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Sallie Mae’s inaugural report delving into how Americans pay for graduate school revealed that a mere 12% of students base their decision to pursue an advanced degree on the cost.
While many students who participated in the study said they view graduate school as an investment in their future (and quite often it is), that statistic is particularly startling considering the record levels of student debt in this country (around $1.5 trillion at last count).
It’s also somewhat concerning in light of the fact that a graduate degree in many professions doesn’t guarantee an increase in one’s salary. Sallie Mae found that nine in 10 graduate school students believe the additional degree will translate into improved earnings, but in reality a salary increase depends largely on the profession chosen.
“Enrolling in graduate school is a huge decision, which can alter the course of your life and career — often for the better, but not always,” says William Lipovsky, CEO of the consumer information website First Quarter Finance. “Though a master’s degree can increase your skill level and earning potential, it’s also a costly venture and a financial risk.”
For all of these reasons and more, it’s important to ask yourself some key questions before signing on for graduate school and the mountain of debt that often comes along with that decision.
It should go without saying that the tuition associated with obtaining an advanced degree is merely part of the cost of attending graduate school.
To get a truly accurate picture of what the entire experience will set you back, it’s a good idea to conduct a comprehensive analysis of all the expenses associated with pursuing the additional degree.
For Camilo Maldonado, who at 26 years old decided to obtain an MBA from Harvard University, the program itself cost $185,000. “But if you factor in the fact that I left my job, since I was in a full-time MBA program and didn’t work for two years, the total jumps to nearly $400,000, including my lost wages,” explained Maldonado.
Calculating the full cost of attendance is a critical part of determining whether you can really afford the school you’re considering, as well as whether obtaining the degree is a sound financial decision. To fully resolve these questions, however, you’ll need to do some more legwork.
According to Sallie Mae, 53% of students attending graduate school pay for the experience with loans. Maldonado, for instance, obtained about $57,600 in financial aid and took out loans for $120,000.
Before following a similar path, research how much you stand to make in your chosen field of work, says Lewis Goldman, of LendKey Technologies, which helps community banks and credit unions source student loans online.
There are numerous websites that provide specific salary data broken down by profession. Glassdoor, PayScale, and Monster are a few examples. But you can also just Google the salary for the profession in question, said Goldman.
The goal is to find out if you’ll be bringing home enough money to pay back your loan in a reasonable amount of time. Goldman suggests a fairly well-known rule of thumb: Don’t take on more debt than you stand to make in one year’s salary.
Why this particular benchmark? Because between interest and principle, if you’re paying 10% of the student loan each year, you can pay off the debt in 10 years or less as long as it’s less than your annual income. If the total debt exceeds your annual income, you’re likely to struggle to make loan payments and may need to extend the repayment term.
In other words, choose the degree and profession you’re investing in wisely.
“It will obviously depend on the degree, but clearly based on our data, those with STEM degrees are going to be in much better position to pay off student loans and get a better return versus people with other degrees,” said Goldman. “I would be careful if you’re considering human services and counseling degrees or museum studies, such as curator. Ultimately those are not career paths where you want to accumulate a lot of debt.”
There are many reasons one might start pursuing a graduate degree and ultimately not complete it. Perhaps a family member falls ill and requires care, causing the student to drop out. Or maybe the student discovers the degree program or field itself isn’t right for them.
These sorts of possibilities should be carefully weighed before diving into a graduate program of study, advises Patrick Mullane, executive director of Harvard Business School Online, who points out that only 61% of students who begin a master’s degree actually complete it.
“Consider some worst-case scenarios – is there a chance you won’t finish your degree? This is a very important question,” said Mullane. “Students who don’t complete a degree still incur student debt. That’s the worst place to be – you don’t get the benefit of the graduate degree, but you have all the burden of a student loan. If you’re not sure about it, take your time and be sure to do your homework so you have a good idea if it’s worth it.”
Granted, this is really two questions, but they’re closely related. And the “benefits” in this case aren’t just monetary, which we’ve already discussed. Sometimes an advanced degree can open doors that may otherwise remain shut.
Timothy Wiedman, a retired associate professor of management and human resources from Doane University, suggests that if you’ve been job hunting for quite some time and been told by prospective employers that a graduate degree would help your candidacy, then it may make sense to invest in advanced education.
The same logic applies to the question of how you might benefit from such a degree. “Perhaps the career field you’ve chosen really requires graduate coursework,” says Wiedman. “Or you want to work for a Wall Street firm, and these days they almost never hire anybody who doesn’t have an MBA.”
Where you go to school does matter. It’s not fair, but it’s a reality, at least according to Mullane.
“It doesn’t mean that the Ivy League is the only option. But it does mean that paying a king’s ransom to go to any school no matter its brand reputation is probably not prudent,” he explained. “If you can’t go to a top-tier university, your state schools may be the best bet.”
To help determine the value of the schools you’re considering, do some research (this grad school tool from US News & World Report is a good place to start). Also consider asking for input on a prospective school from professionals in your field or your undergraduate career counseling office.
One last bit of advice: Think about where you plan to live after graduating with your shiny new degree. This is important because degrees are surprisingly regional, says Mullane.
“Networks of graduates tend to cluster in the towns and cities around a university. And networks are what might matter most when it comes to job hunting,” said Mullane. “While it shouldn’t be the single deciding factor in where you go to school, it is an important consideration.”
Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations, including the Atlanta Journal-Constitution and the San Diego Union-Tribune.
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