Personal Finance for PhDs

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Emily

Fellowship and Training Grant Tax Forms

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There is no single correct IRS tax form on which to report PhD trainee fellowship and training grant stipends and salaries. Universities and funding agencies take different approaches, which often confuses grad students, postdocs, and postbacs. This article shares the crowd-sourced information on how universities and funding agencies are reporting fellowship and training grant income.

Please contribute to this project by filling out this survey to have your tax form included in this article—and share the survey as well.

I have included the number of entries that I’ve received for each type of tax form.

Further reading:

Tax Year 2024 Survey Results

External Fellowships

National Institutes of Health (NIH)

Continuing Education Training Grant (T15)

The T15 has been reported on a:

  • Form 1098-T Box 5 (1 entry)

Intramural Research Program: Postdoctoral Research Training Award (IRTA)

The postdoc IRTA has been reported on a:

  • Form 1099-G in Box 6 (1 entry)

Ruth L. Kirschstein Institutional National Research Service Award (T32)

The T32 has been reported on a:

  • Courtesy letter (2 entries)
  • W-2 (1 entry)

Ruth L. Kirschstein Predoctoral Individual National Research Service Award (F31)

The F31 has been reported on a:

  • Form 1099-MISC Box 3 (2 entries)

It has also been not reported in any way (1 entry)

Linked Training Award (TL1)

The TL1 has not been reported in any way (1 entry)

National Science Foundation

Research and Mentoring for Postbaccalaureates in Biological Sciences (RaMP)

The RaMP has been reported on a:

  • Courtesy letter (1 entry)

Graduate Research Fellowships Program (GRFP)

The GRFP has been reported on a:

  • Form 1098-T Box 5 (2 entries)
  • Courtesy letter (1 entry)

It has also been not reported in any way (2 entries)

National Aeronautics and Space Administration

Future Investigators in NASA Earth and Space Science and Technology (FINESST)

The FINESST has been reported on a:

  • Form 1098-T Box 5 (1 entry)

It has also been not reported in any way (1 entry)

American Institute of Indian Studies

Junior Fellowship

The Junior Fellowship has not been reported in any way (1 entry)

National Institute for Occupational Safety and Health

Occupational Health Psychology Total Worker Program

The Occupational Health Psychology Total Worker Program funding has not been reported in any way (1 entry)

Internal Fellowships

Harvard University

Funding (stipend) for doctoral students still in coursework has not been reported in any way (1 entry – told to use paystub for reporting to IRS)

Northwestern University

The First-Year Fellowship was reported on a courtesy letter (1 entry – letter was requested by recipient).

Stanford University

Funding (stipend) for doctoral students has been reported on Form 1098-T Box 5 (1 entry).

University of Connecticut

The Jorgensen Fellowship has not been reported in any way (1 entry).

University of Pennsylvania

The Educational Fellowship has not been reported in any way (1 entry).

Vanderbilt University

Funding (stipend) for doctoral students has been reported on Form 1098-T Box 5 (1 entry).

Non-tuition scholarship awards (e.g., health insurance, health fee award) have been reported on Form 1098-T Box 5 (1 entry).

Tax Year 2023 Survey Results

External Fellowships

National Institutes of Health (NIH)

Dissertation Award (R36)

The R36 has not been reported in any way (1 entry).

Intramural Research Program: Postdoctoral Research Training Award (IRTA)

The postdoc IRTA has been reported on a:

  • Form 1099-NEC Box 1 (1 entry)

Ruth L. Kirschstein Institutional National Research Service Award (T32)

The T32 has been reported on a:

  • Form 1098-T Box 5 (3 entries)

It has also been not reported in any way (2 entries).

Ruth L. Kirschstein Predoctoral Individual National Research Service Award (F31)

The F31 has been reported on a:

  • Form 1098-T Box 5 (2 entries)
  • Form 1099-MISC Box 3 (1 entry)

National Science Foundation

Graduate Research Fellowships Program (GRFP)

The GRFP has been reported on a:

  • Form 1098-T Box 5 (2 entries)
  • Form W-2 (1 entry)

It has also been not reported in any way (1 entry).

Internal Fellowships

Harvard University

The Prize Fellowship has not been reported in any way (1 entry).

Mayo Clinic Graduate School of Biomedical Sciences

Funding (stipend) for doctoral students has been reported on Form 1099-MISC Box 3 (1 entry).

Ohio State University

The Presidential Fellowship has not been reported in any way (1 entry).

Smithsonian Institution

The postdoctoral Smithsonian Institution Fellowship Program (SIFP) has not been reported in any way (1 entry).

University of Nevada, Reno

The Bilinski Fellowship has been reported on Form 1098-T Box 5 (1 entry).

University of Virginia

The Diversity, Equity, and Inclusion Dean’s Doctoral Fellowship has not been reported in any way (1 entry).

A graduate research assistantship position has not been reported in any way (1 entry).

The Raven Fellowship has been reported on Form 1099-MISC Box 3 (1 entry).

Tax Year 2021 Survey Results

National Institutes of Health (NIH)

Ruth L. Kirschstein Institutional National Research Service Award (T32)

The T32 has been reported on a:

  • Form 1098-T in Box 5 (5 entries)
  • Courtesy letter (3 entries)

It has also been not reported in any way (3 entries).

Ruth L. Kirschstein Individual Predoctoral NRSA for MD/PhD and other Dual Degree Fellowships (F30)

The F30 has been reported on a:

  • Form 1098-T in Box 5 + Form W-2 in Box 14 (1 entry)

Ruth L. Kirschstein Predoctoral Individual National Research Service Award (F31)

The F31 has been reported on a:

  • Form 1098-T in Box 5 (2 entries)
  • Form W-2 in Box 1 (1 entry)

It has also been not reported in any way (1 entry).

Ruth L. Kirschstein Postdoctoral Individual National Research Service Award (F32)

The F32 has been not reported in any way (1 entry).

Individual Predoctoral to Postdoctoral Fellow Transition Award (F99/K00)

The F99/K00 has been not reported in any way (1 entry).

Intramural Research Program: Postdoctoral Research Training Award (IRTA)

The postdoc IRTA has been reported on a:

  • Form 1099-G in Box 6 (1 entry)

NIH Oxford-Cambridge Scholars Program

The Oxford-Cambridge Scholarship has been reported on a:

  • Form 1099-G in Box 6 (1 entry)

National Center for Advancing Translational Sciences Clinical and Translational Science Awards (CTSA) Program TL1

The CTSA TL1 has been reported on a:

  • Form 1099-MISC in Box 3 (2 entries)

Clinical Connections-Connecticut (CNC-CT)

The CNC-CT has been not reported in any way (1 entry).

Molecular Biophysics Training Grant

The Molecular Biophysics Training Grant has bee reported on a:

  • Form 1098-T in Box 5 (1 entry)

National Science Foundation (NSF)

Graduate Research Fellowships Program (GRFP)

The GRFP has been reported on a:

  • Form 1098-T in Box 5 (13 entries)
  • Form W-2 Box 1 (1 entry)
  • Courtesy letter (1 entry)

It has also been not reported in any way (5 entries).

Postdoctoral Research Fellowships in Biology (PRFB)

The PRFB has been not reported in any way (1 entry).

Department of Energy (DoE)

National Nuclear Security Administration (NNSA) Stewardship Science Graduate Fellowship

The NNSA Stewardship Science Graduate Fellowship from the Krell Institute has been reported on a:

  • Courtesy letter (1 entry)

Department of Defense (DoD)

National Defense Science and Engineering Graduate Fellowship (NDSEG)

The NDSEG has been reported on a:

  • Form 1099-NEC in Box 1 (1 entry)
  • Courtesy letter (1 entry)

Science, Mathematics, and Research for Transformation (SMART)

The SMART Scholarship has been reported on a:

  • Form 1099-MISC Box 3 (1 entry)

The National Academies

Ford Foundation Predoctoral Fellowship

The Ford Foundation Predoctoral Fellowship has been reported on a:

  • Courtesy letter (1 entry)

Henry Luce Foundation

Clare Boothe Luce Fellowship

The CBL Fellowship has been not reported in any way (1 entry).

Simons Foundation

The Simons Postdoctoral Fellowship has been reported on a courtesy letter (1 entry).

Internal Fellowships

Cornell University

A fellowship for first-year rotating students has been reported on a Form 1098-T in Box 5.

Harvard University

The Prize Fellowship has been not reported in any way (1 entry).

Indiana University

The University fellowship has been reported on a Form 1098-T in Box 5 (1 entry).

Mayo Clinic

The Mayo Foundation for Medical Education & Research Fellowship has been reported on a Form 1098-T in Box 5 + Form 1099-MISC in Box 3 (1 entry).

Rochester Institute of Technology

A graduate research assistantship position has been reported on a Form 1099-MISC in Box 3.

University of California, Berkeley

The Chancellor’s Fellowship has been reported on a Form 1098-T in Box 5.

University of California, San Diego

The Summer Training Academy for Research Success (STARS) Fellowship has been reported on a Form 1098-T in Box 5 and a courtesy letter (1 entry).

University of Connecticut

The Jorgensen Fellowship has been not reported in any way (1 entry).

University of Michigan

The Rackham Merit Fellowship has been reported on a Form 1098-T in Box 5 (1 entry).

University of Pennsylvania

The Dean’s Fellowship in the Graduate School of Education has been reported on a Form W-2 in Box 1 (1 entry).

University of Southern California

The Merit Fellowship has been reported on a Form 1098-T in Box 5 (1 entry).

University of Virginia

The Diversity, Equity, and Inclusion Dean’s Doctoral Fellowship has been not reported in any way (1 entry).

Washington University in St. Louis

The WM Keck Postdoctoral Fellowship has been reported on a courtesy letter (1 entry).

Please contribute to this project by filling out this survey to have your tax form included in this article—and share the survey as well.

Want more tax content specific to graduate students, postdocs, and postbacs?

Visit the Personal Finance for PhDs Tax Center.

Workshop: How to Complete Your Grad Student Tax Return (and Understand It, Too!)

Workshop: Quarterly Estimated Tax for Fellowship Recipients

How to Pursue FIRE in Graduate School

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In this episode, Emily shares the first section of a written guide she recently added to the Personal Finance for PhDs Community, titled How to Pursue FIRE in Graduate School. FIRE stands for Financial Independence / Retire Early, and it’s a big movement among personal finance enthusiasts right now. At first, Emily didn’t believe graduate school and the pursuit of FIRE were compatible, but the many interviewees she’s had on the podcast who are pursuing a PhD and FIRE simultaneously changed her mind. In the introduction, Emily introduces FIRE and the general ways people pursue it and lists the four biggest levers a graduate student could pull to pursue FIRE right away.

Links Mentioned in the Episode

Introduction

Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

This is Season 10, Episode 19, and today I’m going to read to you the introduction to a written guide that I recently added to the Personal Finance for PhDs Community, titled How to Pursue FIRE in Graduate School. FIRE stands for Financial Independence / Retire Early, and it’s a big movement among personal finance enthusiasts right now. I have to admit that at first I didn’t think graduate school and the pursuit of FIRE were compatible, but the many interviewees I’ve had on the podcast who are pursuing a PhD and FIRE simultaneously changed my mind. In the introduction, which I’ll read to you momentarily, I introduce FIRE and the general ways people pursue it and list what I think are the four biggest levers a graduate student could pull to pursue FIRE right away.

If you are pursuing FIRE or are interested in it, I’d love to hear from you. Please join the Personal Finance for PhDs Community at PFforPhDs.community right now, today. Once you’re a member, you can do two things:

  1. Read the rest of the guide, which goes into detail about all the financial opportunities graduate students have to pursue FIRE, from increasing their incomes to building assets to mindset work.
  2. Join me and other Community members for a special live discussion and Q&A call on Wednesday, December 15, 2021 at 5:30 PM Pacific Time. We have live calls like this once per month, and this month’s is dedicated to the topic of FIRE. I really want to hear from you. I’m going to continue to expand and edit the guide based on the ideas and experiences of Community members and future podcast interviewees.

In case you’re listening to this after December 2021, no worries. You can still join the Community to read the current incarnation of the guide and chat with us about FIRE in the Forum or the next upcoming monthly call. Again, go to PFforPhDs.community to sign up!

One last note. I reference a bunch of previous podcast episodes in the introduction. All these episodes are linked in the show notes, which you can find linked from PFforPhDs.com/podcast/.
Without further ado, here’s the introduction to How to Pursue FIRE in Graduate School.

How to Pursue FIRE in Graduate School: Introduction

I was in graduate school when the current incarnation of the FIRE movement started picking up steam. At that time, the acronym FIRE (financial independence / retire early) was not yet in use, and people focused mostly on the “retire early” goal—not retiring at 55 like some Boomers had, but retiring by 30 or 40. Pete Adeney of Mr. Money Mustache was one of the leading voices, having achieved early retirement at age 30 by combining a well-paid engineering career with rigorous frugality.

At first, I found the idea of early retirement to be largely unappealing. The chief reason was that graduate school was supposed to be the foundation for a long, meaningful, fulfilling career… Why would I plan to retire early from that already? Why would any PhD (a group I was growing more interested in creating content for)? I couldn’t get behind that idea.

Thankfully, my disinterest in FIRE in my mid-20s didn’t diminish my passion for personal finance writ large, and I still invested, practiced frugality, and attempted to increase my income to the best of my ability and knowledge at that time.

My view is different now, a decade later. While I still don’t consider myself part of the FIRE movement, I do see its appeal, even for PhDs.

1) I’ve changed: I’m ten years older. I have children now. I’ve switched careers, and I’m a business owner. I earn and spend much more money than I did during graduate school. My and my husband’s parents have retired (at a traditional age). I better understand why having the financial ability to downshift, change, or stop active work before age 70 is attractive.

2) The FIRE movement has changed: There’s a greater emphasis on financial independence rather than early retirement. The featured voices are more diverse. There are numerous well-documented paths to achieve FIRE, not just the earn-a-lot/spend-very-little model from Mr. Money Mustache.

3) Most importantly, I’ve met numerous graduate students and PhDs who do identify as part of the FIRE movement. They don’t see a contradiction between pursuing a PhD-type career and financial independence simultaneously. I’ve learned from their philosophies and methods. The Personal Finance for PhDs Podcast interviews I’ve published that touch on FIRE have been with:

In this guide, I won’t attempt to convince you to pursue FIRE—because I haven’t fully convinced myself. I will show you how you can pursue FIRE as a funded PhD student. We will explore multiple potential strategies, and I am confident that you will be able to adopt at least one of them.

How you pursue FIRE during graduate school will look different than how you pursue it when you have a post-PhD “Real Job,” but you can get started right here, right now.

What is FIRE?

FIRE stands for Financial Independence / Retire Early. FIRE is a movement within the broader personal finance community that has gained popularity in the last decade, roughly coinciding with the long bull stock market post-Great Recession.

Being financially independent (FI) means that you no longer need to work for an income to maintain your lifestyle and that you expect to maintain this status until your death. Once you cease working to generate an income, you have retired. The early part of the name refers to achieving financial independence earlier than the typical retirement age of 70-ish. Some superstars in this movement reach FI by age 30, while others set their sights on age 40 or 50.

Broadly speaking, there are three common ways to achieve FIRE, and some people use a combination:

  1. Purchase a portfolio of paper assets (e.g., stocks and bonds) from which you can draw an income
  2. Buy or build an asset or set of assets that generate income, such as a business or real estate portfolio
  3. Qualify for a pension, e.g., after 20 years of military service

I’m going to omit the option of a pension from the remainder of my discussion because 1) it’s not common for people in my audience to qualify for one, 2) within the FIRE movement it’s typically combined with another strategy as well, and 3) there are other good resources on pensions specifically.

How you determine that you have achieved FI is beyond the scope of this guide. Our focus is on the start of the journey, the pursuit of FI, and how to do it during graduate school.

However, to give you a rough idea, to know that you are FI you must have a good grasp on how much money it takes to sustain your lifestyle, i.e., how much you spend yearly. For example, FatFIRE is considered a yearly spend of $100,000 or more, while LeanFIRE is considered a yearly spend of $40,000 or less.

If you have a pension or own a business or real estate portfolio, the amount of income it generates should be more than the amount of money you spend for you to be considered FI. With respect to paper assets, a popular rule of thumb based on the Trinity Study is to have a portfolio of twenty-five times your yearly spend. For example, if you want to live on $40,000 per year indefinitely, adjusted for inflation, your portfolio should be valued at $1,000,000 or more.

How do you pursue FIRE?

How exactly you will pursue FIRE depends a great deal on your personality, career goals, and lifestyle desires.

At some point, you must create or purchase assets of the type I listed above. While you can start on that during grad school, creating or purchasing assets does not have to be the first step on your journey to FIRE, depending on the rest of your financial picture. If you are in debt, your first step may be to repay debt. If you have no savings or little savings, your first step might be to save up cash. If your income is low or unreliable, your first step might be to increase your income so that you don’t rack up any debt.

I recommend following the eight-step Financial Framework that I developed for use by graduate students and early-career PhDs. It will help you decide which financial goal is best to pursue at any given stage in your financial journey. You can find this Framework detailed in several resources inside the Personal Finance for PhDs Community, including the ebook The Wealthy PhD and the recorded workshop Optimized Financial Goal-Setting for Early-Career PhDs.

In brief, the Framework Steps are to:

  1. Save a starter emergency fund
  2. Pay off all high-priority debt
  3. Prepare for irregular expenses
  4. Invest a minimum percent of your income for retirement
  5. Pay off all medium-priority debt
  6. Save a full emergency fund
  7. Invest more for retirement and/or other goals
  8. Pay off all low-priority debt

The Framework is fully compatible with the pursuit of FIRE, though a FIRE adherent will likely move through the Framework steps faster than the average and may pursue additional financial goals such as purchasing real estate.

There are two less tangible but no less important ways that I recommend that you pursue FIRE starting in graduate school, both of which involve your own development.

1) Your career. I am confident that one of the major reasons you entered graduate school was for career development. Using your time in graduate school to set yourself up for a fulfilling and well-paying career is vital. Do not lose sight of this goal in your pursuit of FIRE. Your future, higher income is going to play a major role in how fast you will achieve FIRE. On the flip side, if a PhD no longer figures into your vision for your future, do not stay in graduate school; jump ship for a higher-paying job.

2) Your mindset and systems. To achieve FIRE, you must have a certain kind of money mindset and well-established systems and habits. You will continually develop these in your pursuit of FIRE. Even if you are unable to increase your net worth much during graduate school, pursuing your career and mindset development now is worthwhile to pay major dividends later.

What makes grad school different?

Your pursuit of FIRE during grad school is likely to look quite different from how you would pursue it if you were not in grad school or how you will pursue it post-PhD.

Generally speaking, PhD students accept a low stipend in exchange for training that—we hope—will qualify them for more lucrative jobs later on. They could be making more money right now in another job, but graduate school is a long-term career investment. Blanket personal finance advice to switch jobs or negotiate to increase your income does not apply well for graduate students (although there are many ways to increase your income, which I cover later in this guide).

In non-pandemic times, most graduate students are required to live in close proximity to the university they attend, although some may be permitted to finish their degrees remotely. For the former group, geographic arbitrage is not available. Geographic arbitrage, a common FIRE strategy, is when you choose to live in a low cost-of-living area while maintaining an income more suited for a high cost-of-living area so that you can boost your savings rate.

Finally, graduate school is a major time commitment. Few PhD students consistently cap their work weeks at 40 hours. You may have less time for outside income-increasing or asset-creating pursuits during grad school in comparison with other times of life.

My Personal Favorite Steps

In the second half of this guide, I will explore numerous possible strategies to further your FIRE journey during grad school. Some of them are what I call “big levers,” which are strategies that are virtually guaranteed to greatly increase your available cash flow and are possibly unusual choices for a graduate student. This increased cash flow can then be saved, invested, or used to repay debt. In your pursuit of FIRE during grad school, I think it will be very helpful for your psychology to pull one of these big levers if you’re able to. It will be clear to you that you are serious about your commitment to FIRE, which will help keep you on the path.

I want to give you a quick preview here as to what I believe these big levers are before we go through all the strategies in much more detail.

Big lever #1 is to choose a graduate program that provides a 12-month stipend that is well above the local living wage. If you’re a prospective graduate student, simply don’t consider any offers that fail to meet that bar, even if they are good fit for you otherwise.

Big lever #2 is to commit to applying for awards like it’s your part-time job—everything from multi-year, full-stipend fellowships to small poster competitions.

Big lever #3 is to radically reduce or eliminate your housing expense. Two potential ways you can achieve that are to house hack or serve as a resident advisor.

Big lever #4 is to start a side business with the potential, at least, to pay you a high hourly rate. You’re most likely to generate a high pay rate by employing the skills and knowledge you’ve developed during your graduate program.

If you can’t pull one of these big levers in your remaining time in graduate school, that’s fine. Put in place one of the smaller strategies from this guide, and if possible keep stacking those up throughout your time in graduate school.

Personally, even though I hadn’t committed to FIRE when I was a graduate student, I was putting a lot of effort into my personal finances. I didn’t know about these big levers or most of the other strategies I’ll discuss in the second half of the guide. I pulled just one big lever by accident, which was to attend Duke for my PhD in biomedical engineering. I wasn’t at all considering the stipend when I made that decision, but I realized later what a boon it was. My stipend was approximately 30% higher than the local living wage, which meant that with careful budgeting I could sustain a decent savings rate.

Over our seven years of PhD training, my husband and I increased our combined net worth by over $100,000. You can hear all about how we did that in Season 1 Episode 1 of the Personal Finance for PhDs Podcast. Now, seven years removed from when we defended, I can clearly see that the time value of money continues to honor those early efforts, even though we earn and save much more post-PhD. That money forms the bedrock of our current financial security.

By applying just one of the big levers or a few of the smaller strategies in this guide, I firmly believe that you also will accelerate your progress toward FIRE, even as a graduate student. Many of the people I’ve interviewed on the Personal Finance for PhDs Podcast have far exceeded my own degree of financial success using the strategies I’ll share with you next.

Conclusion

It’s Emily again! That is the end of the introduction to How to Pursue FIRE in Graduate School. If you liked what you heard and want to read about all the strategies and join the live call on Wednesday, December 15, 2021, please join the Personal Finance for PhDs Community at PFforPhDs.community. I look forward to hearing your thoughts!

Outro

Listeners, thank you for joining me for this episode!

pfforphds.com/podcast/ is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episodes’ show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast. I’d love for you to check it out and get more involved!

If you’ve been enjoying the podcast, here are 4 ways you can help it grow:

  1. Subscribe to the podcast and rate and review it on Apple Podcasts, Stitcher, or whatever platform you use.
  2. Share an episode you found particularly valuable on social media, with a email list-serv, or as a link from your website.
  3. Recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt repayment, and effective budgeting. I also license pre-recorded workshops on taxes.
  4. 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 Podington Bear from the Free Music Archive and is shared under CC by NC.

Podcast editing and show notes creation by me, Emily Roberts.

This Grad Student Purchased a House with a Friend

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In this episode, Emily interviews Courtney Beringer, a second-year PhD student in civil engineering at Oregon State. Courtney joined the Personal Finance for PhDs Community near the start of grad school; the Community taught and encouraged her to create an emergency fund, open and fund a Roth IRA, file an accurate tax return, and calculate and pay her quarterly estimated tax on her NSF GRFP income. When Courtney started grad school, she was curious about the possibility of buying a home, and over time decided to purchase a house with a fellow grad student. By renting out two of the bedrooms in their house, Courtney and her friend have nearly completely eliminated their housing expense, even in a market where it wasn’t possible to buy on a single grad student income. Listen through the end of the episode for short bonus interview with Sam Hogan, a mortgage originator specializing in graduate students and PhDs, for his take on Courtney’s co-borrowing strategy.

Links Mentioned in the Episode

This Grad Student Purchased a House with a Friend

Teaser

00:00 Courtney: I know some people might be wondering, like, why would I buy a house in somewhere where I’m only going to live for four or five years? But like, I’m not paying rent or a mortgage right now. And I also get to hopefully sell my house in three to four or five years and make money off of its appreciation. And maybe I don’t sell in four to five years and I could actually move away and I can hire a management company to manage tenants. So there are possibilities beyond just the time where you’re physically in that city to use your house hack.

Introduction

00:40 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 10, Episode 18, and today my guest is Courtney Beringer, a second-year PhD student in civil engineering at Oregon State. Courtney joined the Personal Finance for PhDs Community near the start of grad school; the Community taught and encouraged her to create an emergency fund, open and fund a Roth IRA, file an accurate tax return, and calculate and pay her quarterly estimated tax on her NSF GRFP income. When Courtney started grad school, she was curious about the possibility of buying a home, and over time decided to purchase a house with a fellow grad student. By renting out two of the bedrooms in their house, Courtney and her friend have nearly completely eliminated their housing expense, even in a market where it wasn’t possible to buy on a single grad student income. Listen through the end of the episode for a short bonus interview with Sam Hogan, a mortgage originator specializing in graduate students and PhDs, for his take on Courtney’s co-borrowing strategy. You’ll be able to hear in the course of this interview just how excited I am to bring Courtney’s story to you. I am quite bullish on house hacking for graduate students, and I believe Courtney’s strategy can make it accessible to far more graduate students.

02:01 Emily: If you get excited about home ownership during this episode, whether as part of a house hack or not, I have two special upcoming events to invite you to. First, on December 16, 2021, Sam Hogan and I will hold a free live Q&A call where we answer any and all questions pertaining to becoming a first-time homebuyer. This is a perfect event to attend if you’re getting your finances prepared to purchase a home next spring or summer. Go to PFforPhDs.com/mortgage/ to sign up for the call. Second, I am hosting a live Book Club conversation in January 2022 on First-Time Home Buyer: The Complete Playbook to Avoiding Rookie Mistakes by Scott Trench and Mindy Jensen inside the Personal Finance for PhDs Community. I’ll even buy you a copy of the book after you join the Community. Fill out the short form at PFforPhDs.com/bookclub/ to indicate your interest in the conversation and I’ll be in touch about scheduling! Without further ado, here’s my interview with Courtney Beringer.

Will You Please Introduce Yourself Further?

03:13 Emily: I am very pleased to have joining me on the podcast today, Courtney Beringer. She is a second-year graduate student at Oregon State in civil engineering, and she is a founding member of the Personal Finance for PhDs Community, which you can find at pfforphds.community. So, what we’re going to discuss in today’s episode is how the Community has helped helped advanced, help shape Courtney’s finances in this first year of graduate school. And in particular, we’re going to focus a lot on Courtney’s house hack, which I’m really, really excited to learn more about and tell you more about. So, Courtney, thank you so much for joining me on the podcast. And will you please tell the audience a little bit more about yourself?

03:53 Courtney: Yeah, thanks for having me, Emily. I’m happy to be here. Yeah. As she said, my name is Courtney. I’m from Iowa, but moved to Oregon for grad school. I have an undergraduate degree in mechanical engineering and I’m here for civil engineering. And yeah, in my second year of my PhD, I have a few more left, looking to do a postdoc after that and become a faculty member.

Finances Before Grad School

04:16 Emily: Awesome. Well, take us back to like when you were not yet enrolled in graduate school, but thinking about graduate school. What were your finances like at that time? And also what was your outlook about finances in graduate school?

04:31 Courtney: Yeah. Overall, I felt comfortable in my finances. I’d worked a lot of jobs in undergrad, and I actually took a year and a half break between undergrad and grad school and worked a full-time engineering job, which paid pretty well. I already had a really decent savings and I had mutual funds, but I basically knew nothing about retirement or buying a house or perhaps how I knew I was going to go to a lower income going to graduate stipend and how that might affect my change in lifestyle as well.

Finding and Joining the PF for PhDs Community

05:07 Emily: And so tell us about how you, I guess, came to find me and Personal Finance for PhDs and why you joined the community.

05:15 Courtney: Yeah, so about two years ago now, I applied for grad school and started getting offer letters coming in and wanting to understand how to compare them. And I was applying for a lot of different fellowships and wondering how that could be leveraged in my offer letters. And then I found Personal Finance for PhDs, I believe on just by Google searching and finding the website and then finding Emily’s resources and reaching out for that like 15-minute call. And feeling like this Community, it was really somewhere where I needed to be in order to grow and understand my finances as a PhD student.

05:57 Emily: Yeah. So it sounds like you had some solid basis in terms of like a little bit of savings in place and so forth, but really needed more like of that grad school-specific, what is going on with fellowships what’s going on in academia, like kinds of questions, which is exactly what I try to offer. Okay. So we have a picture of, of where you are financially when you started graduate school, what was one of the first like actions that you took within your finances having joined the Community?

Open a High-Yield Savings Account

06:24 Courtney: Yeah. So going through your like step-by-step framework, I had savings, but I didn’t necessarily have a specific amount set aside that I should have in savings, or I hadn’t thought about it in a more critical way. So the first thing I did was look at putting a chunk of money that supports me over X amount of months in a high-yield savings account, because the one that I had always used was not that high. So I went through the videos, I chose my savings account, and based on the Community, I was able to keep myself accountable and was able to put in, like I chose the savings account and I just transferred my money in, and here’s an accountability step where I can tell other people that I did that. And yeah, now I get to check my savings out and see it grow more than it was before.

07:20 Emily: Awesome. I’m so glad to hear that. So, the framework that you mentioned is this eight-step financial framework that I teach in a few different places around the Community. I have kind of a series called The Wealthy PhD, which is both an e-book and now a video series, although that didn’t exist when you first joined. So I’m curious, is your emergency fund, that sounds like a step six emergency fund, is that right?

07:43 Courtney: Yes. Yes.

07:47 Emily: And so, did you also work through the steps prior to that point? Or was it just like, I have some cash, so I need to define this as emergency savings and put it in a more optimal place as you did? Like, did you go through all the other steps as well?

07:59 Courtney: I think, based on where I was at in my finances, a lot of the other steps had been covered, so I’d already paid off all my school debt, I didn’t have any credit card debt. I worked through a lot of that. So that was really like the next step that I had not tried to do yet, or even thought about.

Invest in an IRA

08:20 Emily: So step four in the framework is starting to invest. And you mentioned earlier, you didn’t really know anything about retirement accounts. So, did you also start investing, or have you been focusing on other financial goals?

08:30 Courtney: Yeah, kind of around the same time as making that emergency savings, I also looked into the IRA investing and watched those videos. And then in a similar manner, was held accountable by the Community and started my IRA, which I contributed fully to in 2021 and then already contributing to as well again. So yeah, that was around the same time where I was like, I have a decent savings, and I need to be doing something with it.

09:03 Emily: It sounds fantastic. Obviously you are an exemplary member of the Community in terms of like actually following through on the stuff that you learn inside there. We’ve run this a couple of times in the Community, maybe we’ll run it again soon, this challenge that I call like open your first IRA which people can learn more about that at pfforphds.com/openIRA. But basically- I just lay out like the seven step process for, okay, these are decisions you have to make, you know, to get from where you are to having your IRA open and funded. These decisions, these are the steps you have to follow through on. And I believe you went through that challenge. Is that right?

09:38 Courtney: Yeah, I did. Honestly those videos are so helpful. It helps you understand the verbiage and all the language that goes along with it. And I felt like I was making my own decision, but it was a very informed decision on it.

09:52 Emily: I’m glad it reached that tone with you because that’s exactly how I want it to be. It’s like, you know, I can’t tell people what to do. Like legally, I’m not like licensed to tell you what to do with your investments. But I can kind of give you the lay of the land, and then within that you figure out like what’s best for you. So I’m really glad it struck you that way.

Evolution of Courtney’s House Hacking Strategy

10:09 Emily: Well, I’m excited to talk about your house hack. So when did buying a house and even the potential of house hacking kind of come onto your radar?

10:19 Courtney: I feel like there were some conversations in the Community, actually, before I moved to grad school, I feel like maybe there were conversations in the Community, or I was talking to people outside of this Community as well about home-buying. And I was really excited to buy a home in Oregon before I moved here, but that was very hard to do during the pandemic and virtually and not knowing the area. So, I ended up moving here and renting for the first year. But then yeah, with the help of the Community amd reading through our book club, I felt like I started to learn a lot more about the house-hacking strategy and wanting to pursue that.

11:05 Emily: Yeah. So when you first thought about buying a house, were you thinking of it as you would live by yourself? Or were you thinking that you would be renting to roommates? Which I haven’t defined it yet, that’s what house hacking is, owning a house and renting at least one room out to somebody else.

11:18 Courtney: Yeah, actually at first I was like, oh, I’m in grad school. I want to live alone. I’m like becoming more of an adult. But then when I looked more at just the cost of living in this area, it was not as feasible as I thought it might be. And my first year living with roommates went really well. And I was like, I think this could continue. And I’m okay with roommates in grad school. So, then my mindset transitioned to more of the house hacking rather than living alone.

The House Hacking Strategy

11:53 Emily: And so, I did time our reading in our book club of The House Hacking Strategy for when people would be thinking about, you know, there’s a seasonality to buying a home. So we were reading that in like maybe Februaryish, 2021. So anyway, the book is The House Hacking Strategy by Craig Curelop. I learned a lot from reading that book. Apparently, you did as well. How did that book influence the decisions that you made after that point?

12:20 Courtney: It lays out a lot of different house hacking strategies based on your level of comfort. And so I found the one that I was looking for, which was, you know, I buy a house and I rent out maybe one, two, or three of the rooms, and I have my own room, and my tenants could maybe be my friends or maybe not. And that was my level of comfort. It also influenced me to talk to my other good friend in grad school about buying a house, and we were both looking at buying separately. But then we compared our finances and realized that we actually wanted to buy a house together.

13:02 Emily: Yeah, this was, I mean, to be frank, I was a little concerned when you first brought this up inside the Community, like can this be done in a safe and responsible manner that is buying a house with someone else who frankly, you know, you’re not legally married to, which is the kind of easiest scenario under which to buy a house. Of course, many people do this with a romantic partner without being married, but then you’re taking that a step further and buying it with a friend. And so it’s very unusual, and you have to be careful about it. So I really want to understand better about how you did that. But like, I mean, you’ll explain it to us, but if other people are thinking that this might be, you know, feasible for them to buy with a friend and still be able to house hack and rent out additional rooms so it’s still a source of income for you. Like, I mean, that is a complete game changer in being able to buy in many, many more housing markets than a single graduate student stipend would support, you know, right now. So tell us more about that, like partnership that you formed.

14:00 Courtney: Yeah. So there was another first-year grad student in my program and we became friends pretty quickly. And then when we started talking about buying a house, I was basically able to convince her that it’s a pretty good idea to buy a house. And then looking at the market in Oregon, it’s just, especially if we wanted to be even within a half an hour drive of our university, it was not doable with the down-payment and with just our overall debt-to-income ratio alone. And so then, one day a realtor mentioned like, “Oh yeah, I actually just showed a house to like someone your age. And there were these two women that were looking to buy it together.” And I was like, “Dang, okay. I cannot afford really anything here by myself. But I can perhaps talk to my friend about this.” And so we had a lot of long conversations about our finances and getting to know each other and really putting it all out on the table. We made a lot of documents together, a lot of like signed contracts between ourselves because we wanted that in writing.

Co-Owning a 4-Bedroom

15:17 Emily: So this is amazing that this idea came from your realtor and, you know, you had a person kind of in mind as a candidate, and then you’re able to work out all the things you need to work out. It’s actually not that unusual in the real estate investing space to have a partner. But like you have done with the person that you bought with, like, you guys have to have some legal kind of protections and some things planned out and worked out in advance to make this work. But that’s amazing. So, would you feel comfortable telling us about the house that you bought? Like some of the numbers around it?

15:51 Courtney: Yeah. So we were actually looking at three-bedroom houses, but ended up with a nice four-bedroom that is only like a five-minute drive from the university. We, I think, got a pretty good deal on it. These sellers wanted to move out really quickly. And the house I think was asking for like 250,000, but we offered nearly 270,000 because that’s where the market was at now. And then additionally, we offered more percent down, and that’s what finally sealed the deal for us to get our offer accepted. Yeah. So now we are able to rent out two of our rooms. So of course, if you did this alone, you’d be able to rent out more rooms rather than having a co-owner, but it actually works out really nicely to have a co-owner for a lot of reasons.

16:50 Courtney: We were able to split the down payment, which was very nice. Our two renters actually pay our mortgage basically fully. So we don’t pay any portion of the mortgage. We really only pay a fourth of the utilities for our home. And then we are able to put more money towards improvement of the home and sweat equity and yeah, it’s worked out really well. Another reason that having a co-owner has been awesome is that if one of us leaves, one of us is still there to manage everything. And we actually split a lot of tasks. And there are so many tasks to do as a homeowner, right? And having someone to split them with is really nice.

17:32 Emily: Yeah. I think that there is a degree of work involved with being a landlord. And I think especially as like a first-time landlord, having a partner there with you to help you like figure out like, what’s the right course of action? Like, how should we be screening tenants? Like, what kinds of house rules should we set up? Especially for you, like your case, living in the same living space with your tenants, there’s much more kind of like roommate interpersonal stuff going on as well as the layer of like the legal stuff. So I think that’d be actually really helpful to have someone going through that journey alongside you.

Setting Up a Joint Bank Account

18:04 Emily: So those numbers sound amazing that the mortgage is pretty much paid by those the rental income. Of course you still have some additional costs, like you had just mentioned home improvements, and so forth. Do you have any like structure in terms of like each of you like maybe saves a certain amount of money or contributes to a common fund that you’re buying from? Or are you kind of like winging it as you go forward?

18:25 Courtney: Yeah, we actually set up a joint bank account, which is like yeah, a whole other thing to do with a friend, but it was super easy. We have both of our names on our home insurance. And out of our joint bank account is basically where we process all of our rental income and where we process all of our home purchases. Because one thing we haven’t done yet is talk to a tax consultant about what home expenses could mean for tax write-offs. And so we want to have that all in one place. And then we actually both contribute to our joint account every month, a few hundred dollars to basically invest our home, to put towards emergency home repairs, and just make up the differences of utilities and such like that.

19:19 Emily: Yeah. Thanks for clarifying that. If anybody is interested in hearing other grad students and PhDs talk about this like house hacking strategy, I’ve actually done two previous sort of in-depth interviews on house hacking. One with Dr. Matt Hotze, and one with Jonathan Sun. Well, the one with Jonathan Sun is actually more about getting a mortgage when you have fellowship income, which is another wrinkle in that whole thing. But we’ll link those two episodes in the show notes. And another episode that may be of interest to the listeners is that I purchased my first home around the same time you did this past spring in 2021. And so I tell the story of how we made that happen. And a lot of the sort of technical things that go into this, like the down payment and like the interest rate on your loan and verifying your income and all these kinds of things. So we’ll link that from the show notes as well.

Navigating a Home Loan with Grad Student Stipends

20:06 Emily: Did you run into any like hiccups with getting the loan or getting to closing like that were related to either, you know, the partnership aspect of this or the fact that you are graduate students?

20:20 Courtney: Yes. There are a lot of confusing things with income, and know that the title company is going to be kind of confused by grad student income. And like our loan officer, like she helped us a lot, but there still was confusion about like, how are you funded this summer versus the fall? Why is it changing? Like submit all the documentation for, you know, both types of income that are coming in. And then there’s just, you know, a whole other person that has to submit all their bank information and all their financial information. So that just means like more room for, you know, missing a document here, there things being delayed. It wasn’t a huge deal, it’s just more paperwork and more people to coordinate.

21:12 Emily: Yeah. I noticed with my own journey to homeownership that like, there’s so much attention paid to the, getting to an accepted offer part of the process. And it’s very dramatic and all of that, especially this past spring, it was yeah, a very dramatic time to be buying a home. But then all the stuff that happens after, you know, you go under contract. All that paperwork, all those details, it’s not sexy at all, but there’s a lot of work that happens in that period of time. A lot of work by your real estate agent, a lot of work by you and all the other professionals involved in this process. So I was kind of impressed in a new way with the whole industry and how it works and just, yeah, how much work there is that goes into that stage.

Sam Hogan, Mortgage Originator

21:50 Emily: I will say for anyone listening, you did not use my brother, Sam Hogan as your loan originator. But other people may be interested and we will link all the episodes that Sam has been on the podcast in the show notes as well. But basically, through our relationship, like I’ve been referring business to my brother Sam Hogan, because he is now very, very intimately familiar with all the weird kinds of income that graduate students and postdocs may have, and how to present a case to the underwriters that work with his company, that you are a great person to lend to. I mean, he’s not a miracle worker. So in some cases, funding is structured in such a way that it’s not going to go forward, but basically he knows like how far he can like push it to get things accepted that may be not familiar, not accepted by other mortgage originators. So I’m glad yours went through, okay. But if anybody’s having trouble or just wants to have a smooth like process from the beginning, please contact Sam. You can find his contact information in the show notes for this episode.

22:50 Courtney: I think, another thing I’ll add is that a lot of times when people buy houses together, they’re perhaps married or have a different end goal for the house. So, there were a lot of assumptions in just documentation, like by the title company and in our loan that, you know, if one of me and my friend, if one of us were to die, like what happens to the house? And a lot of that assumes that it will just totally go to the other person, or there are a few different ways that you can co-borrow alone. And those are things that you definitely need to talk through. We actually ended up buying like a $15 legal help guide basically for co-borrowers of houses. And that was so helpful and helped us make our contracts with each other.

23:39 Emily: Yeah. That’s awesome. What kind of loan did you get by the way? Was it conventional or a different type?

23:45 Courtney: We did end up doing conventional, yeah.

23:46 Emily: Okay. And do you each have a 50% stake in this, or is there some kind of other equity arrangement?

23:52 Courtney: We both have 50%.

23:55 Emily: Amazing. Anything else you want to say about how this is working out now that you’ve been in the house for a few months, and you’ve had your tenants for a few months?

24:03 Courtney: We’ve been in it for three months. We started with two tenants who are friends who only needed a month somewhere to live, which was really great to practice with people who are a little bit lenient and understand your situation. And now we have our two tenants that are going to be in here for a year, and it’s going really well. And we’re already making updates and improvements on the house. Yeah, overall, it’s working out really nicely.

Commercial

24:35 Emily: Emily here for a brief interlude! Are you a graduate student, postdoc, or early-career PhD considering buying your first home in the foreseeable future? If so, I invite you to join the Personal Finance for PhDs Community for a Book Club discussion of First-Time Home Buyer: The Complete Playbook to Avoiding Rookie Mistakes by Scott Trench and Mindy Jensen of BiggerPockets. I and all the Book Club participants will read the book and come together for a one-time live discussion in January 2022. This is perfect timing for anyone with an eye on the spring or summer 2022 peak buying season. Since it might be hard to find this book in a public library, I will give you a copy of the book after you join the Community. If you want to join the Book Club for First-Time Home Buyer, please fill out the survey, including your availability for the discussion, at PFforPhDs.com/BookClub/. That’s P F f o r P h D s dot com slash B o o k C l u b. Now back to our interview.

Considering a Second Home for More House Hacking

25:39 Emily: Recently, when we spoke at one of our, by the way, inside the Community, we have monthly live calls where people can just show up and ask questions and talk about whatever people want to talk about with me and whoever else wants to come. You brought up the possibility of buying another home. What are your thoughts around that?

26:00 Courtney: I did yeah, me and my friend had been talking about it because once you do it once, it’s really tempting to house hack again, which is actually what the book recommends. And now that we have this house, I mean, I still need to do a lot of learning in what a home equity line of credit is, and maybe what a second house could mean. But essentially, if we bought a second house, then we could rent out all four bedrooms in our current one, and that would actually cover both mortgages and perhaps even rent out another room in a second house. So as you can see, it could just start stacking up and and improve our financial situation even more.

26:48 Emily: That’s what’s really amazing to me about these like big levers that you can pull in your finances, even as a graduate student. I’m not suggesting that this is possible in every housing market in the U.S. Definitely a graduate student stipend would not even be within striking distance in many areas. But if you happen to find yourself where you happened to choose one of these areas, owning your own place, especially when it’s combined with house hacking is one of these big levers you can pull to massively change your financial situation. And I would say actually that investing is another one. That’s the one that I focused on when I was in graduate school. I wish I knew about house hacking, I wish I had read The House Hacking Strategy if it had been published back at that time, because Durham was another place where that was possible for two graduate student stipends to do that.

27:31 Emily: But instead, I focused more on investing and that’s been a huge lever, not to immediately realize cashflow the way that you can with real estate, but in terms of like growing my net worth over the decade or so since I started graduate school, it’s been incredible. And so, if you can just get like a toehold into real estate or investing, or one of these other levers that we’ve talked about on the podcast, it can really dramatically change your finances over a relatively short period of time. And it’s just amazing. That’s part of the reason why this podcast exists is that I just want people to know the possibilities, even if you don’t want to follow through that’s okay. But just know the possibilities that are out there. Even for someone like a graduate student. So I’m so happy to have you on here because especially this new wrinkle to your story of buying with a partner, instead of on your own or with someone you’re married to or et cetera, of buying with a friend like this is an amazing solution that never would’ve occurred to me. And I’m so glad that, you know, you introduced me to it.

Final Thoughts on Real Estate

28:26 Emily: Is there anything more that you want to say about real estate or the house hack?

28:31 Courtney: Now that I’ve had more conversations about real estate and been listening to more podcasts in general about real estate, I’m realizing how good of an investment it is. And I know some people might be wondering, like why would I buy a house in somewhere where I’m only going to live for four or five years? But like, I’m not paying rent or a mortgage right now. And I also get to hopefully sell my house in three to four or five years and make money off of its appreciation. And maybe I don’t sell in four to five years and I could actually move away and I can hire a management company to manage tenants at this place that I I don’t even live in Oregon maybe anymore. So there’s possibilities beyond just the time where you’re physically in that city to use your house hack.

The Community and Quarterly Estimated Taxes

29:24 Emily: I think that’s an excellent point because that’s definitely something that I got hung up with. I talked about this in my episode on making our first home purchase that I have a bit of like regret that we didn’t buy earlier, because one of the things that was holding me up about it was thinking I’m only planning on being in this city for three, four, five more years. Does it make sense to buy? And that’s a very valid question to be asking, but you have to know again about these other possibilities of one, house hacking, which completely changes the math of, you know, the break even point of renting versus buying. And two, the possibility of holding onto that property longer, if you still think that it’s a good investment at the time that you leave the city. So I’m really glad that you brought those points up. Something else that I know that you’ve used the Community for is your tax return slash your quarterly estimated taxes. So can you just let us know how that resource has helped you?

30:16 Courtney: Yeah. My parents had always sort of handled my taxes and sent it off to some tax person and I was just sending W2s places. And the tax workshop through the Community helped me understand what’s actually going on, what numbers matter, and how I could do them on my own based on getting a graduate assistantship sort of stipend. And now that I have a fellowship that just started one month ago, I’ll be making quarterly estimated taxes on that. And so, additionally, that workshop is so helpful in understanding how to go through that process as well. So I feel way more informed about taxes and how to do them on my own. And I think I ended up filing my taxes for free this past year. So that was really awesome.

Emily’s Tax Workshops

31:08 Emily: That is awesome. Yeah. Specifically, the two workshops you’re referencing are, I have one during tax season for graduate students called How to Complete Your Grad Student Tax Return (and Understand It, Too!). If you’re interested in learning about just that workshop, you can find it at pfforphds.com/taxworkshop. So, that’s during tax season for your annual tax return. And like you said, it explains a lot around like how the types of income that graduate students have, and graduate students tend to have more income types than they think they do, how that all fits in with like the IRS language. And my goal is really to kind of teach you enough so that you can either prepare your taxes on your own, which sounds like probably is what you did, or interface with tax software or a professional tax preparer in such a way that they understand what you’re talking about and your sources of income and expenses and what’s relevant, and what’s not. Yes, you can speak their language. And so you can get an accurate tax return prepared that minimizes, ideally, your tax liability.

32:02 Emily: And then the other one is for fellowship income, and by that, I mean, non-W2 income at the postbac, grad student, or postdoc levels. And that’s at PFforPhds.com/QETax, QE for quarterly estimated. And yeah, all the things that we’ve mentioned so far are available inside the Community PFforPhDs.community for just a monthly subscription fee. That’s actually pretty much equivalent to, if you bought one tax workshop, you may as well be in the Community for a month. If you buy the other one, may as well be in the Community for a month. So that’s kind of how the pricing works. Anything else you’d like to add about the tax journey that you’ve been on? Actually, I’ll add something first, if you don’t mind. I love that you figured out the grad student part of your tax return in 2020, or rather for your 2020 taxes, because now your 2021 is going to be a lot more complicated with the real estate stuff. And so at least at this point, I’m assuming you’ll use a professional tax preparer, but you already have a good understanding of this aspect of your situation. You can rely on that person to do the real estate part, right? And come together and have an accurate tax return together.

33:04 Courtney: Yeah, definitely going to have a different tax situation this year, but certainly go through that quarterly estimated tax workshop. And I feel like I can talk to a tax preparer in a lot more informed ways and say exactly what my situation is and what I need. So that’s been really helpful.

33:22 Emily: Yeah. Any closing comments about being part of the Community or anything else that you’ve gained from it?

33:29 Courtney: I would say the conversations with other PhD students and what they’ve tried and what they liked and what they didn’t, just even talking to people like what tax preparing software did you use? What did you like about it? What didn’t you? You know, like how has preparing your quarterly estimated taxes been? How much time does that take you, or how much time should it even take me? All those sort of questions are really nice to be able to talk to other grad students about, and that’s what I get from being in the Community.

Best Financial Advice for Another Early-Career PhD

33:55 Emily: Yeah. Thank you so much. It’s been absolutely wonderful to have you in the Community. And we’ve really gotten to know each other through these, as I said, monthly live calls, especially. Okay. Last question that I end, all my interviews on is what is your best financial advice for another early-career PhD? It could be something that we’ve touched on in the interview, or it could be something completely new.

34:17 Courtney: I would say, for me at least starting out earlier was, or even pre-PhD, was applying to a lot of fellowships. And if you’re someone who’s applying for their PhD programs, having a fellowship as a leveraging tool is a great way to get into the school you want to get into, work with the professor you want to work with. And also I mean at Oregon State, at least, my graduate research assistantship is a decent amount, but my fellowship definitely is more than that and helps support my personal finances better. I am a recipient of the National Science Foundation Graduate Research Fellowship, and that’s been an awesome tool to get into the places I want to get into and make more money as a grad student.

35:15 Emily: Yeah. So the advice is apply, apply, apply, and apply well. And I would say, you know, that’s awesome advice for people entering graduate school. It’s great advice for people still in graduate school and so forth. There are a lot of fellowships available for first year, second years. Less so a little bit later on, but they’re still there and you can still keep applying. Especially if you already have the feather in your cap of having the NSFGRP, for example, that’s going to go on your CV, it’s going to make it, you know, you’ll be that much more of a standout candidate for whatever awards you apply for after this point. So that’s amazing, Courtney, thank you so much for volunteering to be on this episode. It’s been lovely to have you!

35:51 Courtney: Yeah, thanks, Emily!

Addendum with Sam Hogan

35:59 Emily: Welcome to the addendum to the Courtney Beringer episode. Thanks for sticking around. I have with me Sam Hogan, who is a mortgage originator with Prime Lending (Note: Sam now works at Movement Mortgage). He is an advertiser with Personal Finance for PhDs and my brother. And Sam has been on the podcast multiple times before. The chief episodes to listen to are season eight, episode four, where we discussed house hacking in great detail. So if you like the strategy that Courtney used, check that one out. There’s also season five, episode 17, where we specifically discussed qualifying for a mortgage with fellowship income. Although there have been updates since then. So if you want some updates, I actually have some on my YouTube channel from some previous Q&As that we did with Sam. So Personal Finance for PhDs is the name of my YouTube channel. Anyway, long-winded intro, Sam, please reintroduce yourself to the audience.

36:48 Sam: Thank you for having me Emily. Yes. I’m Sam Hogan and I work with Prime Lending (Note: Sam now works at Movement Mortgage). We’re a national lender. My NMLS ID is 1 4 9 1 7 8 6.

Sam Hogan’s Contact Info

36:59 Emily: How can people get in touch with you if they want to learn more about getting a mortgage for themselves?

37:05 Sam: The best way to reach me is definitely by text. My cell phone is (540) 478-5803. Standard data message rates apply. And if that doesn’t work, my email is [email protected].

37:24 Emily: Perfect. And I should also mention that Sam, because of our sibling relationship, Sam has been actually kind of specializing in graduate students and postdocs and early-career PhDs within the mortgage industry for the past several years. He has lots of experience in this area. So, Sam, you know, I kind of briefed you on what this interview with Courtney was about. And her, to me, very unusual and very interesting strategy of buying a home with a friend. I never talked to anyone who did that before, but it definitely seems to me that if you’re careful about it, this could be a really game-changing strategy for people who could not otherwise, you know, buy a home on their own in their own housing markets. So I wanted to know from you, strictly from a lender’s perspective, now we’re not talking about from a legal perspective about whether this is a good idea or not, but strictly from a lender’s perspective, are there any issues that are posed by putting two, like unmarried or otherwise unrelated, people together on a mortgage?

Lender’s Perspective on (Unrelated) Co-Borrowers

38:19 Sam: There’s not. It’s the same simple steps as having another co-borrower even if you’re related to them. So, normal process, like Courtney touched on, you know, just double the paperwork. And there’s no shame in bringing on a co-borrower even if you’re unrelated or a friend, to jump on a mortgage and then, you know, as long as everyone can stay responsible and consistent, then it’s very little risk.

38:47 Emily: Is it pretty common for there to be co-borrowers on a mortgage? Let’s say, aside from a married couple, is it pretty common to have a parent or another relative or a sibling or a friend or something like that going on?

38:59 Sam: I would say about 50% of the loans we originate have co-borrowers on them.

Exit Strategies for Co-Borrowers

39:07 Emily: Can you just kind of at a high level go over what are the exit strategies? Not for Courtney, specifically, but let’s say we had another person listening who’s like, “Oh wow, my best friend and I would love to buy together, but of course we don’t want to be in a house together indefinitely.” So how, if you enter into this kind of relationship, how can you later on dissolve it?

39:27 Sam: Refinancing off is one. You can obviously sell the property and pay off the mortgage. You could turn the property into a rental. That would allow you to cover the mortgage, maybe some extra income. But that would actually keep both borrowers on the loan. If one borrower wanted to move away, recoup what they’ve gained from home ownership and moved on to their next goal. The borrower that’s still living in the property could take a key lock, a home equity line of credit against the home, which is not refinancing. It’s just basically a line of credit given to you in cash for however much you need. Obviously you’d have to meet the regulations and rules for loan to value, but you can’t take 100% of the value of your home out, for example. But they would take a line of credit.

40:23 Sam: You would be able to pay out your original co-borrower that got you into the loan. Say, “Hey, this is 50% of the equity we’ve gained over the last X amount of years.” And just on top of that money being sent, just have something in writing. I’m not an attorney or anything, but just disclosing that, “Hey, we, we made an agreement. You know, I’m going to have full ownership and take you off the title and have a put claim deed filed. So you’re off the title, then we’re going to pay you some equity from the home.” That would be the easiest way to do it. Yeah. It’s not as complicated as people would think. Like you’re not signing your life away forever. You’re just signing to get into it. And if you want it to, you know, change your living scenario year later, it’s definitely possible.

41:07 Emily: Okay. Yeah. Thank you for that insight. So I just want to say again, the message that I want to get across here from Sam is like that this is not that unusual, not that complicated. You can get out of it in a variety of ways once you want to. But of course, we’re talking with a mortgage originator. We’re not talking with a lawyer. So like there’s other perhaps documents and like official contracts and things that have to be filed that’s sort of beyond the scope of our conversation, but from your perspective, this is not really a big deal from a lending perspective.

41:39 Sam: No, I mean, title companies even have ways to state this that are common, right? That is, two tenants having 50% ownership of this property. So it’s not abnormal. I wish it would become a little bit more mainstream with some of our, you know, younger renters, people who want to be in home ownership but just either don’t know or don’t know how, or are just a little nervous to execute.

Live Q&A with Emily and Sam

42:07 Emily: We have something else exciting to announce, which is that Sam and I are doing another live Q&A call. So we’ve done, we did a couple of these earlier in 2021 during the, you know, peak of the buying season. We’re doing another one on December 16th, 2021 at 5:00 PM Pacific. So basically with this kind of session, you sign up, you can sign up at PFforPhDs.com/mortgage, and just show up with your questions. And Sam, or I might be able to contribute something as well. Mostly Sam, will answer those questions to the best of his ability. And yeah, this is a great way to kind of get prepped. If you are thinking about buying in spring 2022, or maybe shortly after that, this is a great time to be like, sort of getting your ducks in a row and Sam can help you figure out the steps that you need to take to do that. So again, if you want to sign up, PFforPhDs.com/mortgage for the event on December 16th at 5:00 PM. Sam and I will both be in attendance and happy to answer your questions. So thanks so much Sam, for giving this additional insight into Courtney’s fantastic idea.

43:10 Sam: Yes. Thank you for having me! And as always, let me know if you have any questions.

Outtro

43:19 Emily: Listeners, thank you for joining me for this episode! pfforphds.com/podcast/ is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episodes’ show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast. I’d love for you to check it out and get more involved! If you’ve been enjoying the podcast, here are 4 ways you can help it grow: 1. Subscribe to the podcast and rate and review it on Apple Podcasts, Stitcher, or whatever platform you use. 2. Share an episode you found particularly valuable on social media, with an email list-serv, or as a link from your website. 3. Recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt repayment, and effective budgeting. I also license pre-recorded workshops on taxes. 4. 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 Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

How to Establish and Improve Your Credit as a Graduate Student or PhD

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In this episode, Emily explores the topic of credit: what is it, why it matters, how to establish it, how to improve it, and when you can stop thinking about it so much. Near the end, she also reveal the biggest credit killer that she sees among the PhD community and how to overcome it. As ever, the content is tailored to the PhD experience of finances in the US, including that of international students, postdocs, and workers.

Links Mentioned in the Episode

Intro

Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

This is Season 10, Episode 6, and I don’t have a guest today, but rather I’m exploring the topic of credit: what is it, why it matters, how to establish it, how to improve it, and when you can stop thinking about it so much. Near the end, I also reveal the biggest credit killer that I see among our community and how to overcome it. As ever, I have tailored the content in this episode to the PhD experience of finances in the US, including that of international students, postdocs, and workers.

I’m eager to devote time to this important topic because many PhDs, especially those who grew up outside the US or are from underprivileged backgrounds, don’t have credit or have poor credit or are concerned about their credit. If you have good credit, it’s not something you have to pay much attention to. But if you have poor credit or no credit, it can really hold you back financially and limit your life choices.

The credit bureaus start tracking our financial actions as soon as we start taking any. For many of us, that starts when we’re minors or college students, long before we may have the financial acuity to safeguard and foster our credit. Very sadly, some children and adults are victims of financial fraud, which can destroy your credit through absolutely no fault of your own, and it can be very difficult and painful to rectify.

I expect listeners of this episode to run the gamut, from PhDs and graduate students with great credit to those with poor credit to those with no credit. You will all find great information in this episode, including what steps you should take to establish or improve your credit, if necessary, and some reassurance as to when you can put your credit out of your mind.

What Is Credit?

Asking the question “What is credit?” seems like a basic place to start this episode, but I actually had to search a little harder for a good definition than I was expecting. In fact, the best definition I found was for the term creditworthiness rather than credit, and it’s from Investopedia.

“Creditworthiness is… how worthy you are to receive new credit. Your creditworthiness is what creditors look at before they approve any new credit to you. Creditworthiness is determined by several factors including your repayment history and credit score.”

Basically, credit is a tool that lenders use to evaluate how risky you are to lend to, which affects whether whether they will work with you at all and what interest rate you’ll be offered. This evaluation is based on your past use of credit.

All of your credit-related activity is tabulated in your credit report. Actually, you have multiple credit reports, each prepared by a different credit bureau. There are three main credit bureaus: Equifax, Experian, and Transunion. In theory, they are all working off of the same information.

The information that is included in each of your credit reports is 1) personally identifiable information, such as your name, social security number, and address; 2) lines of credit and payment history, which is all of the loans and credit that have been extended to you and your repayment history with each, going back approximately seven years; 3) credit inquiries, which is a record of each time your credit is viewed by a potential lender; and 4) public record and collections, which is a record of bankruptcies or bills that have gone to collections because you neglected to pay them.

Your credit reports are used to calculate credit scores. You actually have many credit scores calculated in different ways by different bodies for different purposes. The most popular credit score for mortgages and similar loans is the FICO credit score. A close second is the VantageScore. We’ll return in a few minutes to how those scores are calculated and what they mean.

The main points I want you to take from this section are that your credit scores are based on your credit reports, which are records of all of your credit-related activity.

Why Credit Matters

Why should you or anyone else care about your credit or your credit score in particular? You can see that your credit is based on how you’ve treated your debt and some other financial obligations in the past, and it was developed to help lenders asses whether they should lend to you under the assumption that you will behave in the future as you have in the past. So clearly your credit matters if you are trying to take out a loan, like a mortgage or car loan, or a line of credit, like a credit card.

Rather strangely, your credit score is also often referenced when someone wants to quickly judge how financially responsible you are. Landlords, utility companies, and insurance companies often access credit scores, and some employers and even governments do as well. It is a big leap to assume that how you’ve treated debts in the past is predictive of general financial responsibility in the future, and I think it’s quite unfair.

People who have no credit are often quite financially responsible because they have managed to run their lives without the use of debt, but that’s not reflected in their nonexistent credit score. Also, credit you may have had in your home country does not translate to the US; you have to start over. And for anyone with poor credit, the actions and/or circumstances that created that low credit score are not ones that will necessarily be repeated in the future. You can change your financial behavior on a dime, but it takes a long time for your credit score to catch up.

The Equal Credit Opportunity Act of 1974 ostensibly prohibits discrimination based on race alongside other factors, but in practice there is a credit gap. A recent study by Credit Sesame found that 54% of Black Americans had no credit score or a poor or fair credit score, while only 41% of Hispanic Americans, 37% of white Americans, and 18% of Asian Americans had the same. The credit gap stems from the Black-white wealth gap, homeownership gap, employment gap, and income gap, and perpetuates the wealth gap and homeownership gap.

The credit gap is caused by systemic problems, and systemic solutions are warranted. However, in this episode, I’m going to focus on what you can do as an individual to impact your own credit score.

What is a good credit score and how is it calculated?

The FICO credit score and VantageScore range from 300 to 850. According to a lovely Nerdwallet graphic linked in the show notes, a score of 720 to 850 is considered excellent, 690 to 719 is good, 630 to 689 is fair, and 300 to 629 is poor. For another reference point, a FICO credit score of 760 and above will get you the best interest rates on a mortgage.

https://www.nerdwallet.com/article/finance/what-is-a-good-credit-score

While the exact algorithm for calculating FICO credit scores is proprietary, we know that 35% of the FICO score is based on payment history, 30% on amounts owed, 10% on new credit inquiries, 15% on the length of your credit history, and 10% on the mix of credit. We’ll get into what actions you can take in each of these areas to improve your credit score momentarily.

How do I establish credit?

Before we get there, I want to speak to those of you who do not have any credit history in the US. I do think it’s worthwhile to establish credit history and a credit score if you are not yet financially independent. A good credit score is useful as a renter and a virtual necessary when taking out a mortgage.

As I explained earlier, credit is self-referential. To have credit, you must have had credit. So how do you get your foot in the door?

The simple and free way to do so is to take out a secured credit card. This is a special kind of credit card designed to help people establish credit. You turn over a deposit, which becomes your line of credit. You borrow against that line of credit and then pay it back. After about six months, you should have a credit score and be able to move on to more conventional debt products, if you want to. These credit cards are often marketed as student cards.

Alternatively, if you have a family member who is very responsible with credit, you could ask to be added as an authorized user on one of their credit cards. In this way, their good credit sort of rubs off on you. You don’t actually have to even have or use your authorized user card. Just make sure that the person you ask to do this pays off their credit card balance in full every statement period. As soon as your credit score is established and high enough, take out your own credit card to establish your independent credit history. As I learned from Sam Hogan, a mortgage originator with PrimeLending (Note: Sam now works at Movement Mortgage) and an advertiser with Personal Finance for PhDs, in one of the live Q&A calls we’ve held, your credit score may look good with only an authorized user card in your history, but you won’t qualify for a mortgage on that alone.

There are two other solid ways to establish credit, but they are not usually free, and therefore I suggest you only undertake one of them if it is very financially important to you to establish the highest possible credit score quickly. That’s not usually necessary, so these are sort of extreme steps.

Method #1 is to take out a loan with a bank, sometimes specifically called a credit builder loan. This is an installment loan, so it’s a good complement to the revolving line of credit you likely already have with a credit card. It’s not enough to take out the loan, but rather the point is to make the minimum payments consistently to demonstrate that you are capable of repaying debt responsibly. The cost here is the interest you’ll pay throughout the repayment period, so you should shop around for the best rate available to you. You could also consider doing this with a student loan if you are a student, but since the loan won’t go immediately into repayment, I’m not certain it will have as positive an effect on your score as a credit builder loan would. Plus, student loans are not dischargeable in bankruptcy, if it came to that, so that’s a strike against them in comparison with a bank loan.

Method #2 is to pay a service to report the payments you are already consistently making to the credit bureaus. For example, the service might report your rent payment, which would not normally be included in your credit report. The cost here is the fee for the service, so again, shop around. You won’t have to keep the service up indefinitely, only long enough to qualify for another debt product.

This last tactic of reporting rent payments to credit bureaus and having them be calculated into credit scores is, from what I can tell, the top method being pursued to address the credit gap. A few landlords are starting to report rent payments to the credit bureaus on behalf of their tenants for free. The newest versions of the FICO and VantageScore algorithms do take rent payments into consideration, but most lenders still rely on older versions of the algorithms.

How do I improve my credit?

Now that we’ve covered establishing credit, let’s go deep into how to improve credit. Please take note from the outset here that improving your credit score is a long game. You must practice good credit behavior consistently for years. Since the length of your credit history is taken into account, you really can’t attain a top credit score until you’ve been using credit for at least a handful of years.

I’m going to give you at least one suggestion from each category that goes into the FICO credit score. Don’t be shocked when one or two of the suggestions contradict each other!

35% of the FICO score is based on payment history. This is the key category. Make your payments on time and in full every time. For years.

30% of the FICO score is based on amounts owed. Pay down your debt. Pay off your debt. For a specific hack, keep your credit card utilization rate low. Your utilization ratio is the balance you owe across all your credit cards divided by the sum of your credit limits. You should keep this ratio below 30% or ideally below 10%. Please note that your utilization ratio can be viewed at any point in your statement period. So even if you pay off your credit cards in full every period, as you should, having a high utilization ratio at some point earlier in the period will still ding your score. You can keep your utilization ratio low without changing your spending by 1) requesting credit limit increases across all of your cards, 2) applying for new credit cards to increase your overall credit limit, and 3) paying off your cards multiple times each statement period instead of just at the end.

10% of the FICO score is based on new credit inquiries. Don’t apply for any new loans or lines of credit. I warned you that some suggestions would be contradictory!

15% of the FICO score is based on the length of your credit history. Basically, you just need to let time pass. It helps to keep your oldest credit card open indefinitely and to close newer accounts if you want to close any. If you haven’t opened a credit card yet, choose one without an annual fee to be that first card.

10% of the FICO score is based on the mix of credit. Specifically, this means having both revolving lines of credit, like credit cards and home equity lines of credit, and installment loans, like a mortgage, car loan, student loan, etc. If it was really important to you to improve your credit score and you didn’t have any installment loans, you could take one out, like the credit builder loan I mentioned earlier, but it will cost you.

Another great, general step to take is to check your credit reports for accuracy once per year through annualcreditreport.com, which is the government-sponsored website where you can order one credit report per year from each credit bureau. During the pandemic, that limit was increased to once per week. Keeping tabs on your credit reports is part of your basic good credit behavior.

Credit killers

Now I’d like to explore the main credit killer that I see PhDs and particularly graduate students falling into. And it’s not student loans! Believe it or not, as long as you’re current on your payments and your balance isn’t inordinately high, student loans are kinda good for your credit score. No, the big credit killer, and killer of your finances overall, is credit card debt.

According to the Council of Graduate Schools’ recent report, Financial Education: Developing High Impact Programs for Graduate and Undergraduate Students, 85% of graduate students have a credit card. Forty-five percent of those carry a balance on their cards, with 9% only making the minimum payment.

Everyone listening to this podcast episode knows that finances in graduate school are challenging at best. We can all understand how readily an emergency or unexpected expense could result in a carried balance on a credit card. But, I implore you, instead of accepting that your credit card balance will be with you until and through graduation, get aggressive about ridding your balance sheet of this most toxic kind of debt.

Ideally, you would pay your balance off by increasing your income and/or decreasing your expenses and throwing all available cash—outside of a starter emergency fund—at the debt. Depending on how high that balance is, you may not have to make these sacrifices for long.

If it is absolutely impossible for you to increase your income or decrease your expenses before you finish graduate school, you could at least mitigate the negative effects of your credit card debt. If your credit card debt resulted from the hard reality that your stipend is insufficient to pay for basic living expenses, please consider taking out a student loan to pay off the past debt and supplement your income going forward so you stay out of credit card debt. While it’s not great to be in student loan debt either, at least you can defer the payments until after you graduate. If your credit card debt resulted from an unexpected expense that is unlikely to recur, you might consider paying off your credit card debt with a personal loan from a bank or with a balance transfer credit card. That way, you can at least get a break on the interest you would have paid while you’re paying down the balance.

If you’d like to learn more about increasing your cash flow and paying down debt, please join the Personal Finance for PhDs Community at PFforPhDs.community. Inside the Community, you will find the recordings of two workshops I gave in August, titled How to Up-Level Your Cash Flow as an Early-Career PhD and Whether and How to Pay Off Debt as an Early-Career PhD. After working through the materials, you will have a plan for how to handle your credit card balance in the short and long term.

When your credit doesn’t matter

The final credit topic I’ll address in this episode is when your credit doesn’t matter and when it does. Once you have attained a great credit score of approximately 740 or above and you keep up your good credit habits, you don’t need to pay much attention to your credit. Keep paying your bills on time and in full, use your credit cards as you would debit cards, chip away at your debt, and check your credit reports for accuracy once per year. You don’t have to actively work on increasing your credit at that point—with one exception. If you are planning to take out a loan in about the next year, it would behoove you to get a little more protective about your credit. I’m particularly speaking about taking out a mortgage, but this would also help you with a car loan or similar. For example, you might stop opening credit cards months or a year in advance of applying for your new loan so that you don’t have any recent hard credit inquiries. You might pay off a smaller debt in its entirety. You might pay special attention to your utilization ratio. Above all, when you start working with a mortgage loan officer, listen to that person’s advice about what to do regarding your credit. They might instruct you to make absolutely no changes. I know that Sam Hogan, the mortgage originator I mentioned earlier, advises his clients all the time about their credit in the lead-up to taking out a mortgage. If you are looking to take out a mortgage in the near future and you want to work with someone who understands PhD income, please reach out to Sam over text or a call at 540-478-5803.

Conclusion

I hope this episode was instructive for you and clarified what steps, if any, you should take regarding your credit as a graduate student, postdoc, or PhD with a “Real Job!”

Outro

Listeners, thank you for joining me for this episode!

pfforphds.com/podcast/ is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episodes’ show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast. I’d love for you to check it out and get more involved!

If you’ve been enjoying the podcast, here are 4 ways you can help it grow:

  1. Subscribe to the podcast and rate and review it on Apple Podcasts, Stitcher, or whatever platform you use.
  2. Share an episode you found particularly valuable on social media, with a email list-serv, or as a link from your website.
  3. Recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt repayment, and effective budgeting. I also license pre-recorded workshops on taxes.
  4. 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 Podington Bear from the Free Music Archive and is shared under CC by NC.

Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

What to Do at the Start of the Academic Year to Make Next Tax Season Easier

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In this episode, Emily teaches what various types of PhD trainees can do at the start of the academic year to make next tax season go more smoothly. She covers tracking qualified education expenses, quarterly estimated tax, the Kiddie Tax, and state residency. Please consider sharing this episode on social media or with an email list-serv so your peers have access to this information as well!

Links Mentioned in the Episode

easier tax season

Introduction

Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

This is Season 10, Episode 2, and I don’t have a guest today, but rather I will tell you what various types of PhD trainees can do at the start of the academic year to make next tax season go more smoothly. We will discuss tracking qualified education expenses, quarterly estimated tax, the Kiddie Tax, and state residency. Please consider sharing this episode on social media or with an email list-serv so your peers have access to this information as well!

We are at or near the start of a new academic year, which means it’s time to take a moment to think about taxes. A few minutes of consideration at this time of year can save you a big headache and wallet-ache during tax season, so it’s worth it.

This episode has four sections, and I’m going to clearly identify at the beginning of each section who the information is for, because it will switch around. Overall, this episode is for US citizens, permanent residents, and residents for tax purposes living in the US. The various intended audiences for the sections are full-time graduate students; postbacs, grad students, and postdocs receiving non-W-2 stipends or salaries; full-time graduate students age 23 and younger; and grad students who either moved states in 2021 or whose income is coming from a new state. Our overarching topic is what you can do now to make next tax season easier.

Please note that I am not a Certified Public Accountant or Certified Financial Planner. This content is educational in nature only and should not be considered tax, financial, or legal advice for any individual. You are entirely responsible for your own financial decisions.

Tracking Education Expenses

Section A is for full-time graduate students.

In early 2022, once you get into preparing your annual tax return, you are going to need to use your so-called “qualified education expenses.” You can use these expenses to reduce your tax liability. Depending on which higher education tax benefit you employ, your qualified education expenses will either be used as a deduction or a credit. I’m not getting into all the details now because you will figure that out during tax season, but if you want to read more, go to PFforPhDs.com/prepare-grad-student-tax-return/ for my article updated for 2020.

The action step for you at this point in the year is to keep track of any education expenses that you suspect might be qualified education expenses. Now, the education expenses that are paid through your student account are already tracked for you, and you should be able to access your 2021 statement during tax season to look at all of the transactions for items like tuition and fees. What I’m suggesting that you manually track is any education expense that you transact outside of that student account, such as textbooks, course-related expenses, and computing purchases.
What I mean by tracking is to save two types of documents: 1) The receipt of the purchase showing the price paid. 2) The document stating that the purchase was required by your course instructor, your department, your school, or your university. The document could be a course syllabus, an email, or a screenshot from a webpage. You can choose how you want to save these records, but I suggest a digital copy maintained in cloud storage.

Now, not every education expense that you track may turn out to be a “qualified education expense” as that will depend on which higher education tax benefit or benefits you choose to use for your tax return. I suggest you leave the task of figuring out what is qualified and what is not to Future You. Present You only has the responsibility to track the expenses, and Future You will thank you for that.

Awarded Income and Estimated Tax

Section B is for postbacs, grad students, and postdocs receiving non-W-2 stipends or salaries.

Right up front, I need to define what I mean by a non-W-2 stipend or salary. I use a framework wherein there are two basic classifications for a stipend or salary that a PhD trainee might receive: employee income and awarded income. These are my own terms, so you won’t find ‘awarded income’ in IRS documentation or used by universities.

Employee income comes from the work than an employee performs for their employer. At the graduate student level, employee positions are often but not exclusively called assistantships, e.g., research assistantship, teaching assistantship, or graduate assistantship. If you have employee income and are a US citizen, permanent resident, or resident for tax purposes, this income will be reported on a Form W-2 at tax time.
The other type of income, awarded income, is more difficult to define. It is given as an award rather than for work performed. At the postbac, grad student, and postdoc levels, awarded income is often but not exclusively called fellowship income. If you are a US citizen, permanent resident, or resident for tax purposes, this income could be reported on a Form 1098-T, a Form 1099-MISC, a Form 1099-NEC, or a courtesy letter. However, there is actually no IRS reporting requirement for this type of income, so many PhD trainees receive absolutely no documentation whatsoever.

If you want to understand this framework more fully, I suggest listening to Season 8 Episode 1 of this podcast, which is titled “What Your University Isn’t Telling You About Your Income Tax.”

Now, the important things to know about awarded income, which I also call non-W-2 stipends or salaries, at this time of year are that 1) this is taxable income and 2) your university is likely not withholding income tax from your paychecks.

There are endemic rumors running around universities that this non-W-2 type of income is not taxable. While it is very tempting—and self-serving—please do not believe these rumors. Listen to Season 2 Bonus Episode 1 of this podcast, titled “Do I Owe Income Tax on My Fellowship?”, in which I clearly delineate which portion of your awarded income is taxable and which is tax-free.

One of the reasons these rumors sound believable is that, with rare exceptions, universities and institutes do not withhold income tax on behalf of their non-employees.

If your stipend or salary recently switched to an awarded income source or this is the first time you’re learning about this income tax issue, you have a few action items:

1) Figure out if income tax is being withheld from your paychecks. If it is, you’re done until tax season.

If income tax is not being withheld:

2) Fill out the Estimated Tax Worksheet on p. 8 of Form 1040-ES. Essentially, you will do a high-level draft of your 2021 tax return, and the worksheet will tell you whether you are required to pay estimated tax and if so in what amount. The principle behind estimated tax is that the IRS expects to receive income tax payments from each taxpayer throughout the year as they receive their paychecks. If your employer does not withhold income tax on your behalf, this becomes your responsibility. However, there are some situations in which estimated tax is not required, and the Estimated Tax Worksheet will tell you if you fall into one of the exception categories. If you are required to pay estimated tax, please be aware that the next due date is September 15, 2021. The due dates typically fall in mid-April, mid-June, mid-September, and mid-January of each year. If you are required to pay estimated tax and fail to, you may be fined by the IRS.

3) Whether you are ultimately required to pay estimated tax or not, the Estimated Tax Worksheet will tell you how much you can expect to pay in tax above your withholding for the year. I strongly encourage you to start saving up for your eventual tax payment or payments. Divide your additional tax liability in Line 14b by the number of remaining paychecks you’ll receive in 2021 and start saving that amount of money from each paycheck. Personally, I have a dedicated savings account named Taxes into which I transfer money from each paycheck. Then, when my quarterly bills are due, I have the money ready to go, and the payment doesn’t strain my cash flow at all.

Please keep in mind that if you have a state tax liability in 2021, you may be required to pay estimated tax to your state as well.

If you want some help with filling out your Estimated Tax Worksheet, please check out my workshop, Quarterly Estimated Tax for Fellowship Recipients at PFforPhDs.com/QEtax/. The workshop explains how to fill out every line of the Estimated Tax Worksheet plus how to handle common scenarios that PhD trainees encounter, such as switching onto or off of fellowship mid-year and being married to someone who has income tax withholding. The workshop comprises numerous pre-recorded videos, a spreadsheet, and an invitation to the next live Q&A call, which will take place on September 12, 2021. To join the workshop, go to PFforPhDs.com/QEtax/. That’s q for quarterly, e for estimated, t a x.

By the way, I give a discount for bulk purchases of this workshop, and it’s not too late to ask your department, graduate school, graduate student association, postdoc office, etc. to buy it on behalf of a group of graduate students, postdocs, or postbacs. Simply email me at emily at PFforPhDs dot com to get the ball rolling on that purchase.

Commercial

Emily here for a brief interlude!

We have a special event coming up on Friday, August 27, 2021! It’s the fourth installment of my Wealthy PhD Workshop series. The subject is debt repayment.

This workshop is for you if you are in debt of any kind and want to learn the best strategies for getting out of debt. These strategies are tailored to the PhD experience, particularly that of graduate students. We will cover student loans, of course, which are such a complex topic, as well as mortgages, credit card debt, auto debt, medical debt, etc. I’ll give you a spreadsheet that will help you work through in which order to tackle your debts, taking into account the type of debt, the interest rate, and the payoff balance. We’ll also discuss how to sustain your motivation through a long debt repayment process.

This is going to be a value-packed session, so please join us on August 27th. You can register at PFforPhDs.com/WPhDDebt/. That’s PF for PhDs dot com slash W for Wealthy P h D D e b t.

Now back to our interview.

The Kiddie Tax

Section C is for full-time graduate students age 23 and younger.

I want to give you a heads up that a higher tax rate might apply to you if you meet the following criteria:

  1. You are age 23 or younger on 12/31/2021.
  2. You are a full-time student.
  3. You receive a non-W-2 stipend or salary for at least part of 2021.

If you checked all of those boxes, you might be subject to the Kiddie Tax, which means that part of your income may be taxed at your parents’ marginal tax rate instead of your own. The Kiddie Tax can apply even if you aren’t being claimed as a dependent.

I can’t say for sure that you will or will not be subject to the Kiddie Tax as there are more calculations that have to be performed, but I suggest that you look into this before the end of the calendar year and possibly take some mitigation measures if your parents’ marginal tax rate is higher than yours. You may need to engage a professional tax preparer to help you and your parents with tax planning and preparation for 2021. You may need to save more from each paycheck for your eventual tax bill than I laid out in Section B.

I have an article about how the Kiddie Tax affects funded PhD students at PFforPhDs.com/kiddietax/. That P F f o r P h D s dot com slash k i d d i e t a x.

State Residency

Section D is for graduate students who moved states in 2021 or are receiving income from a new state.

I find that people get rather mixed up about state residency and taxes, especially when they are in graduate school. For a traditional college student who is a dependent of their parents, it is common to maintain your residency in the state your parents live in even while you attend college in another state. However, I rarely come across a compelling reason that a graduate student should do the same.

The pandemic has also thrown a wrench into the question of state residency due to how common remote work is now. So even if you lived in only one state in 2021, if your income comes from a different state, that’s something to contend with.

What I think you should do at this time of year to make tax season easier is to figure out and/or decide in which state or states you will be a resident, part-year resident, or non-resident in 2021. This will require you to read about how your new state and your old state define residency and how they tax residents, non-residents, and part-year residents.

My totally generic, blanket recommendation if you have moved states to start grad school is to consider yourself a resident of your new state, even if technically your former state allows you to still be considered a resident due to your student status. You’re a full-fledged adult with a more-or-less proper income now. Why would you want to keep close ties to your parents’ address? In almost all cases, there is no financial advantage to doing so plus you’ll likely have to file two state income tax returns, one as a non-resident in the state you live and work in and one as a resident in the state you don’t live or work in. For how long do you want to keep that up?

If you agree that you don’t want to keep filing two returns indefinitely if there’s nothing in it for you, take a few steps this fall to firmly establish your ties to your new state. Reference how your new state defines a resident for the definitive word on how to do so, but for some starting ideas you should get a new driver’s license, register to vote, change your address with your car insurance, and update your mailing address with all your financial institutions.

Now, if you really do have a compelling reason for maintaining your residency in your old state while you’re a student, by all means try to do so. You still have to read all the material I mentioned before, but this time with the goal to maintain your residency in your old state and avoid being considered a resident in your new one. By the way, in all my conversations with grad students about taxes, I’ve only ever heard one reason that I considered compelling: A resident of Alaska who was attending graduate school in another state wanted to maintain their Alaska residency so they could continue to receive universal basic income. Please remember that even if you do have a great reason to want to maintain residency in your old state, you have to cross all your ts and dot all your is to make sure you meet the requirements.

Conclusion

That it for this episode! I hope you’ll check in with me during next tax season for more tax education and support for PhD trainees. I offer a workshop titled How to Complete Your Grad Student Tax Return (and Understand It, Too!) during each tax season, which can be purchased by individuals or groups at a discounted rate. I’m making plans for how I can help PhD trainees with their tax returns in brand-new ways in the upcoming tax season. Join my mailing list at PFforPhDs.com/subscribe/ to stay in the loop! You can expect to receive 2-3 emails per week from me on various personal finance topics.

Before you go, would you please share this episode with your peers, especially new graduate students? Join me in helping to make next tax season go smoothly for all PhD trainees!

Can I Qualify for a Mortgage with a Short-Term Fellowship or on an F-1 Visa?

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In this episode, Emily shares a few clips from the first-time homebuyer Q&A that she hosted with Sam Hogan on May 6, 2021. Sam is a mortgage originator with Prime Lending (Note: Sam now works at Movement Mortgage) specializing in graduate students and PhDs, an advertiser with Personal Finance for PhDs, and Emily’s brother. The first pair of questions is on whether having three years left on your fellowship offer is required to get a mortgage. The second pair of questions is on qualifying for a mortgage if you’re on an F-1 visa. These questions are among the most common that Sam receives.

Previous Episodes with Sam Hogan

Introduction

Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

This is Season 8, Bonus Episode 1, and today I’m sharing a few clips from the first-time homebuyer Q&A that I hosted with Sam Hogan on May 6, 2021. Sam is a mortgage originator with Prime Lending (Note: Sam now works at Movement Mortgage) specializing in graduate students and PhDs, an advertiser with Personal Finance for PhDs, and my brother.

Sam has been on the podcast before in Season 2 Episode 5, Season 5 Episode 17, and Season 8 Episode 4. As Sam has gained experience working with PhD clients over the last few years, he’s been able to get mortgages approved in scenarios that didn’t seem possible a couple of years ago. We’re using this bonus episode to update you all on this evolving situation.

What you will hear next is me reading questions that were submitted over chat during the Q&A call and Sam’s answers. We selected these questions because they are among the most common that Sam receives. The first pair of questions is on whether having three years left on your fellowship offer is required to get a mortgage. The second pair of questions is on qualifying for a mortgage if you’re on an F-1 visa. There were a few dozen people on the call so you will hear some background noise as well.

If you would like to attend a Q&A call of this type, please sign up for the Personal Finance for PhDs mailing list at PFforPhDs.com/mortgage/. I’ll be in touch over email about the next scheduled call. As of now we anticipate holding another one in June 2021 and periodically after that.

If you would like to get in touch with Sam directly regarding your own mortgage, you can call or text him at (540) 478-5803 or email him at [email protected].

Without further ado, here are the clips from the first-time homebuyer Q&A call with Sam Hogan.

Conclusion

Thank you, Sam, for giving your time and expertise to this call and thank you, participants, for your excellent questions! If you, listener, are interested in attending a Q&A call for first-time homebuyers in the near future, please go to PFforPhDs.com/mortgage/ and register for my mailing list. I’ll be in touch over email when we schedule the next call. If you would like to contact Sam directly regarding your own mortgage, you can call or text him at (540) 478-5803 or email him at [email protected].