money you were thinking of spending, you could drive reasonable cars and just have them hauled off for scrap and replaced every time they needed a repair (not that I recommend that -- it's just an example to show how ridiculous you sound).

$14,000 is so much damn money that it's enough to buy a brand new car (e.g. Nissan Versa, $12,815 MSRP) and still have enough money left over to buy the kind of $1000 beater your broke ass ought to be driving (if it ought to be driving at all).

I'm currently shopping for a "nice" car (a sports car, not an econobox) and $14000 is still almost three times higher than my price range!

You have no excuse whatsoever to even be thinking about paying more than a few thousand (let alone five digits) for a car. Even if you had no debt, you still wouldn't have an excuse!

Hopefully, by now you'll be looking back on your $14,000-car plan and saying "holy shit, what was I thinking?!" If so, my work here is done. If not, let me know and I'll be happy to berate you some more.

lackofstache

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #39 on: February 19, 2015, 11:03:10 AM »
Postpone grad school.

Your expenses are INSANELY EXTREMELY LOW and you live w/i 3 miles of work.  Bike it! Bike it! Bike it!  Even walk it! (PRESENT)  Health benefits and frugal muscles exercised here can help you make a lifetime of (FUTURE) great choices for yourself.

I'd refinance the subsidized loans to lower interest rates. (PAST)  Frees up more $s for faster repayment on other loans.

I'd have an emergency/get out from home cash stache of $3000.00 to 5000.00. (FUTURE)

I'd stash some in a 401K.  Compound interest baby! (FUTURE)

I'd take classes up to the employer match or CE what I could online w/o having to have a spendy clown car.  I'm OLD and I don't spend that much on a newer car.  I have that level of a car, but I didn't spend that much on it.  Learn to save & trade up.  No cash outright for car?  YOU CAN'T AFFORD IT!!!!  I know it looks like you can, but ummmm, NO!!  If you just MUST, take the PERFECTLY SANE way forward that everyone else has pointed out to you and take on a $3-4k cash car paid for in CASH. Read Millionaire Next Door on the car issue.

Still I would BIKE & WALK. 

I'd brown bag all the way except for whatever SMALL amount of 'work socializing' is required/needed.  THANKS MOM & DAD!!!!  (Do your fair share around the house.)  (PRESENT)

And dude/dudette, take the rest of that perfectly decent income and PAY DOWN THOSE LOANS!!!! (PAST) With living at home you could be free of them in 2-3 years time if you put your head down and keep your wallet closed for fancyspendypants crap.

YO' HAIR IS ON FIIIIIIIIIIIIIIIIIRE!  Divide your budget into these categories of Past/Present/Future.  While expenses are low concentrate on getting FREEEEEEEEEEEEEEEEEEEEEEEEEEEEEE of the past and then go forward on a cash basis.  I can see a scenario of your percentages being 75PA/5PR/20FU.


This past/present/future thinking is great. A really simple way to think about priorities & how to deal w/ them in a solid order.

AJ

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #40 on: February 19, 2015, 12:16:37 PM »
Would it make sense for the OP to ask parents to take out a HELOC for some of the SL refinance? Education qualifies if I'm not mistaken. Might be able to get a nice rate at 4% or so.

I suppose it is just a values difference, but it strikes me as insanely selfish to ask his parents to mortgage their home just so that he can get a discounted rate on his debt - especially when they are already paying essentially all his living expenses. If my child did that I would be indignant, and they would be finding new accommodations. Might be better to save that social capital for something more important.

BMEPhDinCO

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #41 on: February 19, 2015, 12:49:39 PM »
Since I'm surprised no one has done this yet... let's run the numbers..

You make, after taxes and expenses, $40,800 per year, correct?  And your CURRENT debt is $92k, correct?

That means if you work for 2.3 more years full time nothing else at your current employer, you can pay off that debt completely.

That puts you at 25, debt free, with a good job.

THEN would be the time to consider everything else - in this case, work one MORE year with that employer full time and then you'll have the $33k saved up for school PLUS $7,800 available for a car for school.

So at 26-27 you can afford to go to get your Master's degree - not before then.  It's that simple.

MDM

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #42 on: February 19, 2015, 01:24:44 PM »
So at 26-27 you can afford to go to get your Master's degree - not before then.  It's that simple.

Several other posters had the same suggestion, so this is a general question: why should the OP "need" to get debt-free before paying for more schooling? 

By analogy, that would mean that a college freshman should repay any loans for the first semester before returning for the second semester of freshman year - or never take any loans at all to pay for college.

There are many other good points about whether this particular degree is worth this amount of money, and one can also debate the merits of going into debt for specific undergraduate degrees.  Not trying to argue those ideas - just the idea that one must be debt-free before pursuing any more education.

caliq

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #43 on: February 19, 2015, 02:28:08 PM »
So at 26-27 you can afford to go to get your Master's degree - not before then.  It's that simple.

Several other posters had the same suggestion, so this is a general question: why should the OP "need" to get debt-free before paying for more schooling? 

By analogy, that would mean that a college freshman should repay any loans for the first semester before returning for the second semester of freshman year - or never take any loans at all to pay for college.

There are many other good points about whether this particular degree is worth this amount of money, and one can also debate the merits of going into debt for specific undergraduate degrees.  Not trying to argue those ideas - just the idea that one must be debt-free before pursuing any more education.

Because the earning power of someone who's only completed one semester of freshman year is significantly reduced in comparison to someone with a Bachelor's. 

When you already have one degree, it becomes more of an individual person/degree/industry/employer thing, I think.

Like, if OP was going to med school, this might not have come up, because despite the excessive debt, the potential ROI is much higher than a BA/BS in economics vs. an MS in economics or stats or whatever. 

Goldielocks

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #44 on: February 19, 2015, 02:32:26 PM »
So at 26-27 you can afford to go to get your Master's degree - not before then.  It's that simple.

Several other posters had the same suggestion, so this is a general question: why should the OP "need" to get debt-free before paying for more schooling


You make a good point, but let me refer you back to this comment...


FREEEEEEE !

jml2307

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Re: Case Study: Best Way to Pay Down My Student Debt?
« Reply #45 on: March 03, 2015, 02:29:52 PM »
Coming from a person who made an extremely similar decision you are currently now contemplating, I would recommend holding off financing any more education until you pay down what you have already accrued. I have my UG in Econ with a minor in Applied Math. I then went and got a MSc in Applied Math. Luckily, I landed a great paying job. However, the $92000 I still have left in student loans keeps me up thinking about it every single day. More debt now may not sound that bad since you are still living at home, but once you inevitably want to go out on your own, it will become a big deal.

My advice: Refinance the loans. If you want the masters, go to state school (Md has some excellent ones) part-time, and use the employer's $5k / yr to the fullest. Steer clear of the private universities with a big name (I tried that for a year too). Also, go for the math / stats. As another poster stated, there isn't much a masters in econ can do that a bachelors in econ can't. A masters in stats, on the other hand, is a whole different story. In three years you will be vested in your 401k, nearly (or completely) done your student loans by living at home, and nearly done the part-time employer-paid masters degree.

Good luck!
« Last Edit: March 03, 2015, 02:33:55 PM by jml2307 »