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This PhD Entrepreneur Advocates for Universal Basic Income (Part 1)

May 4, 2020 by Meryem Ok Leave a Comment

In this episode, Emily interviews Dr. Jim Pugh, the founder of ShareProgress and co-host of the Basic Income Podcast. Jim earned a PhD in computer science and subsequently worked for the Democratic National Convention and other progressive groups. He always aspired to start a business, and his post-PhD work experience inspired him to found ShareProgress, a software product and consulting service. Jim describes the evolution of his business, which now brings him sufficient income to support him in San Francisco in exchange for about 5 hours of work per week. Jim’s observations of changes in technology and the workforce while building his business and newfound time freedom drew him to investigating universal basic income.

Links Mentioned in This Episode

Teaser

00:00 Jim: As you’re doing something, you’ll see many other, adjacent great things to do as well, but that can so easily be a distraction from actually figuring out, “Alright, what is the core of this successful business going to look like?” And if you let yourself be pulled in that direction, it can really detract from your chance of building something big.

Introduction

00:25 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season six, episode one, and today my guest is Dr. Jim Pugh, the founder of ShareProgress and cohost of The Basic Income Podcast. Jim’s doctoral work in computer science and his experience working for the Democratic National Convention inspired him to start ShareProgress seven years ago. In this first half of our interview, we discuss the growth and evolution of his business, which now brings him sufficient income to support him in San Francisco in exchange for about five hours of work per week. Jim’s observations while building his business and newfound time-freedom drew him to investigating universal basic income. Without further ado, here’s the first part of my interview with Dr. Jim Pugh.

Will You Please Introduce Yourself Further?

01:15 Emily: I am delighted to have joining me on the podcast today, Dr. Jim Pugh. It’s a really special episode for me because Jim and I know each other in real life. He is the older brother of a dear friend of mine and my husband’s from college. And we actually had lunch a couple months ago when we were visiting and had gotten into this really interesting conversation about what Jim’s up to these days, the activism that he does. And it was just really exciting and I could see there was a definite PhD angle there, not just because Jim himself has a PhD but also because what he works on has implications for PhDs. So, we will get into all of that in just a few minutes. So, Jim, will you please take a moment and introduce yourself a little bit further to the listeners?

01:53 Jim: Yeah. Well Emily, thanks for having me on the podcast. My background brings together a few different areas. My academic background is in the sciences. I did my undergraduate and doctorate in computer science, specifically robotics, my doctorate. And following that, ended up getting involved in the political world. And so, I spent some time working on the 2008 Obama campaigns, spent a few years in D.C. after continuing political work out there. And then about six, seven years back decided to take honestly experiences on both those fronts to start my own company called ShareProgress, working primarily with political and nonprofit organizations, providing them with tools and other technical support. And then just in the last few years, I started to delve really in on the activism side of things myself and helped to start an organization that does a lot of work around universal basic income doing both advocacy around that topic and also some policy development work in that field.

What Role Did Your PhD Have in Starting Your Business?

02:58 Emily: Yeah. Super, super exciting. Thank you. Clearly, you have a lot of skills and a lot of interesting experiences that you’ve brought to bear on these most recent endeavors. So, kind of backing up slightly to the business that you started, ShareProgress. How did your PhD prepare you for ultimately starting that business? Obviously, you had some work experience after that point before you started it, but how did the PhD specifically prepare you? Or how did it not prepare you very well for that?

03:25 Jim: So, I would say the PhD itself wasn’t terribly relevant for starting that because I was really in a hard research area and was working on algorithms and models that didn’t have any clear path to monetization to turn it into a company. So, that I don’t think was terribly relevant. What was a bit more relevant is I was involved with, at the university I was working with, which is the Institute of Technology in Lausanne, Switzerland. They actually were making a pretty significant investment in cultivating entrepreneurship amongst their students, both undergraduate and graduate. And so there was a program on campus that was talking a lot about that. And so, I feel like there was some stuff I learned through experience with that going through events, and they had various activities that they would organize. And so, I felt like that it was informative in some ways, but it really was very much focused on taking the sort of research you do through your doctoral degree, through your academic work afterwards and turning that into a company. And my company that I ended up starting really didn’t resemble that much at all because that was much more informed by the political work I’d done and seeing what the needs were in that space. So, there were there aspects around “what does it look like to go through that process?” that I would say generally provided me with some guidance. But as far as the specifics, really not much at all.

Jim’s Entrepreneurship Journey

05:02 Emily: Did you have in your mind at that time that you did want to pursue entrepreneurship?

05:08 Jim: I did. That was something from I think pretty early on in college I realized was an area I was quite interested in. And when I was graduating from undergraduate, actually, I kind of had in my head either go to grad school or do a startup. I didn’t have an idea for a startup, so I said, “Well I guess it’s grad school.” But it definitely was something that I had been thinking about for awhile.

05:34 Emily: And did you initially, when you were getting involved during your PhD program with this training program for entrepreneurship, were you thinking about the possibility that you might turn your PhD work into a company? Or were you already like, “No, that’s definitely not going to happen, but this is just like for future reference?”

05:50 Jim: More the latter. Maybe there were a few moments where I considered something that was closely connected, but in general, that wasn’t where I saw opportunity. I more generally was thinking about, “Oh, I want to do something at some point. And this is an area that interests me and is just an area that’ll be helpful to know more about.”

Relevant Technical Skills Gained During PhD

06:10 Emily: Gotcha. And what about, I guess I could say, your technical chops. Did you use those in your business, or were you always hiring out for that? And then also is that something you got from your PhD, or do you think your undergraduate education was sufficient in that area?

06:23 Jim: I think there definitely was some of that from my PhD. Obviously, as an undergrad I had done a lot in that space, but I think that some of the specific technical skills and areas of expertise–and I think also just generally understanding different technological ecosystems–some of that did come through in my PhD. When I was starting my company, I very much structured it to not have put myself in the role of that technical person because I was interested in really taking on the CEO mantle in the more traditional sense. So, I had hired out for a developer to actually build out our software platform from the get-go. That said, I was being involved in various ways with the technical stuff throughout, and at different points definitely got more engaged on that front. And so, having that background definitely proved to be important and a valuable asset. And honestly, I mean I think those of us who are deeply into tech, and particularly doing software development and whatnot, we think of tech in a pretty extreme way as compared to the population in general. And so, just knowing how to work with various technical systems out there, I know it’s a leap for a lot of people not committed to that space. And so, certainly my background had equipped me well to be able to handle that sort of thing.

07:50 Emily: Yeah, I kind of see this as being a common sort of value of the PhD. You sort of prove yourself in an area, you can work very deeply, you can master something completely. And then after that, a lot of people do take a step back and allow other people to do that kind of work and do more of the management. And that’s kind of the PI model. Right? So, that sort of does apply, in a way, to what you did after. But it sounds like the actual work experience that you had after your PhD with the Obama campaign and so forth, that was what gave you the idea–right?–for what your company would ultimately be. Can you talk a little bit more about that?

Inspiration While Working for the Democratic National Convention

08:19 Jim: Yeah, so the work I was doing, to some degree on the campaign, but in particular when I was out in D.C., I was working for the Democratic National Committee at that point, and we were actually running, effectively, the continuation of the Obama campaign. It was called Organizing for America at that point. And so, my role, I was the director of digital analytics and also web development for the program. And so, it was really paying attention to/digging in on what was actually happening under the hood with all of our digital presence, our social media, our email lists, our website, and so on. And so, I got a chance to see what’s possible, what’s not, what works well, what doesn’t. And one of the observations I had was that so much of our ability to do anything, whether that was raise money, whether it was to try calls to Congress, whether it was to get people turning out in their local communities for events, it depended on us having a wide reach.

09:19 Jim: And that reach, to a large degree, came from us intentionally doing outreach to get people involved. Whether that was big publicity efforts, whether it was paid acquisition online. But then the third category being people bringing in their friends. And actually during that time period, that was really crucial for us that so much of the new people we had coming in, it wasn’t from anything we were doing in particular, it was because our existing supporters were recruiting people they knew to get involved in a campaign and whatever the moment was. And it was an area that there really had not been much investment in as far as figuring out, “Alright, well how do we facilitate, and how do we amplify this?” So, that was really the motivation for my company, which was, “Let’s build some software tools that make this more effective and easier to do.”

How to Gain a Wide-Reaching Audience

10:10 Jim: And so, basically we had a plug and play solution where organizations, as they were doing this sort of advocacy work, they could be encouraging their supporters to be reaching out to their friends through various digital social channels. So, social media, Facebook, Twitter, but also just getting people to email folks they knew and say, “Hey, I’m involved in this really important thing. Will you be involved as well?” And that’s proved very, very effective at bringing in new people, particularly in high-energy moments. And then we allowed organizations to track the analytics on what was happening there. And so they really understood what was going on and actually allowed them to do controlled testing around what sort of messaging they could give to their supporters that made them more convincing, basically, to people they knew. So, when their supporters post on Facebook they could have a couple of different headlines, a couple of different thumbnail images and the system would be able to measure, “Okay, well how effective are those different pieces of content at getting their friends to say, ‘Oh, I’m interested,’ and click through it and get involved.”

Evolution of ShareProgress

11:16 Emily: Yeah. Super scientific approach to that. Right? I’m sure your background helped with that, the design of it. Okay, so that’s around the product that you created. I think you said when you introduced yourself that this was maybe six, seven years ago that you started the company. Two years ago, you transitioned more to doing this advocacy around universal basic income. So, I’m curious about how your role within the company, and in particular the time that you put into it, evolved over that, five-ish-year period.

11:44 Jim: Yeah. So, at the start, the software that I just described, the plan was for that to be the company. That was what we were going to do. I realized relatively early on about six months in that the growth that we were seeing from that wasn’t going to allow us to sustain. And in exploring different investment strategies, the type of company I was looking to build, which very much had a social mission, wasn’t looking to make as much money as possible, as quickly as possible if that compromising that, wasn’t actually a great target for traditional investment routes with startups. And so, what I decided to do was to couple on with that a consulting arm where we would actually work with the same sorts of organizations that we were providing the software to, but a system with either data analysis work or some sort of web design development work, which is similar to what I had been doing out in D.C. prior to that.

12:42 Jim: And so, that actually ended up being the bulk of what the company did for most of its existence. We were able to find clients there. I was able to scale up our staff with that sort of work. And so, while we were doing the software, we were continuing to grow the consulting side of the company. And so, our peak was I think early 2017 we were nine people and most on the consulting side. But it was around that time I had realized–I had known pretty early on, I didn’t really want to start a consulting company. That seemed like where the path to profitability was. But around that time, my interests had started to shift to more of the advocacy work around universal basic income. And we went through some tough periods as far as expectations around business and profits and not matching reality. So, we had to do some downsizing. And so, at that point I actually decided, “This isn’t where I want to be investing my time and effort for the future. So, let’s just ramp down the consultant product company.” And at that point, our software was making enough money that I could support a much smaller staff. And so, over the course of 2017 I went through a process around that. That ended with, at the end of the year, I was having more of a skeleton crew and requiring not very much of my time in order to just keep our software running, or the clients that we had there.

Consulting as a Stage of Growth

14:20 Emily: So, I’m curious, with the evolution of adding the consulting aspect and then winding it down, are you happy that you did that, or do you think that you should have just stuck with the software product kind of throughout that whole time and come to this point where you are now maybe a little bit sooner?

14:36 Jim: Well, it honestly wasn’t an option to do exactly that because we did need the consulting early on in order to make payroll. So, it took a while for us to build up enough of a client base and the software where that was an option at all.

14:49 Emily: So, it’s a stage of growth, then.

14:51 Jim: It was a stage of growth. Whether or not I would have invested as much as I did in that, I think looking at it solely from a business perspective, I think that was probably a mistake. I think that it would have been a better approach to say, “Let’s keep focused on the software. Let’s do this as much as we need to, but let’s not really invest in growing that as the company.” Because I think that in most cases, when you’re trying to do more than one thing, you’re not going to do either of them as well. And so, that would have been the better business decision. As far as from a personal perspective, I think I certainly learned a lot through the whole process. So, I wouldn’t say it was a bad decision from that. It certainly was stressful at times, but I think that it’s hard for me to make a valuative judgment on it.

San Francisco Venture Capital (VC) Environment

15:40 Emily: Sure. I want to say for the context, for the listeners, that you live in San Francisco right now, and you mentioned living in D.C. before that. Did you start the company when you were living in San Francisco?

15:50 Jim: Yes, that’s right.

15:51 Emily: So, you’re in a very different environment than probably most of the listeners who are maybe still on academic campuses, you know, spread throughout the U.S. and other places. So, anyway, I just want to say that because you probably had a lot of exposure just from your environment in things like how to approach for VC funding, whether that’s actually a good idea for your business. You decided that the values that they’re going for are not exactly the values that you were going for. And so it wasn’t a good match there. This is actually something I’ve heard about quite a bit that people elect not to go the VC funding route for various, I guess, “vision” reasons.

16:23 Jim: Well, I should clarify that I did attempt to raise funds for the company with already knowing that there would be certain people I wouldn’t accept money from, certain types of investment that I wouldn’t be comfortable with. But, I was hoping to be able to do it in some capacity and was not successful at it. So, that was part of it. Maybe had I met the right people, those things could have looked differently. But I will say, both prior to that and since then, having observed the dynamics in that space, I see how that would be a challenge for many, many people who are attempting to do something similar. But it wasn’t as though I was equipped to know upfront, “Oh, there’s no way this is going to work.” It was very much a learning experience for me.

Current Role in the Business

17:11 Emily: Yeah, that sounds really great, actually. And you’re still living in San Francisco, so you’re still exposed to all of that stuff. But I’m curious about this decision that you said around two years ago, you wanted to focus more on the UBI stuff and you restructured the business. And now, how much time do you spend working on the business now, maybe per week or per month? And what is your role in it now, exactly?

17:32 Jim: Yeah. Well, I’m still CEO of the business, but to be honest, it probably averages about five hours a week at this point because we want to keep running, we want to keep our clients happy there. The idea is really to have it be maintaining the service rather than doing new things. And so, that just doesn’t require that much work. So, I have an employee who is, basically, like any sort of support we need to provide, is dealing with that, keeping an eye on things, and then myself overseeing things. And that allows us to keep going with that.

18:06 Emily: And to ask kind of a more pointed financial question, but you are supporting yourself entirely off of your business income for which you’re only putting in about five hours a week at this point?

18:16 Jim: That’s right, yes.

Financial Independence and Early Retirement (FIRE) Movement

18:17 Emily: Wonderful. Wonderful set up for you. So, we’ll talk about this a little bit more in the upcoming UBI conversation. But the reason I was kind of interested in your story and sharing it on the podcast is because there’s this big movement in the personal finance community called the FIRE movement, Financial Independence and Early Retirement. In season three, I released a pair of interviews with someone on that subject. And your story, while the FIRE community might not call you financially independent by their definition, a lot of what they’re going for, financial freedom, you have bought for yourself with your business, right? So, there’s a lot of overlap there between the goals of the FIRE movement and what you’ve done for yourself. So, I was really interested in having you on the podcast for that reason.

Business Advice for Early-Career PhDs

18:59 Emily: So, okay, now that we’re going to transition to sort of the universal basic income aspect of our conversation, I kind of wanted to wrap up the aspect of our conversation about the business by just asking if you had to give some advice, if another early-career PhD asked you advice around starting a business, what would you tell that person now?

Advice #1: Talk to People

19:20 Jim: I think just go and talk to a lot of people who’ve been through the process because I think part of the challenge is it does look very different in different situations. And that was something I struggled with early is thinking, “Okay, well, there’s going to be standards around this. And so did a bunch of Googling online for like, “Okay, what is the standard, whether it’s around the equity or whether it’s around other aspects of the business.” And I found some stuff but not as much as I expected. And so, I think that, if you can just talk to a lot of people who have gone through the process, you get a sense of the diversity of ways that can work. And so I think it can give you a better idea as to what the trajectories may seem to be. That was something I know I struggle a lot with, and I think may have delayed me deciding to start a business, is that it just felt too amorphous and scary. Alright, what does it look to get something like this off the ground? And in hindsight, it’s such a simpler process than so much of the work I had done before, but I think that there is that opacity and then those unknowns that make it difficult. I feel like I was not unique in having that perspective.

Advice #2: Find Your Focus

20:33 Jim: And then I think focus is another big thing that I continually struggle with frankly, but I see many, many people struggle with. There’s many great things to do and, as you’re doing something, you’ll see many other, adjacent great things to do as well, but that can so easily be a distraction from actually figuring out, “Alright, what is the core of this successful business going to look like?” And if you let yourself be pulled in that direction, it can really detract from your chance of building something big.

Commercial

21:07 Emily: Emily here, for a brief interlude. I bet you and your peers are hungry for financial information right now, especially if it’s tailored for your unique PhD experience. I offer seminars, webinars, and workshops on personal finance for early-career PhDs that can be billed as professional development or personal wellness programming. My events cover a wide range of personal finance topics or take a deep dive into the financial topics that matter most to PhDs like taxes, investing, career transitions, and frugality. If you’re interested in having me speak to your group or recommending me to a potential host, you can find more information and ways to contact me at pfforphds.com/speaking. We can absolutely find a way to get this great content to you and your peers even while social distancing. Now, back to our interview.

Should Entrepreneurs Move to San Francisco?

22:06 Emily: I’m trying to think about for someone who is, let’s say still affiliated with the university, I would imagine there are some people to talk to there, networking, especially universities that have incubators or something from launching a business out of. But I asked you before about living in San Francisco, what do you think about moving to a place like San Francisco where you can just run into other people who are on a similar path? What do you think about that idea?

22:31 Jim: I mean, I think it’s a very double-edged sword because certainly the density of that happening is a significant asset for a lot of this sort of work. And it is so expensive here that if you’re looking to hire locally, you’re gonna be paying, sometimes easily two, three, four times as much as you’d be paying, not too far away. And so, I think it’s a question of balancing those sorts of things. I mean, I think there are ways, like either if you live somewhere not too far away, where you can go into the city and have those easy conversations in-person with folks, but still be in a place where it doesn’t cost you thousands and thousands of dollars every month to pay for your rent. That could be your compromise. Or, just take the occasional trip out here. Assuming you can afford whatever the travel costs are. And then I think there are other areas where you’re starting to see better density. I don’t really have a great sense for what it actually looks like yet. And I do think that there is a cultural component to why Silicon Valley is Silicon Valley because there’s kind of a pay-it-forward mentality, pretty broadly, where people who have done well are eager to help new people coming in, which I think has made a big difference. But yeah, you get both sides of it.

Advocacy for Universal Basic Income

23:54 Emily: I see. Okay. So, now that you pay for your life based on your business, which you only work in a few hours per week now, I’m curious about this transition that you made two years ago. I mean, you said it was kind of like you became more interested in universal basic income and that movement. You then structured your life so that you didn’t have to work so much. So, I guess the question is, how has your experience of having that business and having that source of income that requires only a very small amount of work at this point or small amount of time, how did that lead you into your advocacy for universal basic income?

24:34 Jim: So, I think there are a couple of different ways that I can answer that. So, as far as what first got me interested in universal basic income, a big part of it was the process of starting my company because I had certain expectations coming in around staffing related to operations, to payroll, to HR services, and expecting that, assuming things at all got off the ground pretty quickly, I would need to be hiring at least part-time help to assist with that. And what I found is that there were all these new online services that automated a lot of that. And so, from the beginning for payroll in the company, we use Gusto. It used to be called ZenPayroll, which you have to plug in the information to start with people’s where they live, their bank account transfer information, what the unemployment insurance rate is in the state. But then every twice a month you just say, “Okay, go,” and it pays them and files their taxes and that’s it. And costs not very much money to do it. And so, that being one example of how technology is allowing us, not just to replace jobs because I think you lose something when you describe it just that way, but is A) definitely changing the way that that work is being done, and B) and this is the thing that really stood out for me, is allowing much smaller groups of people to be able to do far, far more than was true before.

Small Business is the New “Big”

26:14 Jim: Because in the past, if you wanted to start a big company, or I shouldn’t say big, I should say a company that was going to generate a lot of income and wealth, kind of inherent to the process is you would need to involve a lot of other people. And it’s far less true now. You can have a team, I mean if you look at I think, what was it, the WhatsApp team, which is like half a dozen, a dozen people who then sell a company for multiple billions of dollars. Never in human history before could something like that happen. And so I think that was an A-ha moment for me and realizing that things are already starting to and will continue to look very differently than they have in the past and we need to stop assuming that the economic solutions that have been effective before are necessarily the right ones going forward.

27:06 Emily: So, it’s not necessarily just jobs are going away, but maybe some jobs are going away, some other jobs are popping up, the people that create the companies and the software and so forth. Are you also speaking about wealth concentration?

27:20 Jim: Yeah.

27:21 Emily: Gotcha.

Changing Mindset Around Universal Basic Income

27:22 Jim: Yeah. And I think for me, that was as much of a factor as jobs are not. I think we’re used to thinking about the jobs thing, so it’s more clear why that would be problematic if we had only a requirement that 10% of the people have a job. But I think that, particularly as I’ve worked on the issue more, that piece more clearly is a big issue that I think as our systems are structured now is really incompatible with having a fully-functioning society, I would say. Anyway, so that was kind of how I first started to think about UBI, universal basic income. And I don’t even remember where I first heard about the idea. I think I read maybe some piece about the referendum that Switzerland was pursuing.

28:18 Jim: It started back in 2013. But my initial reaction was, “This seems dumb, frankly.” I was like, “Oh, this seems like an oversimplification. Just thinking you can give people money and that will solve things. And then I started to look more into it and look at the research and understanding what are the actual, both economic and psychological ramifications when you do this. And it turns out it was incredibly positive that this is something where we have, at this point, a lot of evidence that unconditional cash–people take that and use it for whatever they actually need to use it for. And that, in fact, it confers a sense of agency to people that they might not otherwise have. And that in itself is hugely beneficial because it encourages people to think more longer term in terms of sensing more responsibility for a situation, all things that are actually very valuable in sending people out for their own longterm success.

29:15 Emily: I want to leave this for part two of this interview. Where we’ll be talking less about your personal story and more about, well, maybe what you’ve been learning over the last few years. We’re going to take a step back and define universal basic income because we haven’t done that yet. So, listeners, if the next part of this conversation sounds like it’s going to be really interesting to you, please tune in next week. For the second part of the interview, we’ll be talking a lot more about universal basic income with the expert, Dr. Jim Pugh.

Outtro

29:40 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind-the-scenes commentary about each episode. Register at pfforphds.com/subscribe. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

Healthy, Wealthy, and Wise: Choose a PhD Program That Will Support Your Personal and Professional Development

January 13, 2020 by Lourdes Bobbio 1 Comment

This episode comprises seven audio clips from PhDs and PhD students who are advocates for PhD students’ professional and personal development. They each answer the prompt: “What aspects of a PhD program – beyond academics and research – should a prospective graduate student consider when deciding among offers of admission and why? How should they investigate and evaluate the strength of a program in this area?” The contributors are Dr. Emily Roberts of Personal Finance for PhDs on finances, Mr. Kevin Bird on unionization and advocacy, Dr. Emily Myers on unionization and advocacy, Dr. Jen Polk of Beyond the Professoriate on career development, Dr. Katy Peplin of Thrive PhD on mental health, Ms. Susanna Harris of PhD Balance on mental health, and Dr. Katie Wedemeyer-Strombel on work-life balance. Please share this episode with all the prospective PhD students in your life!

Links Mentioned in This Episode

Find the contributors on Twitter:
Personal Finance for PhDs: Podcast Hub
Personal Finance for PhDs: Subscribe to the mailing list
Finance: Calculate the Living Wage
Finance: How to Read Your PhD Program Offer Letter
Finance: Additional Financial Factors to Consider Before Accepting an Offer of Admission
Unionization and Advocacy: Find out more about unions in Washington and California
Career Development: Beyond the Professoriate
Mental Health: Thrive PhD
Mental Health: PhD Balance
Work-Life Balance: More from Dr. Katie Wedemeyer-Strombel

Introduction

00:05 Emily R.: Welcome to the Personal Finance for PhDs podcast, higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season five, episode two and today I have a very special episode for you. I have invited six other PhD advocates to contribute their voices to this episode and you’ll hear from myself and each one of them in turn. The questions I’ve asked each of these contributors to answer are: what aspect of a PhD program, beyond academics and research should a prospective graduate student consider when deciding among offers of admission, and why? How should they investigate and evaluate the strength of a program in this area?

00:45 Emily R.: If you’ve already matriculated into or completed a PhD program, you probably appreciate what an important topic this is. Will you take a minute to please share this episode with prospective PhD students in your sphere of influence? Please tweet your thoughts on the episode using the hashtag #PhDfactors. In this episode, we’re going to hear from me, Dr. Emily Roberts of Personal Finance for PhDs on finances, Mr. Kevin Byrd on unionization and advocacy, Dr. Emily Myers on unionization and advocacy, Dr. Jen Polk of beyond the professoriate on career development, Dr. Katie Pepin of thrive PhD on mental health, Ms. Susanna Harris of PhD balance on mental health and Dr. Katie Wedemeyer-Strombel on work life balance. Without further ado, let’s hear from our contributors.

Finances with Dr. Emily Roberts

01:43 Emily R.: Naturally, my contribution to this episode revolves around your finances, specifically how to evaluate whether you will be sufficiently supported by the stipend or salary provided by the program. You may or may not end up using this factor when you choose your PhD program, but either way you should go into graduate school well aware of the financial realities. When I was applying to PhD programs, I didn’t pay much attention to the stipends in the offer letters. I naively trusted that every program I was accepted to would support me financially to a reasonable degree. The PhD program I picked based on only the research opportunities and location actually did pay a decent stipend, but that was blind luck on my part. I know now that graduate students often do experience a great degree of financial stress and ill effects. Approximately 50% of PhD students take out student loans, prior to graduation and many also accumulate credit card and other types of consumer debt. Some PhD students qualify for snap benefits and a few experience food insecurity. Think about the difference it would make to your mental health alone to attend a graduate program with a stipend that allows for a comfortable standard of living versus a program where you have to pinch every penny, side hustle like mad, and still be in the red every month. Do you think you will be able to perform well academically if you’re experiencing chronic financial stress?

03:08 Emily R.: There are long-term financial effects to think about as well. If you currently have student loans, will your stipend allow you to start to repay them? If they are un-subsidized, they will accrue interest all through your graduate school deferment period and you’ll have an even larger balance to tackle post-PhD. What if you were able to start investing with your stipend? If you’ve never played around with a compound interest calculator, pause this episode and spend a few minutes doing so now. With reasonable assumptions, investing $250 per month throughout only five years of graduate school can turn into nearly $1 million in your retirement years. That’s $1 million of wealth in retirement that would not exist if you accepted a stipend that didn’t afford you that ability to save.

03:56 Emily R.: Are you sufficiently motivated to pay attention to the stipends in your offer letters? Good. I’m going to tell you how to evaluate the single most important factor in your funding package. The number that I want you to find in each of your offer letters is your stipend or salary net of fees. Some of your offer letters might state this number clearly and some might obfuscate it. To compare apples to apples across all your offers, you need to know how much money is actually going to end up in your bank account after your tuition, insurance premiums, and all fees have been paid. If your offer letter doesn’t make it clear to you what financial obligations you will have to pay to the university from your stipend, it’s worth a follow-up email to clarify.

04:39 Emily R.: Next, we need to put this net stipend number in the context of the local cost of living for the university. I like to use the MIT living wage database for this. The living wage is basically the amount of money it takes to pay for basic living expenses like housing and food in that local area. It doesn’t include discretionary expenses like travel or putting money toward financial goals. Go to livingwage.mit.edu and click on the state and county of the university you’re considering scroll until you see the amount of money that constitutes a living wage, including income taxes for a single person. If you have a child, or someone else who depends on your income, you may need to scan over to the amounts for larger family sizes. Take the living wage number you found and compare it to the stipend after all education related expenses have been paid. Ideally, your stipend will be higher than the local living wage. Personally, I felt I was able to live comfortably during grad school and save a good amount of money and my stipend was about one third higher than the local living wage. The number that represents your stipend, net of fees divided by the local living wage is the number that you can compare across all of your offer letters.

05:54 Emily R.: Now, what should you do with this information? My advice, which you can take or leave, is to eliminate from consideration all of the PhD programs that will pay you less than the local living wage. If you choose to go to a program that pays you poorly, steel yourself for the likelihood that you will take out student loans or consumer debt during your PhD or have to devote a lot of time to side hustling. You may decide that this is worthwhile, but at least now you’ll go in with your eyes open. If you have two or more offers that are above the local living wage, if you like, you can continue to factor in financial considerations as you make your decision. In fact, I’ve made a list of a dozen additional factors you should evaluate before committing to a PhD program. The stipend divided by the local living wage actually just scratches the surface. You can download the PDF of the full list by going to pfforphds.com/offerletter and signing up for my mailing list.

Further reading: 10 Ways to Combat Financial Fragility Beyond Grad School

Unionization and Advocacy with Mr. Kevin Bird

07:00 Kevin: Hi, my name is Kevin Byrd. I’m a PhD candidate in the department of horticulture at Michigan State University and I’m also the current president of the graduate employees union in Michigan State and I’ll be covering how and why to take graduate unions into account for your graduate school decision. Graduate unions are important to consider because I think they’re central to a safe, secure, and equitable experience in graduate school. If you have a graduate union, it means there’s a system in place to combat harassment, discrimination, overwork, and other workplace mistreatments, independent from these university institutions. It also means there’s more power to pushing universities to provide living wages, comprehensive health insurance to all graduate assistants and to keep university fees low. When we were looking at other universities at Michigan State for our last contract campaign, we found a pretty stark pattern that the highest stipends in terms of cost of living were held by unionize universities and the lowest by non-unionized. In fact the only universities that had stipends less than half the cost of living were non-unionized universities.

08:03 Kevin: Additionally, through collective bargaining, there is something that holds institutions to their word and maintains benefits and services graduate assistants are entitled to receive. When I was an undergraduate at the University of Missouri, there was a moment when graduate assistants lost their health insurance with two days notice. Without a binding collective bargaining agreement, these students were largely left powerless to get back the benefits they were promised upon signing. Meanwhile, at Michigan State after several contract campaigns, we have some of the most comprehensive health care on campus with low deductibles and low co-pays, even after the university tried to reduce those benefits in the last contract cycle. It’s this sort of stability and progress that unions help maintain and build upon year after year. Hopefully the benefits of unions are at least partially clear right now and we can move on to how to evaluate unions at universities that you’re looking at.

08:52 Kevin: One of the first things to look at is whether the university is public, private, public universities are governed by state labor law, while private universities are governed by federal labor law. Given the latest ruling by the national labor review board, most private university unions are fighting for a struggle to be recognized by universities, whereas many state labor laws allow for graduate students to be unionized. Knowing whether university is public or private is one of the easiest ways to figure out if there is an established union or if there is a union currently fighting for recognition. Right now at Harvard University, the University of Chicago, and Loyola, all private universities, there are unions but they are not officially recognized by the university and they have not been able to participate in collective bargaining.

09:33 Kevin: The next move would be some internet sleuthing to look at the website of the union at the university you’re looking at first see if they have their last collective bargaining agreement posted. This would tell you the benefits that graduate assistants currently have with the university, especially important things like the minimum stipend the university can pay you, the pay increases every year, and the current health insurance plan the graduate students currently enjoy.

09:54 Kevin: Next, would be the current campaigns the union’s currently working on. What sort of things need to be addressed in the university? What’s the union doing to address them? And what does progress look like over the last few years? All of these things will help you get a landscape of what issues are facing a campus and how a union is working to address them and how successful they’ve been in the past. Additionally, you can look at media presence to see how the news covered the last bargaining cycle that a union undertook. Did they have to shut down streets with a march? Did the hold rallies? What sort of actions were they able to take that eventually led to the progress that they got in their latest contract? These things in particular can tell you how well organized a union is and how they can use their power to make changes on progress for graduate assistance.

10:34 Kevin: You can also look for other benefits that unions provide to their members. At Michigan State, we have something called the solidarity grant where members can apply to the union in times of financial need and receive a couple of hundred dollars or a thousand dollars to address major crises that have occurred in their life, from a flat tire to burst pipes. One final thing to consider is whether the university website talks about the union on it. This could be an indication of labor relations between the union and the university. It’s probably best to be at a university that acknowledges and at least recognizes the union and works to distribute information about contract benefits to prospective and current students.

11:07 Kevin: All these things considered, I would personally recommend prioritizing universities with strong unions in your decision. A graduate degree can take many years and the political and economic landscape can change rapidly. An established union is capable of increasing and maintaining current benefits, while also fighting off rash decisions by university administrations. If you’re committing to live somewhere for five years and you’re embarking on an ambitious academic project, it’s good to have someone on your side fighting for your benefits and maintaining a quality of life that you deserve while you’re working on this degree. While these conditions may exist anywhere, I think they’re much more likely to occur in universities with strong graduate unions.

Unionization and Advocacy with Dr. Emily Myers

11:50 Emily M.: Hi, my name is Dr. Emily Myers. I, very recently, as of last week, have a PhD in pharmacology from the University of Washington, here in Seattle. I am also an executive board member with UAW 4121, which is the union that represents about 6,000 postdocs and academic student employees, like teaching and research assistants, here at the University of Washington. I am going to give some insights into what I wish I had known when I was looking for a PhD program, and how important unions can be for your graduate student experience beyond stipends and student fees, which unions have also won major victories for graduate students.

12:31 Emily M.: So I chose my program for my science interests and because I loved Seattle, but I really didn’t have the depth of knowledge about how institutions work that I do now that I’m on the other side of my PhD. I was fortunate that I chose a university where the graduate students had been unionized and had been building power since 2001 and we had stronger workplace protections than most other schools, because academia is a strict hierarchy, with power dynamics that do not favor trainees, like grad students. In tandem with these power structures are institutional structures, where harassment and discrimination are widespread. In fact, the National Academies of Science, Engineering, and Medicine put out a report last year showing that women in science face rates of harassment second only to the military, and that this was for white women, and so fails to capture any sort of intersecting identities. And it’s important to understand that harassment and discrimination are about power, and who has power, and who maintains access to that power. Unions are a fundamental way to change power structures, through bottom up grassroots organizing, and gives graduate students and other trainees more of a voice in their workplace. As union members, we have access to third party neutral arbitration, which is the only scenario where the university does not have final control over the outcome of a harassment claim. This is a huge step in rebalancing power and that’s one of the top things that grad students at Harvard are on strike over and are fighting for right now.

14:07 Emily M.: In addition, unions can be a phenomenal source of community in graduate school, because graduate school can be extremely isolating. And so finding folks outside of your discipline is huge and the unions can also offer resources that are not dependent on university approval, which can be critical for international students on visas. And I think that enthusiasm and recognition for the need to change these power structures is reflected in how we are seeing a huge spike in graduate students and postdocs forming unions across the country at all kinds of schools.

14:43 Emily M.: So to give an example of this, towards the end of my time as a PhD student, I made a complaint about a professor in my department who notorious for making sexual jokes for harassing young women and saying racist things. And the university investigated and said while they believed us, but it wasn’t bad enough, meaning it didn’t cross the legal definition of harassment, and so the university was not liable and would not take further action. And it was through working with my union, we were able to get this professor removed from supervision of grad students, even after the university failed to take action. So I am not sure that without my union community and allies, I would have felt safe enough to say anything in the first place, let alone get results from speaking out about harassment.

15:32 Emily M.: As always, I hope anyone listening here won’t face harassment and discrimination in their time as a graduate student or in general. But I also strongly encourage anyone who comes from a marginalized background or is concerned about their future work environments to consider the status of a graduate student union in their decisions about choosing a program. So you can find out if a university has a union by either asking current graduate students. Or universities typically will have a labor relations office and you can check their webpage to see what workers are unionized on campus and you’ll want to look for a name and local number. Like for example, UAW 4121 is United Auto Workers four one two one. Because student senates and associations are not the same thing. And you can always reach out to current graduate unions like mine at UAW4121.org for more resources or resources or information. Or for example, if you’re in California, it would be UAW2865.org. And with that I just want to say congratulations on your PhD programs and good luck.

Career Development with Dr. Jennifer Polk

16:50 Jennifer: My name is Jennifer Polk and I’m co-founder of Beyond The Professoriate. I earned my PhD in history from the University of Toronto and now work full-time helping graduate students and doctoral degree holders build awesome careers. It’s crucial to actively attend to your career while pursuing a PhD. This might seem counterintuitive. After all, isn’t the PhD itself the thing that will help your career? While that may occasionally be true, it’s only true if you build into your experience activities and accomplishments that matter to employers, both within and beyond academia. That building is usually something you need to do for yourself. You can’t rely on your advisor or graduate program to do it for you.

17:44 Jennifer: Most PhD students live on minimal stipends and it’s common for folks to take additional paid work, if they’re able, to pay their way. An awful lot of folks have significant student loans too, of course, and if you’re a regular listener of this podcast, you know all this very well. All of that is to say that you might need a decent paying job pretty quickly once you graduate. Since it could take months to find work, even for the most successful among us, you’ll need to put in the groundwork over the years of your PhD to build experiences, gain skills, and cultivate a professional network that spans a variety of fields. That’s so you’ll be in a good position to get hired when it’s time to start applying for jobs. Ideally, your advisor will be supportive of your career no matter where it takes you. A good match with your primary advisor is incredibly important. That’s true beyond career concerns, of course. Advisors have a lot of influence over your experience, much more than you might expect, and there are academic studies that show this. I’m not just making it up.

19:01 Jennifer: Beyond your advisor, ideally, your department and the graduate program specifically will actively create opportunities for you and your fellow students to gain professional experience and grow your networks. Maybe you can do an internship with the full support of your department or attend regular lunch and learn or other networking events that they organize. Pay attention to academic and nonacademic resources. The default in many academic disciplines is to privilege scholarly careers above all others. Avoid, please, avoid departments that give you that vibe. They are not living in reality and you very much will be.

19:46 Jennifer: The bottom line here is to make sure your advisor will treat you with respect always and support you doing what you need to do to build career-relevant experiences and skills for both academic and nonacademic careers. You can absolutely ask your prospective advisors pointed questions about what kinds of career support you can expect. This is your career, your life, and you want to make sure you’ll get the support and resources you need for success during and after your studies. Graduate school is hard enough without all this added stress.

20:21 Jennifer: As you’re exploring your options, learn about programming and other opportunities available to you via the institution’s career center or graduate school. Look, for example, for a robust series of workshops, for career consultants, you can make one on one appointments with. Maybe they focus specifically on graduate students, even just PhD students. That’s awesome. You can also investigate what’s being done at the association level, so to check on what your academic discipline is up to. For example, some of the larger scientific societies host regular webinars and program multiple career-related sessions during their annual meetings. That’s great. Do take a proactive approach before you accept an offer and enroll. This is not the time to be shy. If you don’t find a good fit, you might be better off not doing a PhD at all or not this year. Your bachelor’s or master’s degrees are absolutely good enough to help you create an awesome career and life for yourself. One filled with all the creativity, intellectual rigor and challenging problem solving that drew you to want to do a PhD in the first place.

21:36 Jennifer: Learn more about Beyond the Professoriate on our website beyondprof.com and you can find us on social media too. You can also follow me, Jen, on Twitter at @FromPhDtoLife. I’d love to see you there. Thank you.

Mental Health with Dr. Katy Peplin

21:58 Katy: Hello, my name is Dr. Katy Pepin and I am the founder and head coach of Thrive PhD. Thrive PhD is a community for graduate students. It’s also individual coaching, courses, a Twitter presence, and Instagram all at that handle. Why I care about this aspect, mental health, of PhD programs is because it was one of the things that was so hard for me when I was a grad student. I have been dealing with a brain that tends toward anxiety, that can have some depression issues. My diagnoses aren’t as important as the fact that I knew early on in my PhD program that if I didn’t take care of my brain, as well as my career and my publications, I wasn’t gonna make it through.

22:48 Katy: So some of the things that I think it’s important to consider when you’re looking at a PhD program are first of all, the resources that are available for your mental health, through the university and hopefully at no cost or little cost to you. Some questions to ask: are grad students allowed to be seen in the on-campus mental health facilities? Sometimes those are undergraduate student only, so that’s important to know. Whether or not the health insurance that you’ll be offered covers mental health services or medications? If so, is there a limit to how many sessions you can have per year or per semester? Do you have the ability to be seen by providers outside of that insurance network or are you limited to a handful of people inside of the area? All really good questions to ask for your insurance.

23:41 Katy: Secondly, it’s important to kind of ask some questions around the mental health culture in the department. Some of the sure sign tells for me are: one, do graduate students stay enrolled? Do they have a high dropout rate? Sometimes that can indicate a mental health climate problem. Do people openly and excitedly talk about their non-PhD, non-grad school lives in the program? Do they talk about how they go rock climbing? Is it encouraged to work out? Do people have the ability to flex their schedules based on how they’re feeling on any given day? Is the opportunity available for you to work remotely? And if people are struggling, do people feel comfortable asking for help around those areas?

24:29 Katy: It can be really difficult to find that out on a prospective visit or even from an email as you’re evaluating, as you’re not a student. But it can be very important to find ways to ask that question. So some of the questions that I have asked to get around the mental health climate without directly saying, does your faculty support or not support the idea of graduate students having robust mental health resources and support, are to ask things like, do people feel comfortable talking about their personal lives? Do any graduate students have different family structures? Do graduate students have kids? Is anybody a parent? Is anyone a caretaker? What kind of relationships do people have? And are those things supported? Another great question to ask are how are the boundaries around breaks? One of the sure fire tells of a department that has a kind of problematic culture around mental health is that students either don’t feel comfortable taking breaks or they only take them in between the semester when their grading is finished or when the university is otherwise shut down. So ask graduate students, you know, what are the PI’s policies around weekends and evening work? What are the policies if you need to go home unexpectedly or if you’re not from here? Is it flexible enough for you to work remotely if you need to? Are there opportunities for graduate students to tweak the conditions of their work in order to best support themselves?

26:02 Katy: It can be really hard to ask those questions and it definitely can be worrying to say, I want to know what these resources are in advance because some graduate students might feel like that makes them seem like they’re already a problem and they’re not even there. So I would embolden you and encourage you to ask as many questions as you feel comfortable, but know that there are always ways to build support around yourself, whether that is through what the university provides or supplementing it from an outside perspective or place. I’m wishing you a happy new year. And again, my name is Katy Paplin. I am the founder of thrive PhD. You can find me on Twitter or Instagram @ThrivePhD or thrive-phd.com

Mental Health with Ms. Susanna Harris

26:58 Susanna: Hi everyone. My name is Susanna Harris and I am a PhD candidate at the University of North Carolina in Chapel Hill. I am also the founder and CEO of the PhD Balance. PhD Balance is an online community dedicated to talking about those difficult challenges and problems we face while we’re in our graduate programs. I founded this group because we really wanted to make a space to talk about certain things like dealing with difficult advisers or understanding what to do after graduation, but most importantly we wanted to talk about the struggles that students have with their mental health and with dealing with mental illness throughout their programs. I really care about this because I myself have depression and anxiety and I realized that a lot of other people around me did as well, but we just didn’t talk about it.

27:48 Susanna: For this reason, I think it’s really important to look at graduate programs and understand how they will support students’ mental health. You can get a good idea of this based on what kind of resources they have, as in, can you go to campus health? How long does it take to get an appointment? What kind of treatments are covered and can you see a therapist outside of those treatment options? This might include how does the department respond to when there is a mental health crisis or when a student divulges to someone that they are struggling with some sort of mental illness. You can even understand what is the culture surrounding the discussion of mental illness. Does the department actively provide resources? Will the lab group that you’re joining be open and accepting of someone having a difficult time? Does the university provide mental health days or access to other kinds of literature? This is really important because although a lot of us, myself included, go into graduate school thinking we are prepared and we will somehow get through it faster and easier than the average, we have to remember that the average is made up of people just like us and I’ve quickly realized that the challenges I faced in the PhD were just as hard as people before me had said.

29:06 Susanna: So what are the best ways to go about seeing if your new program or your new lab will take care of your mental health, no matter what kind of challenges arise? The best way to do this is to just ask people directly. Say, “this is something that is commonly talked about. I know that others have expressed difficulties with dealing with their mental health. How does it work in where you are?” It’s better to ask things about how or what or when rather than just asking, “is the mental health culture good or is mental health supported?” You can ask things like what has happened in the past when someone has talked about these things or you can say, are you aware of what resources there are and can you show me where to find them? Even understanding if a faculty member or a lab member or department has or knows about these resources tells you a lot about how important this topic is to them.

29:57 Susanna: If you want to understand more about my perspective, you can find me on Instagram and Twitter at @SusannaLHarris and I would love for you to check out PhD Balance. We have a website that’s www.phdbalance.com or you can follow us on Twitter and Instagram to hear other people’s stories of dealing with these really hard challenges in graduate schools and sharing resources about how to get through a program. That’s at @PhD_balance. So thank you so much. Bye.

Work-Life Balance with Dr. Katie Wedemeyer-Strombel

30:39 Katie: Hi, I’m Dr. Katie Wedemeyer-Strombel and if you follow me on Twitter it will be no surprise that I’m here to talk about the importance of considering work-life balance when choosing a PhD program. This is a subject I’m passionate about because I chose a PhD program without considering things like departmental culture and the recreational opportunities in the area. Both of these ended up being a pretty bad fit for me and in hindsight I wish I would have more strongly considered the nonacademic factors as seriously as I considered the academic ones. As a PhD student, it’s very easy to lose yourself to your program, to your work, and it’s critical that you’re able to rest and recreate regularly in ways that fuel you. As I say frequently, rest is not just a reward for hard work, but a critical component to working hard. Making sure that the university you attend and the surrounding area can provide enough resources for your well-rounded life and interests is important.

31:33 Katie: When you become a PhD student, generally you will work for the university as a teaching or research assistant in addition to conducting your own research and while will take up a lot of your time and energy, it should not and does not have to be all that you are. You are allowed to be a whole person, not just a research robot and finding a departmental culture and location that fit your interests is important.

31:57 Katie: Let’s first talk about departmental culture. What do I mean by this? Let’s say for example, if you don’t drink alcohol but learn that a department you’re considering regularly encourages binge drinking as a reward for working hard, then perhaps that’s not a great fit for you. If it’s important for you to see your family for certain holidays, make sure that the department you’ll be joining encourages or at the very least does not reprimand students for taking time to spend with loved ones.

32:25 Katie: Now about location of the program. This is something, again, I mistakenly did not consider when choosing my program and it made falling into the bad habits of overwork and over-drinking too easy, as my usual hobbies and recreational activities were hard to come by in the area. For example, do you like to hike and camp? Then a university in a flat state with few nature exploration opportunities may not be a good fit. Do you enjoy seeing or performing in live theater? Google the area and make sure there’s an outlet for this nearby. Does seeing the ocean or other body of water help calm you down when you’re stressed out? If so, maybe only consider schools that have natural features that fit these needs.

33:04 Katie: So how can you look into the work life balance factors as a perspective student? Well, the best thing you can do is ask current students in the department, preferably over the phone or in person, questions about the local culture within the department and the recreational opportunities nearby. Preferably, you’ll be able to talk to this current students over the phone or in person, and I specifically recommend asking over the phone or in person so that the current students will feel more open to answering honestly, as they don’t have a written record of their answers. If you are unable to ask in person, say on a recruiting trip, you can email and ask for a quick phone call. In my experience as both the perspective student and the current student in this scenario, most folks are happy to chat and share their own experiences. Some questions that I recommend asking are: are current students able to comfortably take time to spend with loved ones? Can they travel for holidays? Are they encouraged or reprimanded for working reasonable hours and taking time away when needed? What do they do for fun that’s not related to their work? What do they like most about the location of their program? And what do they like most about the departmental culture that they’re in? If you’re a minority, I’d also recommend asking others who share similar backgrounds with you if they feel that their way of life feels welcomed and safe within their department and local culture. And one of the most important questions I think you can ask is if the current student would choose the same program again, knowing what they know now about it.

32:42 Katie: So now that you’ve talked with the current students about the departmental culture and the location of the university, what do you do with this information? Seriously consider their answers and allow those answers to help you decide between programs. If you get an off feeling from a program’s culture or worry that you won’t be able to do your favorite hobby, trust your gut and find a program that best suits your needs, both the academic and your personal work life balance needs. As my amazing advisor, Dr. Tarla Rai Peterson once told me, “We are all better off when we give ourselves permission to know one another as whole people.” Your PhD research is going to be important, but who you are as a person is even more important and I encourage you to consider your own personal needs in addition to your academic ones in choosing a program. For more on work life balance as a graduate student, you can read some articles I have in the Chronicle of Higher Education or follow me on Twitter at @krwedermeyer. Thanks for listening and best of luck as you choose your program.

Outtro

35:58 Emily R.: It’s Emily again as we close out this episode. I’d like to emphasize two themes I heard from the contributors. First, grad school is your real life. It’s not reasonable to try to ignore or suppress your personal life or what makes you happy and healthy for the five or so years you’ll spend in your PhD program. Choose a PhD program that enables you to live a full life and succeed academically. Second, you can find a good amount of information online, but nothing can replace personal real time conversations with current graduate students. The best time and place for those conversations, and your other observations, is during campus visits. I encourage you to attend as many of those as you possibly can and participate in them fully, asking all the questions the contributors suggested in this episode. You can follow up over the phone, as needed, as decision day approaches. I wish you all the best in choosing the PhD program that will foster both your professional and personal development. Please share this episode with all of the prospective PhD students in your life.

37:12 Emily R.: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio

Weird Tax Situations for Fellowship and Training Grant Recipients

February 20, 2019 by Emily 27 Comments

One of the most puzzling tax scenarios that is common in academia but almost unheard of outside of it is fellowship or training grant funding because it neither a wage nor self-employment income. Fellowships and training grants, which I call “awarded income” frequently pay the stipends and salaries of grad students and postdocs, but also apply to some other kinds of trainees that aren’t considered students or called postdocs. This post explains the weird tax situations for fellowship recipients and how to resolve them. I’ll clarify right up front that you do need to incorporate your fellowship income into the gross income you report on your tax return, and you almost certainly will end up paying tax on it (unless your total income is very low or you have lots of other deductions/credits).

Further reading/viewing:

I have to define my terms up front here because “fellowship” is used variously inside and outside of academic research, and these weird tax situations don’t always apply. What I’m talking about is when your income from your academic/research role is not reported on a Form W-2 (and you’re not self-employed).

Often, though not always, winning an external or internal fellowship generates this kind of income. The NSF GRFP and DoD NDSEG are probably the most well-known examples of this type of income at the graduate level for STEM fields. Basically, you’re being paid because you won an award, not because you are directly trading work or time for money. This kind of income can come from training grants and other kinds of grants as well as fellowships, and in those cases you might or might not be labeled a fellow.

If your income is reported on a Form W-2, whether it’s called a fellowship or not, this post doesn’t apply to you!

Personally, over my time in/near academia, I received awarded income on five occasions:

I was postbaccalaureate fellow at the NIH for a year between undergrad and grad school, and my income was reported on a 1099-G.
I was on a training grant in my first year of grad school, and my income was reported on a 1099-MISC in Box 3.
I won an internal fellowship for my second year of grad school, and my income was reported on a 1099-MISC in Box 3.
I was paid from my advisor’s discretionary funds in my sixth year of grad school, and my income was reported on a 1099-MISC in Box 3.
I was a Christine Mirzayan Science and Technology Policy Fellow at the National Academy of Engineering, and my income was reported on a 1099-MISC in Box 3.

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Receiving Unusual Tax Forms

The way to definitively tell that you’re receiving awarded income is that you don’t receive a Form W-2 at tax time for your income, which was likely paid similarly to a regular salary or perhaps in a lump sum per term. Instead, you might see your income reported on some other strange tax form:

Form 1098-T
Form 1099-MISC

There are other possible mechanism for this reporting; these are the two most commonly used within universities.

Neither of these forms was designed for reporting awarded income; neither does it very well, but they do get the job done if you know what you’re looking for.

Form 1098-T

Form 1098-T, which is issued to some students depending on your university’s policies, is sort of a clearinghouse form for the sum of your fellowships/scholarships/grants received (in Box 5) and also the sum of the qualified tuition and related expenses that were paid (Box 1) to your student account. Your fellowship income might be lumped in with your scholarships in Box 5, which makes them a little hard to parse, or Box 5 might only include your scholarships (see next section if so).

The good thing about Form 1098-T if it includes your fellowship income is that it does put front and center two of the important numbers you’ll need to work with when you prepare your tax return, the sum of your awarded (fellowship, scholarship, and grant) income (Box 5) and a subset of your Qualified Education Expenses (Box 1). You don’t really need to know what your fellowship income was independent of your additional scholarship/grant income See Weird Tax Situations for Fully Funded Grad Students for more details about working with Form 1098-T.

Form 1099-MISC

Form 1099-MISC is a super confusing form to receive for fellowship income.

First, any non-academic who hears/sees that you have income reported on a 1099-MISC is going to think you’re self-employed. Self-employment/contractor income is the most common usage for the 1099-MISC, but that income is reported in Box 7. Fellowship income usually shows up in Box 3, “Other income,” although occasionally it does show up in Box 7. If you are a grad student or postdoc, you are not self-employed; do not pay self-employment tax!

Further reading: Grad Student Tax Lie #2: You Received a 1099-MISC; You Are Self-Employed

Second, the instructions for the 1099-MISC tell you to (“generally”) report your Box 3 “Other income” in the “Other income” line on your Form 1040 Schedule 1 Line 21. You can do it that way and your tax calculation will turn out correctly in a lot of situations, but it’s more correct to report the income explicitly as fellowship/scholarship income. 1099-MISC Box 7 income that is definitely fellowship income should be reported as fellowship instead of as self-employment. In both of these cases, it’s less confusing for the IRS and will possibly enable you to take more educational tax breaks.

Further reading:

Receiving No Tax Forms

Going along with the theme of not receiving a Form W-2 at tax time, you might very well not receive any tax form at all! It’s very common for there to be zero communication between the organization that pays the fellowship and the fellowship recipient. Other times, the fellow might receive what I call a “courtesy letter,” which is just a short, informal letter stating the amount of fellowship money paid.

Further reading: What Is a Courtesy Letter?

Fellows who don’t receive tax forms or whose universities/institutions don’t communicate with them at all about their personal taxes may feel completely adrift. They have no idea where to even start with preparing their tax returns. Many pay no taxes at all (if you know someone like that, send them this article!) since it takes a certain level of awareness of your tax responsibility to even wonder if you need to pay income tax. Even those who suspect they need to report and pay tax on their fellowship income might be daunted by the task of figuring out from scratch exactly how to do that.

Further listening: Do I Owe Income Tax on My Fellowship?

But it’s really a simple process to carry out if you know what to do! You should be able to find the amount of fellowship income you were paid for the whole year from your bank records. If you’re not a student, you just straight report that number in Form 1040 Line 1 with “SCH” written next to it. If you are a student, you have to work with your other scholarships and qualified education expenses a bit before reporting a number for your awarded income; see Weird Tax Situations for Fully Funded Grad Students for more details on that.

Further reading: Where to Report Your PhD Trainee Income on Your Tax Return

Quarterly Estimated Tax

In my observation, most fellowship recipients have the responsibility of paying quarterly estimated tax, and many, many, many neglect to do so. If you need one level of awareness to even understand you’re supposed to pay tax on your fellowship income, you need an even higher level of awareness before you follow through on paying quarterly estimated tax. In fact, if the organization providing you the fellowship didn’t mention this, it’s not a water cooler topic around your department, and/or you’ve never been self-employed, you almost certainly wouldn’t know to do it.

The basic principle here is that the IRS expects to receive tax payments throughout the year, not just in April when your tax return is due. If you owe enough additional tax at the end of the year (and don’t qualify for an exception), the IRS is going to demand not only your tax payment but late fees and interest as well.

The main system for sending tax in to the IRS is tax withholding on a normal paycheck. If you don’t do that or your withholding isn’t sufficient, you’re supposed to file quarterly estimated tax. Basically, you send in a payment (no forms need to be filed) to the IRS four times per year to make sure you don’t have too much extra tax due when you file your yearly tax return. You should work through the estimated tax worksheet in Form 1040-ES to figure out if you are required to pay quarterly estimated tax and in what amount; you can also find the instructions for filing it in that form.

Further reading: The Complete Guide to Quarterly Estimated Tax for Fellowship Recipients

Taxable Compensation and Earned Income Tax Breaks

Some of the tax breaks the IRS offers are contingent on the type of income you have, and fellowship income (not reported on From W-2) does not necessarily qualify.

Individual Retirement Arrangement

To contribute to an Individual Retirement Arrangement (IRA), you (or your spouse) must have “taxable compensation.”

Through 2019, the definition of “taxable compensation” did not include fellowship and training grant income not reported on Form W-2. However, starting in 2020, the definition of “taxable compensation” changed for graduate students and postdocs to include fellowship and training grant income even if not reported on From W-2.

Therefore, all types of graduate student and postdoc taxable income, whether reported on a Form W-2 or not, is eligible to be contributed to an IRA starting in 2020.

Further reading:

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) or Earned Income Credit (EIC) is a credit extended to low-income individuals and families. If your household income is quite low and/or you have one or more children, you might be able to receive the credit. As the name implies, you need “earned income” to qualify for the EITC. Unfortunately, fellowship/scholarship income is not considered “earned income” (Publication 596 p. 18). Puzzlingly, having zero earned income disqualifies you from the credit, but having too much non-earned income also disqualifies you from the credit. The definition of earned income also plays into the calculations for the Child Tax Credit and Additional Child Tax Credit.

Further reading: Grad Student Tax Lie #8: You Can Claim the Earned Income Tax Credit

Dependent Status

When you are trying to determine if you should file a tax return as an independent adult vs. a dependent of your parents, it is more difficult to qualify as independent with fellowship income rather than an equal amount of W-2 income. (This only applies to students under age 24.) While education expenses count as part of the amount of money that goes toward your “support,” scholarships and fellowships that you won do not count as you providing your own support.

Kiddie Tax

Fellowship income counts as unearned income for the purposes of being subject to the Kiddie Tax. If you are under the age of 24 on December 31 and a student, your “unearned” income exceeding $2,200 may be subject to a higher tax rate than the ordinary rate.

Further reading: Fellowship Income Can Trigger the Kiddie Tax

What other weird tax situations have you encountered due to your fellowship or training grant income?

Weird Tax Situations for Fully Funded Grad Students

February 20, 2019 by Emily 21 Comments

“Actually, I get paid to go to school.” How many times have you said that to distant relatives and new acquaintances? If you look at it that way, being a funded grad student is a pretty sweet gig. But there are definitely downsides, like the low pay, sub-par benefits, and the weird tax situations that come with getting paid to be a grad student in the US. Receiving a 1098-T that has seemingly no basis in reality and having to incorporate it into your tax return – or worse, not receiving one – can become a real time- and energy-suck. The whole tax return support system seems to have been set up to help people who are in the red with their universities, not people who are in the black. Fortunately, there are solutions to these weird tax situations for fully funded grad students, and I’ve brought them to light for you in this point.

The points covered in this post are strictly to do with being a funded graduate student at a university.

Further reading:

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You Might or Might Not Receive a 1098-T

Form 1098-T looks like a super official tax form, rather like Form W-2. However, I like to think of it as a communication between the university and the IRS that you, the grad student, have only been cc’d on. It’s not issued to help you properly report your income to the IRS. Its primary purpose is to let the IRS know that a student (or a student’s parents) might try to take an education tax break so that it can check the amount of the tax break claimed.

But fully funded grad students often do not claim net educational tax breaks. And if a tax break isn’t in order, it’s actually optional for the universities to even create a 1098-T for a student. So as a fully funded graduate student, you might receive a 1098-T or you might not; the choice belongs to your university.

Further reading: What Is a 1098-T?

Your 1098-T Might Mislead You

The only thing worse than not receiving a 1098-T is receiving one that is misleading.

Further reading: Form 1098-T: Still Causing Trouble for Funded Graduate Students

When a 1098-T is issued, it is supposed to contain all of the scholarships and grants that were processed through the graduate student’s account (Box 5) as well as the payments received (Box 1) for qualified tuition and related expenses. If Box 1 is greater than Box 5, an education tax break is likely in order, and if Box 5 is greater than Box 1, you may have some excess income to report.

Box 7

But wait! It’s not always that simple. See Box 7? If that is checked, we’ve run into a calendar year/academic year issue. Sometimes the tuition, etc. for a winter or spring semester/trimester (beginning in January through March) is charged in or before December of the prior year.

However, are the corresponding scholarships that pay those charges posted at the same time? They are supposed to be since Form 1098-T’s update for 2018, but in actuality some might be posted in that January to March window. In that case, the charges end up on the 1098-T for one calendar year while the corresponding scholarships end up on the 1098-T for the subsequent calendar year.

It’s not a good idea to take a tax break in one year only to have to pay a boatload of extra tax in the next year. The solution is to pair the charge with the scholarship that is earmarked for it. You do this by pulling the charge forward into the calendar year when the scholarship shows up.

Let Box 7 be a warning to you that you should double-check in which calendar year the charges and payments show up.

Box 1

In addition, your 1098-T might not list in Box 1 all the qualified education expenses you are eligible to claim… More on that later!

If You Have Scholarships and Qualified Education Expenses, You Can Choose between a Deduction and a Credit

When you have qualified education expenses such as tuition, you get to use them for some kind of tax break. That’s good news. The bad or at least complicating news is that you have to make a choice about how to use them. With some limitations, you get to choose being using them for a deduction and using them for a credit.

A quick review on deductions vs. credits: Deductions reduce your taxable income, while credits reduce your tax due.

How much a credit is worth to you is pretty easy to calculate. If it’s a $1,000 credit, you knock $1,000 off your tax due. (Be a bit careful because some credits are non-refundable, meaning that they stop working when your tax due hits $0.) If it’s a 20% credit for up to $1,000, if you take the full credit you’re knocking $200 off your tax.

How much a deduction is worth to you depends on your marginal tax rate. You have to multiply the amount of the deduction by your top marginal tax rate (or two tax rates, if the deduction makes you cross tax brackets). If your top tax bracket is the 10% tax bracket, a $2,000 deduction takes $200 off your federal tax due. You also should factor in your state marginal tax bracket if your state honors the deduction.

Further reading: Marginal Tax Brackets, Deductions, and Credits Explained Graphically

With your qualified education expenses, at the graduate level you will choose between ways to use them to reduce your tax burden, and ultimately you may use both. (I’m leaving out some limitations such as what qualifies as an educational institution, income ceilings, and what the scholarships can be used for, so look those up before you make a final decision.) You can:

Make some or all of your scholarship/grant income tax-free (i.e., take a deduction), or
Use the Lifetime Learning Credit (20% credit up to $10,000 for tax year 2017).

Please note that you can’t use the same qualified education expenses for more than one tax break.

You can find a complete discussion of how to choose among these three educational tax benefits in How to Prepare Your Grad Student Tax Return.

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You Have to Figure Out Your Own Qualified Education Expenses

Oh, and did I mention yet that the definition of a Qualified Education Expense is slightly different depending on the tax break you’re trying to take? Yeah, that’s another weird tax situation for fully funded grad students.

IRS Publication 970 p. 4:

“Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses aren’t necessarily allowed for each benefit.”

Tuition is considered a qualified education expense for both of the education tax benefits I listed above, but some additional expenses sometimes qualify, such as required fees and course-related expenses, e.g., books and supplies. These types of expenses might or might not appear on your 1098-T in Box 1. You should refer to Publication 970 for the full definitions of qualified education expenses under the three different education benefits.

Further reading: What Are Qualified Education Expenses?

One controversial point is whether your student health insurance premium is a required fee/qualified education expense for the purpose of making the scholarship that pays it tax-free. Insurance and student health fees, along with some other expenses, are explicitly disallowed as qualified education expenses for the Lifetime Learning Credit, but not for making scholarships tax-free.

You Have to Report Excess Scholarship Income

Funded graduate students with net fellowship/scholarship income have to report it on their tax returns. This is a weird tax situation because it’s uncommon at the undergraduate level, so many people, even professional tax preparers, don’t know that you’re supposed to do it. But now that you know, it’s actually quite easy to do.

You report your net scholarship/fellowship income in the same line on your tax return as you report your wages, e.g., Form 1040 Line 1. You also need to print SCH next to the line so the IRS knows part or all of your income is not reported on your W-2.

Further reading: Where to Report Your PhD Trainee Income on Your Tax Return

You Might or Might Not Be a Dependent of Your Parents

Because graduate students are students, they might be considered dependents of their parents (or another relative) for tax purposes. Many parents (and their tax preparers) try to claim their children as dependents without referencing the relevant definitions. If your parents assume you are a dependent but you believe you are not, together you can go through the definition carefully to make the final determination.

The conditions for being considered a dependent of your parent are:

You are age 23 or younger at the end of the calendar year.
You were enrolled as a student in at least 5 calendar months (doesn’t have to be consecutive).
You lived with your parents for at least half the year (being away for educational reasons can count as living with them).
You are not filing a joint return (with a caveat).
You must meet the “Support Test”: You did not provide more than half of your own support in the calendar year (see Publication 17 Worksheet 3-1).

For any years that the first three points above apply to you, you should fill out the Support Test to determine if you provided enough of your own support to qualify as independent. Keep in mind that education expenses count as “support” that you needed, but scholarships and fellowships that paid that support don’t count as being provided by you, the student.

You’re (Mostly) Not Paying FICA Tax

FICA (Social Security and Medicare) taxes seem like an unavoidable burden for employees and self-employed people. But even if you’re an employee of your university/graduate school (i.e., you receive a W-2 at tax time), you’re most likely not paying FICA tax because you have a student exemption. This exemption depends on both the primary function of the organization that employs you (i.e., educational) and your primary relationship with the organization (i.e., as a student rather than an employee).

The student exemption is almost universal for graduate students, but I have come across two exceptions that depend heavily on the exact wording of the exemption:

1) Graduate students at research institutions that are not primarily universities might not receive the exemption.

2) Graduate students, even at universities, whose primary relationship with their employer is as an employee rather than a student may pay FICA tax. For example, this might occur during the summer vs. during the academic year, and could happen without the student even perceiving a difference in roles. (This is not common; I’ve seen one example and it was for a senior graduate student at a public university.)

Graduate students receiving fellowships also do not pay FICA tax, but that is because they are not receiving wages rather than due to their student status.

You Cannot Take the Saver’s Credit

The Saver’s Credit is a very valuable credit that low-income earners can take if they contribute to a retirement account, such as an IRA. However, full-time students are not eligible for the credit.

Yes, there are a lot of weird tax situations for fully funded grad students. You have to do a bit of legwork instead of just blindly entering numbers from your 1098-T into tax software or ignoring your excess scholarship income. But if you break the issues down one by one, it’s actually straightforward to determine how to resolve them.

How to Prepare Your Grad Student Tax Return (Tax Year 2020)

January 24, 2019 by Emily 18 Comments

It’s common for funded graduate students to be a bit intimidated by preparing their own tax returns, particularly if they are inexperienced in doing so. The sources of PhD student funding, namely fellowship stipends and the scholarships or waivers that pay tuition and fees, are rather unusual, so most people and even most professional tax preparers don’t have any experience with them. The strategies that apply for undergraduate-level taxes are pretty different from those that apply for graduate-level taxes. But learning how to prepare your grad student tax return isn’t actually difficult, nor are the resulting steps complicated. There’s no reason to be intimidated! This post covers the essential points you need to know to prepare your grad student tax return, whether you do it manually, with tax software, or with the help of another person.

This post is for tax year 2020. This post only covers federal tax due for graduate students in the United States who are citizens or residents for tax purposes; you may have additional state and local tax due. I am detailing only the aspects of preparing your grad student tax return that are specific to higher education; I am not covering more general tax information that applies to the population at large.

This post is for educational purposes only and does not constitute tax advice. It was last updated on 4/5/2021.

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Table of Contents (Links)

Preliminary Remarks
Collect All Your Income Sources
Categorize Your Income
Decide Which Education Tax Benefit(s) to Use on Your Grad Student Tax Return
Fill Out Your Grad Student Tax Return
Other Education Tax Benefits
If You Were Under Age 24
Conclusion

Preliminary Remarks

This post is a step-by-step guide on how to prepare your grad student tax return. I want to clear up some confusion right up front so that you can work your way through the guide without becoming sidetracked.

All of your income is potentially taxable. The purpose of your tax return is to show that you don’t have to pay tax on all of it. What graduate students don’t often realize is that they have income sources aside from the one(s) that hits their bank accounts or is reported on an official tax document, and they need to deal with those incomes on their tax returns.

You have your stipend/salary that serves as your take-home pay; this is potentially taxable, even if you don’t receive an official tax form about it and you didn’t have any taxes withheld. In fact, I’ll say you’re very likely to end up owing tax on it unless it’s quite low and/or you have a lot of tax deductions and/or credits.

You also have another kind of potentially taxable income if you are funded: the money that pays your tuition and fees. Your university might refer to this as scholarships, waivers, remissions, etc. Even if this money never passes through your personal bank account, it does pass through your name via your student account, which makes it potentially taxable to you as an individual. There is a very high chance you can use an education tax benefit to reduce your taxable income and/or reduce your tax due, but you have to sit down and do the arithmetic on it, not just assume that you won’t owe any tax on it. (In fact, doing the arithmetic may very well help you pay even less tax than if you ignored it!) This guide shows you exactly how to do that.

Further reading:

This article includes publicly available information on taxes for students and fellowship recipients, largely derived from IRS Publication 970 and my examinations of the tax policies of many universities across the US.

If you want a more in-depth and intuitive presentation of this material, designed for you to prepare your tax return as you go through it, that includes my interpretations of the tricky IRS language and the insight I gained from hiring a CPA to research grad student taxes…

Please consider joining my tax workshop. It comprises pre-recorded videos, worksheets, and live Q&A calls with me.

Click here to learn more about the grad student tax return workshop.

Collect All Your Income Sources

The first step to prepare your grad student tax return, and any tax return, is to collect all your income sources. These income sources include wages as well as non-wage income such as interest and investment income and self-employment income, but does not include loan disbursements.

With respect to your grad student status, you have income sources that are unusual and may be officially reported to you or not (so check for all of them):

Your employee income for your stipend or salary will be reported to you on a W-2. This typically comes from a teaching assistantship, research assistantship, or graduate assistantship.
Your awarded income that pays your stipend or salary may be reported to you on a 1098-T in Box 5, on a 1099-MISC in Box 3, on a Form 1099-NEC in Box 1, on a courtesy letter, or not at all. Awarded income typically comes from fellowships, training grants, and awards. If your university does not send you any documentation of your fellowship income for 2020, you have to sum all the payments you received to figure out what it was.
Your awarded income that pays your education expenses may be reported to you on a 1098-T in Box 5 or not at all. Awarded income typically comes from scholarships, waivers, remissions, reductions, and awards. If you did not receive a 1098-T from your university, you should look at the transactions in your student account (e.g., Bursar’s account, Cashier’s account) to see the money posted there on your behalf.

Your university may not use the exact terminology that I did, but the tax forms and documentation (or lack thereof) will help you differentiate among the three types.

Further reading:

At this stage, you may be thinking that the total of all this income is way too high. There’s no way you want to pay tax on all this income! Stick with me: We are going to reduce either your taxable income or your tax due in a subsequent step. But for now, work with all of your incomes.

Would you like the opportunity to ask me a question about your tax situation? I hold monthly live Q&A calls throughout tax season for my workshop participants!

Click here to learn more about the tax return workshop.

Categorize Your Income

Your grad student income (assistantship pay, fellowships, scholarships, etc.) falls into two broad categories: employee income and awarded income.

Employee income is easy to define, as you will receive a W-2 for it.

Awarded income is best defined as any grad student-related income that is reported somewhere other than a W-2 or not reported. According to the IRS, it is “various types of educational assistance you may receive if you are studying, teaching, or researching in the United States… includ[ing] scholarships, fellowship grants, need-based education grants, qualified tuition reductions” (Publication 970 p. 5), but the way the IRS uses those terms doesn’t completely match how we use the terms in academia.

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Decide Which Education Tax Benefit(s) to Use on Your Grad Student Tax Return

For tax year 2020, there are two* relevant education tax benefits that you can access to reduce your tax burden: making awarded income tax-free and the Lifetime Learning Credit.

You use your qualified education expenses (QEEs) to take a deduction (by either making your awarded income tax-free) or take a credit (by taking the Lifetime Learning Credit). A tax deduction reduces your taxable income, while a tax credit reduces your tax due directly. You can apply either one or both of these benefits, but you have to use different QEE dollars.

(* There are two more education tax benefits, the American Opportunity Tax Credit and the Tuition and Fees Deduction, which are each beneficial for a very small percentage of graduate students. See the section at the end of the article for more details on these two benefits and whether they might apply to you.)

Qualified Education Expenses

The definition of a QEE changes slightly for each tax benefit. From Publication 970 p. 4:

Tuition at an eligible education institution is a QEE for both tax benefits (although to make awarded income tax-free you have to be a degree candidate). “Required fees” are QEEs for making awarded income tax-free. The Lifetime Learning Credit uses the wording “the fees and expenses [that] must be paid to the institution for enrollment or attendance” to define a QEE. Other fees and expenses beyond tuition may be QEEs; you should refer to the definition of a QEE with respect to each benefit.

If you received a 1098-T from your university, Box 1 will contain the sum of the payments for your the “qualified tuition and related expenses” that were processed by the office at your university that prepared the form. You may have additional QEEs not reported on the Form 1098-T, because the qualified tuition and related expenses on Form 1098-T do not include “charges and fees for room, board, insurance, medical expenses (including student health fees), transportation, and similar personal, living, or family expenses” (Form 1098-T Instructions, p. 2)

Further reading: What Is a 1098-T?

Whether you received a 1098-T or not, you should examine the transactions in your student account to make the final determination about the qualified education expenses that were processed by that office.

You may have additional QEEs not reported on your 1098-T or in your student account, such as required course-related expenses (keep your receipts!).

It’s very worthwhile to examine the definition of a QEE because uncovering additional QEEs almost always translates to a lower tax liability.

Make Awarded Income Tax-Free

The awarded income that you receive can directly cancel against your QEEs to become tax-free. For example, if the tuition that you are charged and the scholarship or tuition reduction that pays it are exactly the same amount, they net to zero and you won’t be taxed on that portion of your awarded income. In fact, you don’t even have to show the IRS this calculation; you only have to report the portion of your awarded income that exceeds your QEEs.

The definition of a QEE to make awarded income tax-free is (excerpted from Publication 970 Chapter 1 p. 6):

Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:

Tuition and fees required to enroll at or attend an eligible educational institution; and
Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that don’t qualify. Qualified education expenses don’t include the cost of:

Room and board,
Travel,
Research,
Clerical help, or
Equipment and other expenses that aren’t required for enrollment in or attendance at an eligible educational institution.“

Further reading: Grad Student Tax Lie #3: You Can Deduct Tuition, Even If You Didn’t Pay It

Are you unsure whether one of your expenses is a “qualified education expense” to net against awarded income? In my tax workshop, I present the common higher education-related expenses that graduate students incur and tell you whether or not they are QEEs under each of the education tax benefits.

Click here to learn more about the tax return workshop.

Lifetime Learning Credit

The Lifetime Learning Credit reduces your tax burden and may be beneficial to apply if 1) your QEEs exceed your awarded income and/or 2) a 20% credit is more valuable to you than a deduction.

The Lifetime Learning Credit is a 20% credit; that means that if you use $1,000 in QEE expenses for the Lifetime Learning Credit, your tax due will be reduced by $200. There is a $10,000 limit on QEEs that can be used for the Lifetime Learning Credit, so the maximum benefit is $2,000 even if you have additional QEEs.

The modified adjust gross income phase-out for this deduction begins at $59,000 for a single person and $118,000 for a married couple filing jointly.

The definition of a QEE for the Lifetime Learning Credit is (excerpted from Publication 970 Chapter 3 p. 24-25, 29):

“Qualified Education Expenses

For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills.

Related expenses. Student activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance.

Expenses That Don’t Qualify

Qualified education expenses don’t include amounts paid for:

Insurance;
Medical expenses (including student health fees);
Room and board;
Transportation; or
Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.“

If you take the Lifetime Learning Credit, you must fill out and file Form 8863.

How to Decide Which Tax Benefit to Prioritize on Your Grad Student Tax Return

Do you remember how on multiple choice tests you are instructed to choose the “best” answer, not necessary the (one and only) “correct” answer? There are multiple acceptable ways to prepare your grad student tax return. At the end of the day, you can figure out the “best” answer—the one that results in the lowest tax burden for you—but it may very well take calculating your tax due with each of the different approaches. I do think it’s worth delving into the details of this decision, because may be possible to reduce your tax liability by as much as $800!

This section assumes that you are eligible for both of the education tax benefits (based on your income, the status of your educational institution, your student status, etc.); if you are ineligible for one or the other, that makes the decision all the easier. Please note that if you elect to apply the Lifetime Learning Credit when you could have made a scholarship tax-free using a matched QEE, that scholarship (by its terms) has to be eligible to be applied to a non-QEE. If a scholarship, for example, is earmarked only for paying a QEE such as tuition, then you must use your tuition QEE to make it tax-free; the scholarship cannot be included in taxable income and the QEE used for the Lifetime Learning Credit.

Essentially, you will choose which education tax benefit to apply first, tax-free scholarships and fellowships or the Lifetime Learning Credit. The one you apply first should be whichever minimizes your tax liability.

The following method will give you a first-pass indication of which benefit is better for you:

As tax-free scholarships and fellowships is a tax deduction, it is “worth” the amount of your QEEs or awarded income (whichever is lower) multiplied by the sum of your federal, state, and local marginal income tax brackets.

As the Lifetime Learning Credit is a credit, it is worth its face value, which is 20% of the QEEs you apply to it up to $10,000.

Ask yourself if the sum of your marginal tax brackets is more or less than 20%.

If the sum is greater than 20%, that indicates you should apply your QEEs first to make as much of your awarded income tax-free as possible. If you have any remaining QEEs, apply them to the Lifetime Learning Credit (up to $10,000 of QEEs).

If the sum is less than 20%, that indicates you should apply your QEEs first to the Lifetime Learning Credit (up to $10,000 of QEEs). If you have any remaining QEEs, use them to make as much of your awarded income pay tax-free as possible.

When in doubt, calculate your tax due under both methods. In some situations, the above rule of thumb will not indicate the correct method to minimize your tax burden. For example, with the Lifetime Learning Credit-first method, you report a higher income than you would have if you used the tax-free scholarships and fellowships method, which might make you ineligible for certain tax benefits on other parts of your return, e.g., the Earned Income Credit. It’s imperative to calculate not just your total federal tax due under each method but your state and local tax due as well. Not all states treat scholarships and fellowships as ordinary income, for example.

Are you intrigued by this LLC-first method and wondering if it is advantageous for you? I explain the eligibility, calculations, and downstream effects on your tax return in much more detail in my tax workshop.

Click here to learn more about the tax return workshop.

The Numbers You Need for Your Tax Return

Once you have decided how you would like to use your QEEs, you should bring a few numbers with you to enter into your federal tax return:

Your total amount of employee income (W-2 pay with respect to your grad student income),
Your net awarded income (after applying your QEEs to reduce it), and
The amount of your Lifetime Learning Credit (maximum $2,000) from Form 8863.

You now have an idea of the actions to take and decisions to make regarding your grad student tax return. I know it can seem overwhelming! I don’t want you to spend hours and hours feeling frustrated paging through IRS documentation or wrestling with tax software.

Commit a couple hours to taking my tax return workshop, feel confident and supported, and emerge with an accurate and minimized tax return!

Click here to learn more about the grad student tax return workshop.

Fill Out Your Grad Student Tax Return

With respect to your taxable grad student income, Lifetime Learning Credit, and tax already paid, how to report them on your tax return is very straightforward. Of course, you will fill out the rest of your tax return by following the form instructions; this section only relates to the grad student aspects of your return.

Report Your Income

Your employee income and net awarded income will be summed and reported as a single figure in the wages line of your tax return. (Add to this figure any other wages as well according to the form instructions.)

On Form 1040, you will write your income in Line 1. If your grad student income includes any awarded income, write “SCH” in the line next to the number. You may also include the amount of the net awarded income. The purpose of this note is to alert the IRS that there is no W-2 associated with all or part of the income reported on that line.

Further reading: Where to Report Your PhD Trainee Income on Your Tax Return

Report Your Lifetime Learning Credit

Report your Lifetime Learning Credit on Line 3 of Form 1040 Schedule 3; you will also file Form 8863. The amount of this credit will directly reduce your tax due.

Report Your Tax Already Paid

If you received a W-2 and/or 1099-MISC for part or all of your grad student income, you will enter the amount of federal tax that was withheld from your income in Line 25 of Form 1040.

Further reading: Grad Student Tax Lie #5: If Nothing Was Withheld, You Don’t Owe Any Tax

If you paid quarterly estimated tax on your fellowship income, report the total of the estimated tax payments you made in Line 26 of Form 1040.

Other Education Tax Benefits

I have omitted from detailed discussion two education tax benefits that you may be familiar with from past experiences preparing your tax return.

American Opportunity Tax Credit

The American Opportunity Tax Credit is typically used during the undergraduate years only. It can be claimed in only 4 tax years and not in any tax year after the one in which you finish your first four years of postsecondary education. Therefore, if you graduated from college in 2020 (in four years) and you (or your parents) claimed the American Opportunity Tax Credit in no more than 3 previous tax years (e.g., freshman spring/sophomore fall, sophomore spring/junior fall, and junior spring/senior fall but not freshman fall), you may be eligible to claim it in 2020.

The American Opportunity Tax Credit is the most valuable education tax benefit available, so if you are eligible for it, you will almost certainly want to use it to the greatest degree you can. It is a 100% credit on up to $2,000 of QEEs and a 25% credit on up to $2,000 of QEEs.

The definition of a QEE for the American Opportunity Tax Credit is distinct from the definition for other education tax benefits.

If you claim the American Opportunity Tax Credit, you cannot use the Lifetime Learning Credit or the Tuition and Fees Deduction. If you are considered a dependent on your parents’ tax return in 2020, you cannot claim the credit (your parents would).

To claim the American Opportunity Tax Credit, you need to fill out and file Form 8863.

Tuition and Fees Deduction

The Tuition and Fees Deduction is an above-the-line deduction worth up to $4,000 or $2,000 (depending on your income). As it a deduction with a low limit, you should only ever apply it after making as much of your scholarship and fellowship tax-free as possible.

The Tuition and Fees Deduction is potentially useful if:

Your qualified education expenses exceed your awarded income,
The sum of your federal, state, and local marginal tax rates exceeds 20%, and
Your modified adjusted gross income is below $80,000 if you are single and $160,000 if you are married filing jointly.

If all three of these criteria apply in your case, it may be advantageous for you to take the Tuition and Fees Deduction (instead of the Lifetime Learning Credit) after making as much of your scholarship and fellowship income tax-free as possible. However, the Lifetime Learning Credit might still be more advantageous because of its higher limit on the amount of QEEs you can apply to it. The definition of a QEE for the Tuition and Fees Deduction is identical to that of the Lifetime Learning Credit.

If you claim the Tuition and Fees Deduction, you cannot use the Lifetime Learning Credit or the American Opportunity Tax Credit.

To claim the Tuition and Fees Deduction, you need to fill out and file Form 8917.

Would you like the opportunity to ask me a question about your tax situation? I hold monthly live Q&A calls throughout tax season for my workshop participants!

Click here to learn more about the tax return workshop.

Receive Your Tax "Cheat Sheet"

Subscribe to the Personal Finance for PhDs mailing list for essential information to help funded US graduate students (citizens/residents) with their federal tax returns

If You Were Under Age 24

If you were age 23 or younger on December 31, 2020 and a full-time student for at least five months of the year, you may be subject to an alternative, higher tax known as the Kiddie Tax. This could be the case if your income was primary awarded income.

Further reading: Fellowship Income Can Trigger the Kiddie Tax

As a full-time student (for at least part of 5 calendar months) and under age 24, your parents (or another relative) might also be able to claim you as a dependent, though you will have to pass the ‘residency test’ and ‘support test.’

One entire video of my tax return workshop is devoted to the special tax considerations of graduate students under the age of 24. Please consider joining the workshop for much more details about the Kiddie Tax and dependency.

Click here to learn more about the tax return workshop.

Conclusion

The most challenging aspect of this process is simply knowing the various aspects that you have to consider. The most complicated aspect is deciding for which education benefit to use your QEEs, but you can always take the default option of prioritizing making your awarded income tax-free if you don’t want to do the extra calculations.

Best of luck to you as you prepare your grad student tax return this year! If you need additional support:

Please consider sharing this post with your peers through social media or a list-serv!

The First Step to Complete Your Grad Student Tax Return (2018)

January 9, 2019 by Emily Leave a Comment

There is one vital step grad students need to take when starting to prepare their tax returns. It’s a super simple step, but most often overlooked, and skipping it can lead to an inaccurate return or even overpaying tax. This is the step that you take before you start feeding any numbers to your 1040, your tax software, or your tax preparer, and it is to find and categorize all of your income sources (funded grad students have at least two!).

If you found this video insightful and you want to take the next step to completing your tax return – including one trick to reduce your tax due that your tax software or tax preparer can easily miss – register for my workshop, “How to Complete Your 2019 PhD Trainee Tax Return (and Understand It, Too!).”

grad students

Links Mentioned in This Episode

Teaser

Introduction

Will You Please Introduce Yourself Further?

What Role Did Your PhD Have in Starting Your Business?

Jim’s Entrepreneurship Journey

Relevant Technical Skills Gained During PhD

Inspiration While Working for the Democratic National Convention

How to Gain a Wide-Reaching Audience

Evolution of ShareProgress

Consulting as a Stage of Growth

San Francisco Venture Capital (VC) Environment

Current Role in the Business

Financial Independence and Early Retirement (FIRE) Movement

Business Advice for Early-Career PhDs

Advice #1: Talk to People

Advice #2: Find Your Focus

Commercial

Should Entrepreneurs Move to San Francisco?

Advocacy for Universal Basic Income

Small Business is the New “Big”

Changing Mindset Around Universal Basic Income

Outtro

Links Mentioned in This Episode

Introduction

Finances with Dr. Emily Roberts

Unionization and Advocacy with Mr. Kevin Bird

Unionization and Advocacy with Dr. Emily Myers

Career Development with Dr. Jennifer Polk

Mental Health with Dr. Katy Peplin

Mental Health with Ms. Susanna Harris

Work-Life Balance with Dr. Katie Wedemeyer-Strombel

Outtro

Receive Your Tax "Cheat Sheet"

Receiving Unusual Tax Forms

Form 1098-T

Form 1099-MISC

Receiving No Tax Forms

Quarterly Estimated Tax

Taxable Compensation and Earned Income Tax Breaks

Individual Retirement Arrangement

Earned Income Tax Credit

Dependent Status

Kiddie Tax

Receive Your Tax "Cheat Sheet"

You Might or Might Not Receive a 1098-T

Your 1098-T Might Mislead You

Box 7

Box 1

If You Have Scholarships and Qualified Education Expenses, You Can Choose between a Deduction and a Credit

Receive Your Tax "Cheat Sheet"

You Have to Figure Out Your Own Qualified Education Expenses

You Have to Report Excess Scholarship Income

You Might or Might Not Be a Dependent of Your Parents

You’re (Mostly) Not Paying FICA Tax

You Cannot Take the Saver’s Credit

Receive Your Tax "Cheat Sheet"

Table of Contents (Links)

Preliminary Remarks

Collect All Your Income Sources

Categorize Your Income

Receive Your Tax "Cheat Sheet"

Decide Which Education Tax Benefit(s) to Use on Your Grad Student Tax Return

Qualified Education Expenses

Make Awarded Income Tax-Free

Lifetime Learning Credit

How to Decide Which Tax Benefit to Prioritize on Your Grad Student Tax Return

The Numbers You Need for Your Tax Return

Fill Out Your Grad Student Tax Return

Report Your Income

Report Your Lifetime Learning Credit

Report Your Tax Already Paid

Other Education Tax Benefits

American Opportunity Tax Credit

Tuition and Fees Deduction

Receive Your Tax "Cheat Sheet"

If You Were Under Age 24

Conclusion

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