Author Topic: Graduate student trying to get rid of debt. Suggestions?  (Read 4087 times)

dbunny

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Graduate student trying to get rid of debt. Suggestions?
« on: February 04, 2015, 05:12:12 PM »
Hi everyone,

I'm a graduate student and I am looking to graduate in December 2015. My graduate stipend is small, but slightly more than I need and I'm really debating what to do with the extra. Here are the details (per month):
Graduate stipend: $1200
Living expenses: $900 (includes rent and food and is about as low as it can go)

This means I have an extra $300 each month. However, the problem is that every month this money seems to disappear, so I want to do something with it before I can get my hands on it.

Here are my other figures:
Emergency savings: $3000
Credit card debt: $0 (yay!)
Student loans: $16000 at 6.8% and $4000 at 5.1%

I know my options are to save that money or throw it at the student loans. I guess I can't decide if it's worth it to work on my loans while I have so little income. I'm worried that I will run into a large unexpected expense and wish I didn't put it toward those loans. I also don't know if my tuition and fees will be paid next semester, so that plays a role.

Any advice is really appreciated!

TN_Steve

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #1 on: February 04, 2015, 05:26:17 PM »
I'll give a contrary view to what may end up being the consensus.

Assuming:  1) job lined up post-grad (or essentially a lock); and 2) big pay increase as of that time, I'd probably not worry too much about paying the debts down yet.  Do try to figure out where the money is going.  Charge/debit everything (and pay off at statement or sooner if charge), or keep a small notepad to enter all cash payments.  If, after doing that for a month or so, you find that $$ are being wasted, then address it.  I suspect that some/most of the leakage is legitimate.

If you have to move, buy professional clothing, or anything of that nature in connection with new job (or have to job hunt), you'll want as much cash as you can gather on hand at or before the end of the year.  Thus, even if you find expenses to cut, it may make sense to add to the emergency fund rather than throwing it at what appear to be relatively small loans.


JLee

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #2 on: February 04, 2015, 05:27:46 PM »
I would build that emergency fund up for now. 6.8% is pretty rough, but if something comes up $3000 with no other buffer may not go too far. Will you likely be able to get a job right out of school?

studentdoc2

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #3 on: February 04, 2015, 05:39:57 PM »
Fellow grad student here also looking to graduate December of this year! I'm guessing by your stipend amount that you may be in the social sciences or humanities? I'm a science grad student myself, so I don't know too much about the job prospects for your field, but I would probably try to squirrel away that extra $300/mo (if you can figure out where it's going!) into your savings. My personal safety threshold is about $6000 in my emergency fund before I shove all extra payments at loans (and 6.8%, ugh, I've got those too), assuming you have secured a job for after graduation. On the plus side, if you are able to continue living at $900 a month (my awe and admiration to you -- my rent is $925 alone!), even with a fairly low-paying job, you should be able to eliminate your student loans in a year or two.

GizmoTX

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #4 on: February 04, 2015, 05:51:30 PM »
Where is your emergency fund? There are online savings accounts that pay 1%. I agree about stashing your extra cash there.

johnny847

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #5 on: February 04, 2015, 06:02:03 PM »
I would build that emergency fund up for now. 6.8% is pretty rough, but if something comes up $3000 with no other buffer may not go too far. Will you likely be able to get a job right out of school?
I agree. You can't take back payments to your student loans, so if you deplete your emergency fund, then you may have to turn to your credit cards which will have a far higher interest rate than your loans (unless you've got some promotional 0% rate...but even then, that's tricky business).

acorn

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #6 on: February 04, 2015, 06:23:33 PM »
Another grad student aiming for graduation by end 2015! At this stage, I think it's better to build up an emergency fund, esp since you don't know if your tuition fees are going to get paid next semester. Save enough for at least 3 months' expenses and job hunting (getting professional clothes, going for interviews, moving etc etc). I'll also track spending to get an idea of where that $300 is going, and put that into the emergency fund.

Once you get a job, clearing that $20k student loans should be relatively easy at your current spending levels. Your priority (and mine!) should be to graduate and find a job.

GreenPen

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #7 on: February 04, 2015, 06:29:10 PM »
I would also recommend adding to your emergency fund. There's a sense in which you don't need to hold more cash right now, since you have the option of taking out another student loan in the event of an emergency. But you will probably want more cash on hand in December 2015, especially if you need to cover expenses related to moving or starting a new job.

That said, you might want to hold some of your emergency fund as cash in a Roth IRA. Now is a good time to do this, while your marginal tax rate is so low.


innerscorecard

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #8 on: February 04, 2015, 06:54:42 PM »
You should invest that money in your ability to earn income, through marketable skills and knowledge.

JLee

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #9 on: February 04, 2015, 07:00:46 PM »
You should invest that money in your ability to earn income, through marketable skills and knowledge.

I would say the focus on completing a graduate degree by the end of the year likely has that covered. :)

Kwill

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #10 on: February 04, 2015, 07:13:24 PM »
I would say to wait until you graduate and get a job to throw a lot of money at your loans since you don't know about next semester's costs. Also, you didn't mention a firm job offer, so I'm assuming you may need to do a job search, too. Maybe you could do an account with an online bank with some interest as was mentioned above. You could set up a recurring monthly transfer to the account so that you don't spend the money. Then send the money off to your loan once you have a stable job.

innerscorecard

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #11 on: February 04, 2015, 07:28:33 PM »
You should invest that money in your ability to earn income, through marketable skills and knowledge.

I would say the focus on completing a graduate degree by the end of the year likely has that covered. :)

I think credentials are somewhat different from actual skills. Even in practical fields.

JLee

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #12 on: February 04, 2015, 07:38:19 PM »
You should invest that money in your ability to earn income, through marketable skills and knowledge.

I would say the focus on completing a graduate degree by the end of the year likely has that covered. :)

I think credentials are somewhat different from actual skills. Even in practical fields.
I don't necessarily disagree, but with a $3k safety net and uncertain job prospects I would be building a safety net instead of potentially taking away from effort otherwise going to completing school.

dbunny

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Re: Graduate student trying to get rid of debt. Suggestions?
« Reply #13 on: February 04, 2015, 08:44:17 PM »
I'm guessing by your stipend amount that you may be in the social sciences or humanities?

Ha! I'm a grad student in engineering. The low stipend is due to that it's a relatively small university with a small graduate program.

It seems like the general consensus is to stash that money into my emergency fund. (And for who asked about the savings account, it's a simple savings at 0.75%). Thanks for the advice everyone!