Saturday, March 10, 2012

Student loans: my plan to graduate debt-free from grad school

This post is a part of Women's Money Week 2012. For more posts about living with and without debt, see Debt Roundup. Also, stay tuned for my other half's view on the matter, later today.

 I am in my second semester of a Master's degree program in library and information science. My plan to date has been to graduate in 2013 (either at the end of the Spring or Summer terms), and then to repay all of my student loans within the 6 months after graduation, before the interest kicks in. It's an ambitious goal, I've been told. Plenty of people have student loan debt! And the interest is so low... why not take the full 15 or 20 years to pay it off with the minimum payments? You'd free up so much money!

That's only very occasionally a temptation. After all, the amount that I'd pay in interest alone if I only paid the minimum each month is astounding. This online minimum payment calculator at says (with my rough number estimates) that I'd be paying the minimum amount for more than 30 YEARS and I'd pay back the amount of the loan PLUS nearly half that amount in interest! I think not.

So my plan is simple: reduce costs where possible, and save as I go. I'm working full-time and saving while I attend classes; my living expenses are taken care of. I can't afford to pay for tuition up front at the beginning of each semester, so I took out a federal student loan, but by the time the program is finished, I should have steadily saved enough to pay back all the loans at once. Without paying interest.

And yet in the meantime -- and this is where those who have shaky financial history may see downfall --  if I have a serious emergency need, I have the cash available to me, and no minimum payment due until six months after graduation. I'm talking an EMERGENCY -- apartment burns down, catastrophic injury or illness, and... well, that's about all I can think of. Insurance will cover most of those costs while I'm employed, but sometimes you need the cash up front. If I become unemployed, or experience more minor setbacks, I already have an emergency fund with several months' expenses, and it will be fully funded before the end of this year. Assuming that I don't need to touch the grad school savings, it's making money for me in a high-interest savings account.

I also started saving as soon as I applied to grad school. It would have been sooner -- as soon as I knew that I wanted to attend this program -- but I was paying off the last of my undergraduate loans, because I did NOT want to start graduate school with loans already hanging over my head. Once I made the last payment against my undergrad (4 and a half years after graduating, not 20!), I kept putting aside that same monthly amount. It was already in my budget, and I'd made the necessary adjustments so that I didn't require it to live on. By the time school started in Fall 2011, I had 7 months of savings already! That head start, plus the six months after graduation, if necessary, gives me an extra year of savings to apply to the debt: 3 years of savings to pay off a 2-year program.

Regular monthly automatic transfers make up the bulk of my grad school fund. There's still a small gap between that amount and what grad school costs once you factor in tuition and fees (changing each year as California's higher education budget shifts), books and supplies, and incidental costs like traveling to conferences. The subsidized funds that I accepted from the federal government cover almost all of my tuition and fees for four semesters, but I pay for textbooks and a small amount of tuition each semester out of my pocket. Plus, I have to pay cash for summer terms, which aren't subsidized by the school and aren't paid by financial aid. In order to cover those payments, I've been snowflaking money that I find, earn on the side, or that has been given to me. I sold a couple things on Craigslist and Amazon; I applied Xmas money; I made a few bucks at Mechanical Turk; I set aside the "extra" paycheck in a month with 3 paydays; I transferred the cash-back rewards from my credit card. It all adds up.

It's not easy to work full-time and attend class full-time. I've given up a lot of my social life -- and I know grad students who get to that point even when focusing exclusively on school during the week. The punishing schedule has cut back on the internship opportunities that are available to me, and I'm lucky that several virtual internship opportunities are available. And, of course, attending all my classes online offers a level of flexibility that makes it work -- even when I'm up late finishing a paper. It's completely worth it to me, though, to graduate without debt. I'd rather scrimp and save now than live large and pay interest for years to come.

Interested in whether all my big talk panned out? The final update is here.


  1. “So my plan is simple: reduce costs where possible, and save as I go.” It’s important to keep track of your expenses when paying a loan. Another way to make paying your loan easier is to consider some ways to defer your payment if ever needed. Consolidate which could apply for those who owe multiple creditors. Another, defer what you can negotiate with your creditors to allot you a span of time not to pay for a while, which could serve as a rest from having to pay your loan.

    Carmella Bezio

  2. I really admire your guts. Good luck pearce in whatever you want to do.


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