Is it better to go into debt for grad school than undergrad?

By Kathryn Tuggle/TheStreet

Is grad school debt somehow a "better" investment than undergrad? If you're considering taking on graduate school debt, here's what to ask yourself first.

Will your degree take you down a definite path and increase your earning power?

Grad school is a waste of money and time if you don't really know what you want to do when you graduate, says Reyna Gobel, iGrad curriculum development specialist and author of CliffsNotes Graduation Debt 2nd Edition.

"You can't say, 'I'm going to go to grad school and I'm going to find a better job.' You have to understand the particular field you want to go into and exactly how much money you're going to make once you get there," she says. "Otherwise grad school is just a very expensive hobby."

Graduate school can be a wonderful investment, but the word "investment" is key, says Ken Kamen, president of financial planning agency Mercadien Asset Management.

"The real motivation for you to go to graduate school is to increase your earning power, which means you're defining your degree as an asset. In that regard, it's no different from a house. The only question is, is it a good financial decision?" Kamen says.

If your student loans will cost you $200,000 by the time you pay them off and your degree will increase your earning power by only $10,000 per year, it's going to take you 20 years just to break even on your degree.

"Is that worth it? Probably not. But if you're going to increase your earning power by $50,000 or $100,000 per year, then that's a different story."

Do you know if your chosen career will pay enough to allow you to pay off your loans?

If you can't make your loan payments when you get out, you shouldn't go to graduate school, Gobel says.

"Don't take out $100,000 to become a counselor making $40,000 a year. Think about your salary before you take on that loan," she says.

Thankfully the decision is not always "grad school vs. no grad school." It's often "cheaper grad school vs. more expensive grad school."

"You don't necessarily have to give up your dream, you just have to spend less. Look for scholarships, or look to a different school," Gobel says.

Unfortunately, the "dirty underside" to graduate school is that people who take on large loans often find they don't have the ability to pursue their chosen field, Kamen says.

"You become so saddled that many times you take on a second job or you wind up taking a job in a totally different field because you can't make enough money. Think about it. You're fiscally unable to pursue your career of choice because there's no chance that career will give you a return on your investment," he warns.

Also, before you pursue your degree, look at saturation in the field.

"You might think the biz world is waiting for another MBA, but don't test that thesis until you spend a year or two in the workforce. It may be that people who excel in your particular field don't have college degrees, let alone post-graduate degrees," Kamen says.

How long will it take me to pay off my loans?

Consider that every month, your budget won't start at zero. It's going to start at negative $500 or negative $900. "Can you handle that?" Kamen asks.

"By the time you add a car payment and rent to the mix, you've got fixed bills of $3,000 a month. You're going to have to make at least $50,000 per year just to afford that," he cautions.

Certainly, a second job is an option, but you have to think about how that commitment will affect your career.

"If you're running out the door every afternoon to tend bar, you won't be able to stay late and pitch in on group projects or do the things that are going to make you shine in your current job, which is a career killer," he says.

Unfortunately, most loans are quoted in aggregate dollars and students often only hear $50,000 vs. $80,000 --they don't think of it in terms of $300 per month or $500 per month.

"The difference there is huge. It could be the difference between affording a house, a car, and having the life that you want," Kamen says.

Is this something I want for myself, regardless of cost?

You can't discount passion, says Renee Hanson, an Ameriprise financial advisor based in Phoenix, Ariz.

"It really is a personal decision. Sometimes people have the passion and drive to accomplish things in life, and it's not about getting a return on your investment as much as it is about satisfaction," she says.

The financial side of paying for graduate school is different than fulfilling a dream, Kamen says.

"People have dreams and aspirations, and a need for enrichment, self esteem and a social circle," he says. "What is that worth?"