How to Pay for Graduate School

Last Updated Nov 10, 2009 9:25 AM EST

"Anything would be better than a temp job," Molly Laurain, 24, recalls telling herself two years ago when, after months of looking, she finally landed her first full-time gig, as the office manager for a construction management company. Then, the small firm got busy and "instead of getting office manager duties, I had to take on a lot of responsibilities very quickly," she says. By the second month, "I was writing up proposals and pricing out jobs." In an economy that has not been kind to 20-somethings, she knew she was lucky her hard work was recognized: She was promoted to junior project manager. Three months ago she received a raise, bringing her salary to about $60,000; she also has generous health benefits.

Like many other recent grads, however, she faces a still-fragile economy. Real wages for 20-something professionals haven’t changed since the early 1970s, and the number of college grads competing for the same white-collar jobs has increased. To enhance her career prospects, Laurain is considering going to graduate school in real estate development, but the hefty price tag (tuition alone for Columbia’s one-year program: $38,000) is daunting. “Education is not just about earning more,” says she. “I want to learn more about the industry, and how to be more effective at my job.” Is grad school the best way to achieve that? MoneyWatch asked Certified Financial Planner Gary Schatsky and financial aid expert Mark Kantrowitz to help Laurain assess her options. Here are five tips to help anyone decide whether graduate school is worth the investment, and if so, how to pay for it.

Make Sure Grad School Matters

Schatsky urges Laurain to research companies in her field, then call hiring managers or principals and ask if having a master’s is better than having on-the-job experience. Don’t be shy about asking for guidance on what else she might do to maximize earnings, either, he asserts. “She’ll learn how people in her field perceive the master’s, and the conversation might open doors for other opportunities, as well.”

Put a Price Tag on It

Kantrowitz suggests she calculate the total cost of education at schools she’s interested in, and compare that with the likely increase in salary after graduation. A loan payment calculator such as the one at finaid.org can show how much her monthly payment will be after graduation. “If she can’t afford the debt payments” based on her expected salary, says Kantrowitz, “she should look around for a less expensive school that offers a good program in her field of study.”

Know Your Loan Options

Graduate and professional students typically borrow first from the Stafford loan program and then from the Grad PLUS loan program. The Stafford loan has a lower interest rate and allows you to borrow up to $20,500 per year. Grad PLUS can be used to borrow the rest, up to the full cost of attendance minus other aid received.

Check Out New York’s 529 Education Plan

“New York has among the richest plans around,” notes Schatsky. For a single contribution of $5,000 — which she could transfer from her existing savings — Laurain would receive a reduction in state and city taxable income of up to $5,000. “Depositing the whole $5,000 gives you the most benefit,” he points out. “She’d have about $450 to $500 [more income] to use toward school. And the money she deposits is immediately available for tuition.”

Seek Employer Assistance

Many large employers offer tuition assistance, and smaller ones might be open to offering it. Kantrowitz suggests Laurain try to negotiate payment in exchange for a commitment to continue working for her employer after receiving the degree, say, one year of employment for each year of support.

“They know she knows the business,” he points out, “and it is much cheaper to enable a good employee to get job-related training than to hire an inexperienced employee and train him or her on the job.” Up to $5,250 in employer tuition assistance can be excluded from income, and in some circumstances a greater amount can be provided tax-free.

Molly’s Response

“I really should talk to people in the field. I just automatically thought that with a master’s I would make more money, but that may not be true. I always compare prices and do research when I buy a purse or pair of expensive boots; I have to have that same mentality when I’m looking at the benefits of schools. I think I’ll start with career services at Fordham, and see if there are any alumni in this field. They might be more receptive to taking five or 10 minutes to chat with me, since I’m a graduate.”

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