How you manage your living expenses during grad school will make a big difference in how much student debt you need to repay. Learn how to minimize how much you need to borrow to cover your living costs during graduate school.

I get lots of emails from readers who are either going back to school or considering it. Certainly, finishing your degree or going on to get a professional degree can be one of the best investments you can make, provided of course you pursue a degree that meets the following criteria:

  1. It’s in a field that’s in demand.
  2. It allows you to command a higher salary than you could otherwise earn.

At the same time, you want to avoid getting an MBA just because you think you need it, or going to law school because you don’t know what else to do with your career. Graduate school should be a clear path to a more fulfilling career, a bigger paycheck, or (hopefully) both. Use our grad school ROI calculator to estimate the return on investment that grad school will provide.

Fortunately, more education usually equals better pay.

Over their lifetimes, college graduates will earn 1.66 times more than high school grads, according to The College Board. Those that obtain professional degrees will earn an average of 2.74 times more than high school graduates.

What these numbers don’t take into account, however, is the cost of obtaining those degrees. We all know that tuition rates are out of control and, for many, going back to graduate school will require taking out student loans. In the case of law school or medical school…lots of student loans.

If your degree of choice is obtainable by going to school nights while continuing to work full-time, you can save a lot of money. The downside, of course, is that it will take longer to get your degree and use it to leverage higher pay. Another potential disadvantage is that you won’t be able to focus 100% on either work or school.

Controlling living expenses while in graduate school

If you’re going to go to grad school full-time and are smart enough to be considering the financial impact of going to graduate school before you enroll, you’ll want to make a plan not only for how you’ll repay your student loans when you graduate, but how you’ll manage your living expenses and cash flow while you’re in school.

One way to reduce the amount of student loans you need to take out is to choose schools that have more competitive tuition rates and apply for grants and scholarships.

Otherwise, the best way to limit your total student loan debt is to reduce the amount of money you need to borrow for living expenses.

I haven’t gone to grad school, but my wife, Lauren, attended law school. Like many grad students, she financed her tuition with student loans and—although she worked summers and part-time during her 2L and 3L years—she had to borrow money for living expenses, too.

As I’ve written before, Lauren’s far more frugal than I, so she managed to live on the tightest of budgets during law school and minimize how much she needed to borrow. That—combined with choosing a lower-cost state school over a private school that cost more than double in tuition—kept her loan debts in check compared to what they could have been.

So how can you do the same?

The key is to visualize your financial life after obtaining your degree. Of course, you don’t have a crystal ball, but you can take some educated guesses. For example:

  • How much total student loan debt will you have?
  • What will your loan payment be?
  • How long will it take you to get a job?
  • How much will you earn?
  • Where will you live? How much will housing and transportation cost?

Looking ahead: What will your student loans cost you?

Ideally, you want your total student loan payments to be no more than 10% of your gross monthly pay.

So if you’re going to owe $1,200 a month in student loans, you’re going to need to bring home $120,000 a year. You could stretch to 15%, in which case you would need to earn $80,000 to afford the $1,200 a month payment. But in this case you’ll feel squeezed in other areas of your finances.

Okay, is anybody laughing at me? Chances are some of you have student loan payments just from undergrad degrees that far exceed 10% of your annual income.

This is perhaps the biggest reason why twentysomethings today can’t get ahead. It’s not necessarily your fault—tuition inflation, stagnant wages, and the failure of colleges and lenders to educate students about the cost of borrowing have contributed to this crisis.

BUT, if you’re considering going back to graduate school, you’ll want to consider how affordable your loans will be after you graduate.

  • First, you want to make sure that borrowing the cost of tuition will enable you to get a job in which you can afford to repay your loans.
  • Second, you’ll need to consider how much you’ll borrow for living expenses.

Let’s say that you currently earn $50,000 a year and bring home about $36,000 after taxes. If you go back to school and do not want to work part time OR reduce your lifestyle, you’ll need to borrow $36,000 a year in addition to tuition just to live on.

Let’s say you’re going to law school for three years. $36,000 a year for living expenses totals $108,000 over three years. Yikes! If you’re going to repay that over 10 years at 6%, that’s a $1,200 monthly payment JUST FOR LIVING EXPENSES.

The cost of borrowing per $10,000

Here’s an easy way to estimate how much it costs to borrow money for grad school. Keep in mind that the total interest figures don’t take into account interest that accrues while you’re still in school, so the actual costs will be higher.

Term Amount Borrowed Monthly PaymentTotal Interest
10 years$10,000$111$3,322
20 years$10,000$72$7,195
30 years$10,000$60$11,580

In my opinion, graduate school is worth it if:

  • It allows you to pursue a career you’re passionate about that you can’t do without the degree
  • And/or you can substantially increase your lifetime earning potential with an advanced degree

But let’s look closer at the numbers.

Entry-level office job –> law school –> lawyer

Let’s say you’re 25 and earning $35,000 a year. Assuming an average 3% annual raise and that you work until 65, you’ll earn a lifetime total of $2.75 million.

Now let’s say you go to law school for three years. During those years you earn $8,000 a year working part-time. The total cost of borrowing (including interest) is $206,331 (paid over 20 years). When you graduate at 28 you earn $60,000 to start.

Over your lifetime, with the law degree, you’ll earn $4.14 million. Subtract the cost of going to school ($206,331) and you still earn $1.2 million more than if you hadn’t gone to law school.

Non-profit executive –> master’s degree –> same role

Now let’s say you’re 30 years old earning $50,000. You decide to get an master’s degree full-time and not work while in school for two years. You borrow $75,000 a year for two years ($45,000 tuition plus $30,000 in living expenses) that costs you a total of $257,914 to repay over 20 years at 6%.

When you graduate, you find that the master’s gets you a slight raise – to $60,000. Between the ages of 30 and 65 had you NOT gone back to school, you would’ve earned a total of $2.5 million.

Having gone to school full time for two years and borrowing the money, your lifetime earnings with the master’s (minus the total cost of obtaining it) come out to $2.45 million. Not a huge difference, but here’s an example of when going back to grad school could actually decrease your lifetime earnings.

The best way to adjust those costs downward is to keep your loans as low as possible. Don’t load your loans down with personal expenses and get the best rate possible from the start. Credible will offer quotes from multiple private lenders to help you find the best rate and terms available. This can help keep your costs low so you can get the biggest return on your investment.

In the end, it’s about ROI

An advanced degree can be one of the best investments you can make, and borrowing money to finance that investment often makes sense.

When deciding whether or not it makes sense to go back to school, however, you need to look beyond the “sticker price” of an advanced degree – the tuition and fees – and include the cost of your living expenses while in school AND the earnings you’ll sacrifice by spending years away from the workplace.

If you have to take out student loans to finance your living expenses in grad school, try to minimize the amount you’ll borrow by:

  • Saving ahead of time for your living expenses
  • Working part-time while in school
  • Ruthlessly cutting costs while in school (living with roommates or ditching your car can make a big difference)

If you do have to borrow money for living expenses:

  • Borrow no more than what you’ll need to meet your expenses
  • If you end up borrowing more than you need, pay back the extra funds as a principal-only payment on your loan (this will reduce the interest you pay in the long run)

Summary

If you’re exploring ways to pay for school, our partner Credible provides a free, simple way to compare private student loan lenders and apply online. See the private student loan rates available to you here.

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About the author

David Weliver
Total Articles: 304
David Weliver is the founder of Money Under 30. He's a cited authority on personal finance and the unique money issues he faced during his first two decades as an adult. He lives in Maine with his wife and two children.