Author Topic: Due Dilligence Check for Attending Grad School  (Read 4646 times)

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1099
Due Dilligence Check for Attending Grad School
« on: April 14, 2014, 10:02:47 AM »
Happy Monday wonderful Mustachians! I got my acceptance letter for grad school on Friday & I'm posting to get a second set of eyes on my rough financial outline for the program.

Current situation: Husband is in MBA program (1/2 done) with $13000 in tuition payments remaining. He earns $94k annually & I earn $38k. Up until today, we were putting away enough to max out both of our 401k's for the year, but I just cut mine back to the match (husband is still maxing out). We've funded our Roths for the last 3 years as well, so there is over $30k there. We are 25 & 24 and just hit $100k in total retirement savings recently. Because we've been paying for his MBA in cash, we have cut back our emergency fund to 2 months expenses (roughly $5k). We also have a fully paid for car worth about $10k. I also still have $17k in student loans from undergrad at 5.5%, but we haven't paid any interest on those ever through a combination of income based repayment before we were married and now in school deferment (university employee so I'm taking undergrad classes free).

Grad School Plan: I will quit my job in late July to pursue the grad program (data analytics) full time. I expect the program to take about 18 months & the average starting salary of their graudates is $80k, so I think the investment is well worth it; total cost will be about $40k. From now until July, we'll be able to save about $3k/month, so that will be enough to pay for the rest of my husband's MBA program. After that, we will have about $1k/month extra, so $18k total for the time I am in the program. I also think after I finish one or two quarters I could probably get a well paid part time internship that would help as well. 

So, that will leave about $22k of the program that we will need to pay for in loans. My plan is to use 401k loans from my husband's work to pay for this with the theory that if he leaves the job for any reason, we could take out a student loan at that point to pay off the 401k loan. Depending on exactly how much we have in the 401k v. the timing of the payments, we might need to take out a normal student loan for one or two quarters, but I think the 401k will be our first line of defense.

As an emergency fund while I'm in the program, we will have our 2 months expenses (really 2.5 months if we cut back to the bare minimum), our Roth, and our paid in full car, for which we could take out a loan from PenFed or similar at a low rate as needed.

I'm an advanced certified VITA tax volunteer & have looked into all of the ways of handling the tax side of things for my work & my husband's MBA so I feel comfortable with all of those implications. That aside, does the plan overall seem manageable at a high level? I just want to make sure I'm not missing anything super obvious.

AJ

  • Pencil Stache
  • ****
  • Posts: 906
  • Age: 36
  • Location: Oregon
Re: Due Dilligence Check for Attending Grad School
« Reply #1 on: April 14, 2014, 10:16:03 AM »
I think your plan is a good one, but two things jump out to me that you might consider:
  • In the event your husband lost his job, I'm not sure you would be able to take out student loans quickly enough to avoid getting hit with the unqualified withdrawal penalty for paying back the 401k loan.
  • In the same unfortunate event as above, you would not be able to borrow against your car, since you would have no income between the two of you with which to apply for the loan.

All in all I think it is a solid plan though, and you're in a good place to take a risk being so young as so ahead of the game already. Out of curiosity, why choose a 401k loan rather than a student loan at the outset? You might be paying yourself interest, but you'll also lose gains for those years.

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1383
Re: Due Dilligence Check for Attending Grad School
« Reply #2 on: April 14, 2014, 10:25:00 AM »
Everything looks fine except for the 401k loan.  I would finance this with a student loan, as the risk of problems would be much lower.

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1099
Re: Due Dilligence Check for Attending Grad School
« Reply #3 on: April 14, 2014, 10:33:18 AM »
I think your plan is a good one, but two things jump out to me that you might consider:
  • In the event your husband lost his job, I'm not sure you would be able to take out student loans quickly enough to avoid getting hit with the unqualified withdrawal penalty for paying back the 401k loan.
  • In the same unfortunate event as above, you would not be able to borrow against your car, since you would have no income between the two of you with which to apply for the loan.

All in all I think it is a solid plan though, and you're in a good place to take a risk being so young as so ahead of the game already. Out of curiosity, why choose a 401k loan rather than a student loan at the outset? You might be paying yourself interest, but you'll also lose gains for those years.

I assume the interest rate would be a bit lower with the 401k loan. I have to read into the specifics in my husband's plan. But maybe I'm thinking about it wrong...grad loan would be 5.5%; 401k I think between 2-3.5%. We're saving 2% in interest, but losing, on average, something like 4-6% in gains annually on the 401k so maybe we are better off overall to do a regular student loan. I just hate the idea of it so much!

My reading is that you usually have 60 days to repay so we should be ok to take out a student loan in time. Good point about the car loan though. I hadn't thought about that very carefully obviously.
« Last Edit: April 14, 2014, 10:35:28 AM by mlipps »

phred

  • Pencil Stache
  • ****
  • Posts: 506
Re: Due Dilligence Check for Attending Grad School
« Reply #4 on: April 14, 2014, 11:36:35 AM »
I would work very hard to find a grant or fellowship that pays for grad school

Cpa Cat

  • Handlebar Stache
  • *****
  • Posts: 1663
Re: Due Dilligence Check for Attending Grad School
« Reply #5 on: April 14, 2014, 02:03:51 PM »
I agree with the above. Because of deadlines/schedule issues with student loans, you'll be in a hard spot for taking out student loans quickly in the event of a job change. Also, remember that you can deduct the student loan interest, but not the 401k interest. So in real terms, you may not even be saving 2% on interest.

Save your 401k borrowing for an emergency, if one comes up.

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1099
Re: Due Dilligence Check for Attending Grad School
« Reply #6 on: April 14, 2014, 03:39:08 PM »
My job would not let me work part time, but I am considering getting a different one temporarily, even if it's just waitressing or something. I want to see how the workload is before I commit to that.

I've never been a baby sitter and I'm not very patient, so that's probably not a great fit, but I see where you're going with the idea.

My undergrad loans that are left are subsidized; the small amount of unsubsidized loans I had were paid off soon after graduating. So, they will not accrue interest.

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1099
Re: Due Dilligence Check for Attending Grad School
« Reply #7 on: April 14, 2014, 03:44:06 PM »
I agree with the above. Because of deadlines/schedule issues with student loans, you'll be in a hard spot for taking out student loans quickly in the event of a job change. Also, remember that you can deduct the student loan interest, but not the 401k interest. So in real terms, you may not even be saving 2% on interest.

Save your 401k borrowing for an emergency, if one comes up.

Yes, I should be able to deduct the interest unless we both get crazy raises. The AGI limit is $155k and so we'd have to be making $190k to hit that (after 401k contributions). I think we'll have the loans paid off within one year so we probably won't hit that income level before the phase out. $2k in interest at 5.5% is the equivalent of an average balance of $36,363 in loans so we should be able to deduct the entire amount.

Thanks for the input all, I appreciate it. I think you're right that I'm better off taking the student loan, all things considered.

TomTX

  • Magnum Stache
  • ******
  • Posts: 3836
  • Location: Texas
Re: Due Dilligence Check for Attending Grad School
« Reply #8 on: April 14, 2014, 08:35:49 PM »
Good. Your amended plan changed my major concern.

The FIRST concern on reading the thread title - Are you sure you can get a good job with this degree? There is a surplus of PhD graduates out there in many fields scraping by on post-docs and associate status.

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1099
Re: Due Dilligence Check for Attending Grad School
« Reply #9 on: April 15, 2014, 02:53:12 PM »
Good. Your amended plan changed my major concern.

The FIRST concern on reading the thread title - Are you sure you can get a good job with this degree? There is a surplus of PhD graduates out there in many fields scraping by on post-docs and associate status.

Yes, I feel very confident with the employment prospects. The program at my university is newer, so they don't have fully published employment results yet, but a similar program at UNC State boasts near 100% employment rates in the field for 8 years running, plus starting salary w/o experience of $85k. I was quoted $80k as a starting salary by my school, so i think I will be just fine there. Most of the classes are computer science with a quantitative emphasis, so there is high demand.