Money 101: 4 Secrets For Financing Grad School

“Don’t you have a daddy?” the professor sitting across from me asked. I smiled a little. Was he was joking? Or hitting on me? Nope, he was serious and thought my father was paying for my legal education. Though I’ve been independent for years, my law school’s financial aid office had a similar attitude, telling me “ … most students have relatives helping them … ” After a JD, MBA and a third master’s, I’ve found there’s significant latent knowledge about financing grad school, but no one to fill you in. Here’s how it goes …

1. Don’t pay for it. The thing I was most surprised by is that smart students get people to pay them to be there. This happens via test scores, employer-funded programs, or fellowships. Many companies offer tuition reimbursement as an employment benefit. This is the best way to pay for a master’s degree; you make money the whole time, earn a “free” degree, and have a job when you get out. Consider seeking out positions at companies that offer tuition reimbursement, negotiating it instead of a raise or trading it for a portion of salary.

Fellowships are the grad school equivalent of scholarships, with full rides attached to research and teaching obligations. They tend to be specialized by field and offered by universities or institutes. Fellowships require completing individual application processes in tandem with FAFSA and tests.

2. High scores = $$$. Grad school funding is distributed based on test scores, not need. High scores on LSAT, GMAT and GRE equal the most dollars. Soft factors matter little to grad schools, who are obsessed with US News rankings. If you bomb the entrance test, retake it. If you bomb it forever, see how far you can get without a graduate degree. It’s easy to say “I suck at tests,” but in this context, testing outcomes radically affect career prospects and lifetime debt burden.

3. Minimize your EFC before the FAFSA. In the more common scenario, you’re paying or borrowing. To borrow, complete the same FAFSA as in undergrad. Completing the FAFSA is the only step necessary to apply to federal loan programs. The FAFSA determines your EFC, “expected family contribution,” based on your tax returns. Your EFC relates to your eligibility for low interest, subsidized federal loans and any need-based aid that exists. To minimize your EFC, report as minimally as possible on the FAFSA; do not disclose anything optional. If you can, take a low-paying job a year or two before you plan to apply to grad school so your taxes reflect the lower salary. Otherwise, the FAFSA expects you to spend a substantial portion of salary you’re no longer making, which it assumes you saved, on paying for school the following year.

4. Choose federal loans. If you’re going to take out debt, make it federal. Only federal loans are eligible for loan forgiveness and “income based payment” under the College Cost Reduction Act. They also have legally guaranteed deferral and forbearance options. A program called GradPlus allows students to borrow the shortfall between financial aid and EFC, up to the cost of attendance, at a relatively low interest rate (currently 8 percent). GradPlus loans are available to everyone who passes the credit check, so no one need take private loans.

Private educational loans are ugly. If you cannot access federal loans and don’t have “a daddy,” it may be worth waiting until you can finance school without private loans. Private loans do not provide borrowers with many options in hard times. Deferral and forbearance are at the lender’s discretion, and there are no options for adjustment or forgiveness, even in death.

The real moral of the story: Many see grad school as a fallback; due to the mortgage-sized debt implications, it isn’t. Instead, treat grad school like the business decision it is. Only do grad school if you are making a realistic, frugal, profitable choice that is strategic for your career.

Photo: iStockphoto

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