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Student Loans

Student Loan Deferment Shouldn’t Be Your Default

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In this episode, Emily interviews Meagan McGuire, a Certified Student Loan Professional and consultant with Student Loan Planner. Meagan goes over all the pertinent terms of the upcoming modified REPAYE plan, which is expected to join the other options for income-driven repayment plans in 2023. The relatively more generous terms of the modified REPAYE plan, such as the revised payment calculation and the interest subsidy, make it an attractive option not only for borrowers already in repayment but also for those currently eligible for deferment. That’s right! If you are a grad student, don’t default into deferring your student loans after the administrative forbearance ends! Instead, consider whether it’s worthwhile to enter repayment under modified REPAYE. You could potentially avoid all of the interest that would have accrued on your unsubsidized loans during grad school and/or reduce the number of years you have to pay on your loans post-PhD—all for free or a low cost. If you hold any federal student loans, do not skip this episode! Update 10/3/2023: The plan discussed in this interview is now called the SAVE plan.

Links Mentioned in the Episode

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Teaser

00:00 Meagan: This new REPAYE plan makes deferment look very unattractive for a lot of reasons. There’s not a lot of advantage to deferment anymore. And even if you had a payment kick in, keep in mind it’s a very, it’s a portion of your income. And if you’re closer to, let’s say 35, you know, $35,000 for your stipend, that’d be closer to maybe almost $10, $20 a month.

Introduction

00:32 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. This is Season 14, Episode 7, and today my guest is Meagan McGuire, a Certified Student Loan Professional and consultant with Student Loan Planner. Meagan goes over all the pertinent terms of the upcoming modified REPAYE plan, which is expected to join the other options for income-driven repayment plans in 2023. The relatively more generous terms of the modified REPAYE plan, such as the revised payment calculation and the interest subsidy, make it an attractive option not only for borrowers already in repayment but also for those currently eligible for deferment. That’s right! If you are a grad student, don’t default into deferring your student loans after the administrative forbearance ends! Instead, consider whether it’s worthwhile to enter repayment under modified REPAYE. You could potentially avoid all of the interest that would have accrued on your unsubsidized loans during grad school and/or reduce the number of years you have to pay on your loans post-PhD—all for free or a low cost. If you hold any federal student loans, do not skip this episode!

02:22 Emily: OK guys, if you’re listening to this in real time, it’s April. You have just weeks or days to finish up your tax return, if you haven’t already. I’m standing by, ready to help you the moment you say you want me to. I have four versions of my workshop on preparing your annual tax return available, covering postbacs, grad students, and postdocs, both US citizens/residents and nonresidents. The last live Q&A call for the citizen/resident versions of that workshop is on Thursday, April 13, 2023. I’m also answering questions for the nonresident version asynchronously, and the deadline to submit those is Tuesday, April 4, 2023, but I might be able to get to some after the deadline as well, we’ll see. I also offer a workshop on estimated tax, which you’ll probably want if you are currently on fellowship and were surprised with a large tax bill on your 2022 tax return. The quarter 1 Q&A call for that workshop is on Monday, April 17, 2023. You can find the links to purchase any of my tax workshops plus tons of free resources at PFforPhDs.com/tax/. You can find the show notes for this episode at PFforPhDs.com/s14e7/. Without further ado, here’s my interview with Meagan McGuire of Student Loan Planner.

Will You Please Introduce Yourself Further?

04:02 Emily: I am so excited to have on the podcast today, Meagan McGuire. She is a consultant with Student loan Planner, so we have an actual expert on the podcast with us which is a refreshing change of pace. And yeah, I’m just so excited that Meagan is here because she works for this amazing company called Student Loan Planner, which if you have federal student loans and you’re not already following them, get on their mailing list, get on their socials. They have great, great information. I’ve been heavily relying on them with all the excitement and student loan news recently. Meagan has actually been on the podcast before, back in season seven, episode 13. So if you haven’t yet listened to that you know, some of that information might be a little bit out date because things have been developing. So, we’re going to talk about the new modified REPAYE plan today, which is another one of the income-driven repayment plans. We’re going to explain all those terms in just a second, but that’s the subject for today. So, if you have federal student loans, do not tune out, do not hit pause. This is a crucial episode for you. So, Meagan, thank you so much for joining me. Will you please introduce yourself a little bit further?

05:04 Meagan: Of course, yeah. Thanks for having me again! I love nerding out about student loans. It’s also a very not fun topic. So we will <laugh> we will talk about it as you know, directly and informationally as possible to help you take a nugget of information from this conversation. But yeah, so I’m Meagan McGuire. Prior last name was Landress. I got married last year, so my last name is different now. But I’ve been with Student Loan Planner since 2019. I’ve been doing student loan planning for a while for my whole career, <laugh> pretty much. And I found that it, you know, student loan planning, in specific, like when it comes to financial planning is such a big piece of somebody’s financial plan. And it’s sometimes the first introduction to finance, which is not fun. And so, having an idea of what you should be doing with your student loans can help ease some of that, you know, anxiety or angst when it comes to thinking about money and finances in general. So, I’m happy to be here. Thanks for having me!

06:06 Emily: I love it. Thank you so much! And you have an actual professional designation, do you not?

06:10 Meagan: Yes. Oh yeah, I forgot to mention that. Yes, <laugh>, I’m what’s called a Certified Student Loan Professional or CSLP. It is a new-ish designation in the financial planning space. I got it back in 2019, very beginning of 2019, when I started with Student Loan Planner. But that just tells you that a professional has the financial planning background along with the specialized education in student loan planning.

06:37 Emily: Yeah, it’s so important. I know that people sometimes get really bad professional advice around what to do with their student loans and that’s why I love following Student Loan Planner. And there are other similar, you know, people who provide similar services. But having that designation is so important because as we’ve learned, there are so many fast moving changes and updates in the student loan world. And so, you really need someone who is up to date. Speaking of being up to date, we are recording this on March 3rd, 2023 <laugh>. So, very important between the time of our recording and the time of this release, maybe there’s been some major upheaval in the student loans world. We don’t know, just earlier this week, a couple student loans cases went before the Supreme Court, but of course we don’t have a decision yet. We’re still waiting on that and many things are waiting on that plan.

Repayment Plans

07:20 Emily: So, actually the subject for today is not the cancellation, which is very exciting on its own. But instead we’re talking about this new IDR plan, or modified IDR plan. So Meagan, I want you to take us back to the beginning with federal student loans because some people in my audience, you know, maybe current undergrads currently in grad school, they may have never had their loans go into repayment. So, they might not even know what the options are. What all these acronyms are? So, can you just tell us what are repayment plans? What are IDRs?

07:48 Meagan: Mm-Hmm. <Affirmative>. Yeah, for sure. So, there are kind of two different buckets of repayment plans or types of repayment plans you can consider when you’re entering repayment in the future. One bucket would be amateurized options, which are kind of like a normal loan, how that would operate where you get a term. So, 10 years, 20 years, could be as far out as 30 years. They take your balance, spread the payments out over that timeframe, and you pay off the whole balance within that timeframe. So, very standard, very normal definition, or you know, way of paying back debt. So, that’s one route. The other bucket are income-driven plans or IDR plans. That is the blanket term for the different income-driven options there are, because there are technically five different income-driven plans available, currently. And so, you know, depending on your situation, your marital status, your income, you know, it could lean you one direction or another when it comes to those income-driven plans. But so far there’s REvised Pay As You Earn as one, or REPAYE. Pay As You Earn, or P A Y E. There’s IBR, income-based repayment, new and old. So, technically those are two different plans. New IBR and old IBR. And income contingent repayment, or ICR. That’s the the laundry list of income-driven plans that are available currently. <Laugh>

09:20 Emily: And, correct me if I’m wrong, but the idea with the income-driven plans is that your payment is recalculated based on a recent income, maybe the previous tax year, for example. And it should, ideally, be lower than what you would have on the standard plan if you were going to opt for an IDR plan. So, you have this lower payment, but it scales with your income. So if your income goes up or down in the future, your payment may go up or down. And the purpose is not necessarily to pay off the loan in its entirety. So, what happens with IDR plans once you’ve been paying on them for a while?

09:51 Meagan: Yes, that’s a great question. So, unlike the amateurized options where it’s designed to pay off the loans during a certain time period, income-driven repayment plans, they are not designed to pay the loans off. They can, mathematically, if your payment is enough to do so over time, but it’s not designed for that. It’s designed to make a payment affordable based on the income that you’re bringing in. And let’s say you’re in a situation where mathematically your payments are never enough to pay off the balance. Well, those income-driven plans all come with a maximum repayment period of either 20 or 25 years. And if you’ve made payments for that 20 or 25 year threshold, whatever balance is left over at the end of that timeframe is then forgiven. So, it really helps people who are never really going to be able to get out from under their loans. No one is ever going to die with their debt <laugh>. They can get on that income-driven plan and go towards loan forgiveness. I hear that a lot where someone will say, “Ah, I’m going to be paying this until I die.” And I’m like, “Ah, check out those income-driven plans. Probably not.” <Laugh> you might be paying for a while but not forever. So, that is a safe haven for those that have large balances in comparison to their income.

11:13 Emily: I think you put that very well. It’s really designed to help people get out from massive student loan balances where their income is not really high enough to support a standard payment on that high debt balance. So, maybe your career plans changed, I don’t know what could have happened. Maybe your education plans changed, something has gone on where, yeah, your career income does not support this. And certainly for people in my audience who are graduate students, maybe they’ve gone through a lot of career shifts in the many, many years they’ve been in higher education. Or maybe they’ve accrued a lot of debt during that time.

Tax Bomb

11:47 Emily: One more question around sort of the technicalities of these IDR plans. Now, I understand that there is what was called a tax bomb at the end of some of these plans. Can you explain what that is?

11:58 Meagan: Yes. So, a tax bomb, that’s kind of the term we use for what happens after the loans are forgiven. So, when the loans are forgiven, there’s a debt that’s discharged. And the IRS sees any debt that is forgiven or canceled or discharged as a benefit to you. So, they tax that as income in the year that it’s forgiven. So, I know that sounds unfair <laugh> that is not fun. So, an example of this would be, let’s say you’re paying for 20 years. You still have a balance of $50,000 at the end of that 20-year timeframe. That is forgiven, yay. But then you hypothetically would be getting a 1099 for that $50,000 that was forgiven. And of course you didn’t pay income taxes on that because that wasn’t part of your income. It was something that was forgiven. So then you have to report that as if you did make it as income and pay income taxes on it. That sounds really scary. But mathematically, if your balance is a lot larger than your income, it can still make sense to go that direction even if the tax implication exists. When we do our planning with folks, we plan out how much we need to save per month to prepare for that. And oftentimes the savings amount that you have going towards that tax bomb and the monthly payment that you have going towards your loans is still a lot less compared to what it would look like if you were trying to pay it off traditionally.

13:28 Emily: Yeah. And I want to note that one of the reasons that student loans have become such a hot button issue, and one of the reasons why these IDR plans have in the past gotten a lot of criticism, is because of the negative amortization schedule. So some people, and what that means is that some people who, you know, you have these low payments available if your income is low enough or if you have enough kids or whatever the calculation is, their payment might be so low that it’s not even covering the interest that is accruing on that loan. And that means that the loan balance is ballooning and ballooning and ballooning over time. So, the plan that we’re going to talk about, I want to say too many spoilers, but it does address this. Okay, so one of these major, major issues with student loans is being addressed. And we’ll talk about that in just a few minutes. But before we get too far off of this basic “what’s going on with student loans” question, I want you to explain what public service loan forgiveness is and how it plays in with these other plans that we were just talking about.

14:23 Meagan: Yeah, so public service loan forgiveness or PSLF for short. It’s not a repayment plan, but it is a program that you can pursue while on an income-driven plan if you’re working full-time in a public service capacity. So this is for those that work in non-profit, work in government, you know, academia is a great example. If you’re working at a public university. You know, or private yeah, it could be private as long as they’re 501(c)(3) status. So public service loan forgiveness, if you make 120 qualifying payments, which means that you’re on an income-driven plan, you make 120 qualifying payments, which shakes out to 10 years if you’re completely consistent, and whatever balance is left over at that time is forgiven. And a really great part about that too is that it’s forgiven tax-free, unlike those income-driven forgiveness paths. So, PSLF can be a really great option for those whose career is in public service. It’s a much shorter timeline than the 20 or 25 years, and it doesn’t have the tax implication with it. So, it’s definitely a great program if it makes sense with your career path.

15:39 Emily: Yeah, and I know probably a lot of people in my audience, maybe more so than the general population, does have plans to work in academia or in government or for non-profits or for other kinds of qualifying employers after their graduate school is done. So, this definitely could factor into the plans for a lot of people. Especially if you do a postdoc, maybe that’ll take a few years at a university or in government and those years count if you’re making your payments, you’re enrolled in the program and so forth. One thing that I do want to note for current graduate students is that you have to be a full-time employee for the payments that you’re making under PSLF to count towards PSLF. So, graduate students are almost always considered halftime employees or less.

16:19 Emily: And so, even if you are an employee of a university during graduate school, even if you are in repayment, that time is not going to count for PSLF unless you’re a very, very unusual case. But if you’re a part-time employee, it’s not going to count towards PSLF, unfortunately. However, I know most people who are in graduate school are choosing deferment in any case, so they’re usually not making payments anyway.

Modified REPAYE

16:38 Emily: So, let’s get into kind of the meat of this new, modified, I don’t know what language you use. The new version of REPAYE. Okay.

16:45 Meagan: Yeah, <laugh>.

16:46 Emily: So, back in August, 2022, the president proposed a new IDR plan. Now that plan has kind of been modified over time, so it’s no longer a new IDR plan, but you explain what is this new-ish plan that we’re looking at?

16:59 Meagan: Yeah, new-ish. Yeah, that’s the right terminology. So, their plan originally was to come out with a whole new income-driven plan. But then a couple things I think happened that made them reconsider that. One is we already have five income-driven plans, so that wasn’t really going to simplify things. It was going to add one more thing to the equation to make things a little more complicated for decisions. And also the Department of Ed did not get an increase in their budget this year. So, they are operating off of the same budget that they’ve been operating off of with all of this stuff going on. So, they’re not going to have the capacity to be implementing a whole brand new plan. I think that is my assumption, <laugh>, why they started to instead of have a a new plan, they’re thinking about modifying an existing plan. And the existing plan that they’re thinking about modifying is REPAYE, revised pay as you earn. REPAYE is one of the cheapest income-driven plans, currently. There are some pros and cons to this plan currently, but some of the modified changes could be very attractive. Especially for those you know, starting out their career coming up who might have long training periods, which we could certainly get into.

18:20 Emily: So, when you were last on the podcast, we talked about very, very broadly, very generally, kind of a rule of thumb around what the ratio is of your student loan balance to your income once you go into repayment. So, for my audience, this is usually going to be post-PhD, perhaps post-postdoc. So, your career income at that point, and what those ratios might be in order for you to really want to consider an income-driven repayment plan versus just going down the standard repayment route. Now I think what’s going on with this modified REPAYE plan is that that rule of thumb has probably gone out the window. It may be completely different now. So, we’ll talk about that in a moment. But I just say this because I want the audience to stick with us because we’re going to be talking about some technical parts of the plan now. But really an IDR might be more attractive to you with this new version rather than in the past. So like, if you have any kind of student loans, I want you to stick with us through this next, like, pretty technical section. Okay, so this modified new-ish REPAYE plan. You said we think it’s going to look like this. How firm is this plan, and when is it going to go into effect, or we think it’s going to go into effect?

19:24 Meagan: It has passed the 30-day commentary period. So, it was officially proposed. There was a 30-day commentary period where folks could make suggestions and now they’re reviewing those. We’re outside that 30 days. So I think the timing of this, I think we are going to hear more information on if what was proposed is actually going to be implemented. I think we’re going to hear about that in the next couple months. So, maybe by May, June. And maybe those rules will be locked and loaded for July, meaning maybe we can enroll in this by the end of the year or early 2024. That is my estimated timeline. Payments, as we know, are not currently enforced, like no one’s making income-driven payments or payments towards their federal student loans.

20:17 Meagan: And it’s all kind of, the start date is contingent on this Supreme Court case, as you had mentioned earlier at the beginning of the podcast episode, which is debating if that one-time cancellation can be done. Can Biden forgive $10,000 or the $20,000 of student loan debt for anybody under those income thresholds? We don’t know yet. And I think Congress and the Department of Ed is waiting to see how this is going to shake out so they can know if they need to make any modifications to this modified proposed repay plan. Or if they want to make it more generous or if they need to take stuff out. So, I think they’re kind of waiting on that, if that makes sense. But we could see this, you know, definitely within the next year, which I think is exciting.

21:05 Emily: Yeah. Okay, so we’re going to talk about the plan as of today’s date, and you know, if there are more changes that come down, you know, stick with Student Loan Planner. Follow them, follow me. I’ll try to make updates to this as well if any major updates are to be had. But we’ll talk about the proposal as it exists today. Okay, so who is eligible once this plan is in effect? Who would be eligible to enroll in it?

21:29 Meagan: So, anyone who has federal direct loans. So, if you, and direct loans, you can tell if you have these, if you log into your studentaid.gov account, you should see literally the word direct in your loan name. If you see something like Perkins Loan or FFEL, which stands for Family Federal Education Loan, those loans in particular are not going to be eligible for this new plan, but they can be if you consolidate them. So, that is an option if you needed to fix that. And that would only be relevant to anyone who had borrowed before 2010. These loans are not issued anymore. So, if you are newer to borrowing or started borrowing after 2010, don’t worry about it. You’re going to have the right loans. And private loans are excluded. This is just for federal student loans.

Payment Calculation

22:20 Emily: Okay, yes, thanks for that clarification. So, one of the things that is being modified about this REPAYE plan is how your payment is calculated. So, can you explain maybe both, but definitely the new way that the payment, if there’s any payment, what it would be?

22:36 Meagan: The current calculation, how they do this is they take your adjusted gross income, usually from your tax return. There’s like an IRS data retrieval tool that they have that they just pull it through from your most recently filed tax return. So, adjusted gross income, that’s not gross, that is your gross pay minus any pre-tax deductions. So, think you know, 403(b) contributions, 401(k) contributions, HSA, FSA, those things are taken out. So, we get our adjusted gross income, then they subtract 150% of the poverty line, which that’s about $20,000, $21,000 for one person, for a family size of one. So they take your AGI minus that 150% of the poverty line, and you get what’s called your discretionary income. And then that is what the payment itself is based off of. And REPAYE is based on 10% of that discretionary income number. The new way that they’re proposing this to be done is similar, still going off of adjusted gross income, but instead of 150% of the poverty line deduction, they want to take 225%.

23:51 Meagan: So, it is a big hike in how much would be part of your discretionary income. So, naturally, that would make anyone comparatively looking at the old REPAYE and the current REPAYE, it would make anyone have a slightly lower payment. It could be worth as little as maybe75 to a hundred dollars a month compared to the current REPAYE plan. It could be a lot more if your income is a lot more. It just depends. So not only that, so that’s one way that they’re going to calculate the payment a little bit less. But the other way that’s going to impact the actual calculation is the portion of your balance that’s for graduate loans would stay based off of that 10% of discretionary income. If you have a portion of your balance that was from undergrad, let’s say you have like $30,000 from undergrad, $70,000 from, you know, graduate school, that would mean 30% of your loan balance is undergrad.

24:52 Meagan: So, they plan on, or the proposal is for undergraduate loans, they would charge 5% of discretionary income. So, you’d have some weighted proportion of the two. 30% of your payment is based on 5% of discretionary income, and the other 70% would be based off of 10%. So, your percentage will certainly vary depending on what your actual weight is for the undergraduate loans. But all in, it does make the payment slightly cheaper for just about anybody. Maybe a lot less for some that have a lot of undergraduate loans. Maybe not, you know, that 5% may not come in if you never borrow it for undergraduate, but that’s currently how it’s proposed.

25:40 Emily: Okay, so let me restate, make sure that I understand.

25:43 Meagan: Yeah, I know that was a lot. <Laugh>.

25:44 Emily: So, of your adjusted gross income, your AGI, which is your gross income minus your above the line deductions, as you mentioned. Things like traditional retirement account contributions. So, you get your AGI, and then a certain amount of that is going to be not used in the calculation. So, it is 225% of the federal poverty line in the case of the new REPAYE plan. I think I looked at that, and for one person it’s about $30.5K. 30 and a half thousand dollars for one person. If you had children, if you had a bigger family, that number would be larger. So the amount that is excluded from your income, that’s not going to go into the calculation is going to be larger. And then whatever marginal amount of income you have above that calculated level, that’s what you’re going to be calculating the payment from.

26:31 Emily: So, it’s 5% from your undergraduate loans, 10% from graduate. If you have both, it’s going to be a weighted combination of the two to make the calculation. So, many people in my audience, I would think probably only have undergraduate loans. And so if they’re looking at that calculation, they’re going to be, you know, it’s 5%, but just of the discretionary income, just of that amount of income that’s exceeding this 225% of the federal poverty line. Okay, I think I restated that okay. Because this is a really important part of this is like, how is this payment calculated?

27:00 Meagan: Yeah. And just a quick note, if that kind of made your head hurt and it made you sick to your stomach thinking about those calculations, we do have a free calculator on our website, studentloanplanner.com, that you can go and plug in your income and it’ll do the math for you. So, there are resources, free resources out there that can help you with that <laugh>. So.

Commercial

27:21 Emily: Emily here for a brief interlude! Tax season is in full swing, and the best place to go for information tailored to you as a grad student, postdoc, or postbac is PFforPhDs.com/tax/. From that page I have linked to all of my tax resources, many of which I have updated for tax year 2022. On that page you will find free podcast episodes, videos, and articles on all kinds of tax topics relevant to PhDs. There are also opportunities to join the Personal Finance for PhDs mailing list to receive PDF summaries and spreadsheets that you can work with. The absolute most comprehensive and highest quality resources, however, are my asynchronous tax workshops. I’m offering four tax return preparation workshops for tax year 2022, one each for grad students who are U.S. citizens or residents, postdocs who are U.S. citizens or residents, postbacs who are U.S. citizens or residents, and grad students and postdocs who are nonresidents. Those tax return preparation workshops are in addition to my estimated tax workshop for grad student, postdoc, and postbac fellows who are U.S. citizens or residents.

28:37 Emily: My preferred method for enrolling you in one of these workshops is to find a sponsor at your university or institute. Typically, that sponsor is a graduate school, graduate student association, postdoc office, postdoc association, or an individual school or department. I would very much appreciate you recommending one or more of these workshops to a potential sponsor. If that doesn’t work out, I do sell these workshops to individuals, but I think it’s always worth trying to get it into your hands for free or a subsidized cost. Again, you can find all of these free and paid resources, including a page you can send to a potential workshop sponsor, linked from PFforPhDs.com/tax/. Now back to the interview.

New Interest Subsidy

29:24 Emily: Now, some other stuff is going on with the interest and how that is accruing and so forth. So, explain what’s going on in the new plan for the interest.

29:30 Meagan: Mm-Hmm. <affirmative>, yes, the interest subsidy. So, this is another really big deal with this new proposed plan. So, just as you had mentioned previously, one of the big, maybe downsides or just factors of being on an income-driven plan is, you know, if you’re on an income-driven plan, you’re going for payment affordability, you’re going towards loan forgiveness, most likely. So, your payment could very well not be enough to be covering even the interest that’s charged per month. And that would mean with a student loan debt your interest that’s not paid would be accruing on the balance. This is different than capitalization. So, it’s not actually being added to the balance and then interest is charged off of that new balance, thankfully. Student loans grow in a simple interest format. But it still accrues on your balance. So, that means your balance is growing as you’re going towards loan forgiveness, which really gives a lot of people some heartache because that’s not normally how debt works. <Laugh>.

30:38 Emily: And contributes to the tax bomb we were talking about earlier.

30:42 Meagan: Yes, exactly. So, that gets to the meat of this. So, this subsidy with the proposed new revised REPAYE plan, they plan to have a 100% interest subsidy, which means it would not allow the balance to grow at all, even if you know, it should have been based on the regular rules today. So, that’s really big. It’s big for a few reasons, not just for people who are going towards forgiveness. And this is an important note that I wanted to mention earlier. I just remembered now, these income-driven plans don’t have to be the forever plan for you. Like they don’t have to be the long-term plan, but you can use them as a tool, especially in the years where you’re not making a lot of money. And if this new REPAYE plan is approved as it’s proposed, it would be a huge benefit to you to be on this new REPAYE plan.

31:37 Meagan: Because even if your income’s really low, even if your payment is calculated to be zero a month, which is possible, as long as you’re in repayment on that new REPAYE plan, your balance cannot grow. That is different if you go into deferment, which is allowed if you’re in a training program. So, that’s something to definitely consider. And I know that was something we wanted to talk about here in a bit too, but the a hundred percent interest subsidy is a big deal cause it keeps the balance growth at bay. It can’t go higher than what it is, you know, at its current principle and interest today, which is great. And so, that helps reduce the future tax implication in the future and it can help maybe people with lower income now but plan on paying the loans off later to keep the balance as low as possible.

32:30 Emily: Yeah, thank you so much for saying that that way. Now when you’re saying a hundred percent interest subsidy, what I understand about this is that if you are making a payment, your payment goes against the interest that accrued that month first. If you’re making a larger payment than just the interest that’s accrued, then the principle comes down. If you’re making a payment that’s less than the interest that has accrued, you’re still making that payment, but then the government will be paying the other portion of the interest that’s accrued. Is that what you mean by 100%? So, it’s like it’s never going to grow, but that doesn’t mean you’re not paying interest.

33:06 Meagan: Yeah, that’s a good point.

33:06 Emily: You could be paying interest. It’s just not going to grow and grow and grow.

33:09 Meagan: Yes. Yeah, basically, you could look at it as an interest only loan where you’re just paying interest but the balance isn’t going to be going down, but it’s not going up. So that’s a good thing, <laugh>.

Undergrad Versus Grad Timeline

33:21 Emily: Yeah, absolutely. So, let’s compare this quickly to what many people in my audience may be familiar with because if they’re, let’s say currently in graduate school, their loans are probably in deferment. And if they had subsidized loans from their undergraduate degree, subsidized doesn’t mean that no interest ever accrued. It meant interest accrued and then the government paid it completely for you. So, it’s very similar to that. It’s just that it might not be paid completely if you are making some kind of payment as well, versus if you’re in deferment and you have unsubsidized loans, of course you’re not making payments, but that interest is still accruing, it’s not being subsidized at all. So, this modified REPAYE plan is kind of somewhere in between, right? Fully subsidized and fully unsubsidized loans. If we’re talking, you know, if we’re comparing to people who are in deferment, which this is not for people who are in deferment, this is for people who are in repayment.

34:09 Emily: We did just cover when you’re calculating the payment that undergraduate and graduate loans are treated differently. But I understand there’s also a difference in terms of the repayment term before forgiveness occurs. Can you clarify that?

34:22 Meagan: With the proposed plan, the undergraduate loans could be eligible for forgiveness after 20 years. Graduate loans would be on the 25-year timeline unless you’re on either pay as you earn, which is a different income-driven plan or new IBR. So, there is a 20-year timeline for graduate loans. It just will not be associated with the new REPAYE or the existing REPAYE. So, that’s something that goes into the planning when we decide, you know, is this new plan going to make sense? Or do we just rely on the existing plans for the shorter term?

Married Filing Jointly or Separately

34:58 Emily: I see. Gotcha. So, because your payment is based on your tax filing <laugh> forms, your AGI, how you file your taxes affects that payment. So, I understand that most people who are married, most Americans who are married file jointly, it kind of makes sense calculation-wise for most people. But student loans are one of those areas where it can throw a wrench in that, and some people do choose to file separately. So, what is going on with married filing jointly versus married filing separately? And how is the modified REPAYE plan treating that?

35:29 Meagan: Right. Yes, so you’re exactly right. Filing taxes as a married couple, normally you’re going to be filing jointly. There are a lot of tax advantages to filing jointly with a spouse. Main reasons to be filing separately would be if there are IRS debt situations with a spouse that you want to exclude from your situation, if you’re going through a separation or a divorce. Those are some big main reasons, but also student loans are becoming a large reason why people consider to file separately. And that is because when we’re on an income-driven plan, the payment is based off of your adjusted gross income that pulls from your tax return. So, if you’re filing taxes jointly, then the Department of Education is going to want to know what your household income is because you filed jointly with your spouse. So, even if it’s just your loans, the payment is going to be based off of the household income, which can be a problem for folks, especially, I mean for a number of reasons.

36:29 Meagan: It will make the payment higher if your spouse has income. It weirdly makes it seem like your spouse has to be contributing to your loans even if you went into a relationship with the understanding that it was your debt. So, it can create some issues there. And so there is a solution to this. Filing taxes married separately, depending on the plan, will allow you to exclude spousal income. So, that is a big advantage for a lot of people who are pursuing an income-driven plan or forgiveness because it keeps the payment just based off of their income. It keeps the payment lower, so it’s maximizing the forgiveness path. The current REPAYE plan as it is right now does not allow you to exclude spousal income regardless, which is kind of stinky. So, we’d have to revert to either PAYE, the pay as you earn plan, income-based repayment, either the new or the old IBR, or income-contingent repayment.

37:32 Meagan: Those other four income-driven plans allow you to keep the payment off of your own income as long as you’re filing taxes separately. REPAYE currently does not. Now, bear with me. The new revised REPAYE plan would then allow <laugh> this to actually be the case for REPAYE to exclude spousal income. So, that is a big deal because that’s been the one plan that, you know, has been an issue for folks where maybe they wanted to be on REPAYE for whatever reason, it was the cheaper payment option for them. But it requires you to include spousal income. The revised REPAYE plan that could be coming out is going to operate like PAYE, IBR, and ICR. So, that is a big advantage because it allows folks to have that benefit and, you know, have all the other benefits that come along with this new REPAYE plan.

Consider What’s Best for You

38:31 Emily: Yeah, thank you so much for that clarification. Is there anything else that we should know about the new proposed REPAYE plan?

38:40 Meagan: So, one just word of caution is I think if this plan does get approved, I hope it does, I think it could be a really great option for a lot of people, but I know it’s going to be positioned or it’s going to be talked about as if it is the best plan for anybody. That is not necessarily the case. So, what I mean by that is we talked about how it could make an income-driven payment a lot less. It could allow you to exclude spousal income. It could have a 100% interest subsidy. So, there are a lot of benefits to it. But one big downside is if you have graduate school loans, it is a 25-year timeline to forgiveness. That is five extra years of repayment compared to the existing pay as you earn plan and the new IBR plan.

39:34 Meagan: So, that’s something that really needs to be weighed because if they come out with this new plan, they do plan on phasing out pay as you earn, which is the 20-year timeline. They still would have new IBR, but to be eligible for that plan you couldn’t have borrowed before July of 2014. So, it’s limited to newer borrowers. So, if you’re someone who borrowed before 2014 and you value maybe being done with your loans or being done with forgiveness in 20 years instead of 25, then the new modified REPAYE plan, even though it’s cheaper, like maybe a little bit cheaper per month, that may not outweigh the extra five years of repayment. So, that’s something to just be aware of is it may not be the best plan for everybody. So, it still warrants some careful consideration.

40:28 Emily: Yes. Thank you so much for adding that. And I’ve grown a new appreciation for your profession from listening closely to the Student Loan Planner podcast over the last handful of months because there are so many more complexities that I, even as sort of a person in the financial space, but not really, you know, following student loans really closely. There are so many more complexities that I was not aware of. And so I say for anybody for whom your student loan repayment is a very high stakes decision. A lot of money involved, a lot of income, a lot of debt, I really think going for a plan from you all or from a similar organization is going to pay off. Like for some people, I know there have been examples on the podcast where people were not aware of some of the forgiveness options available to them, and they are forgiven hundreds of thousands of dollars that they would not have otherwise been able to do. Now, if you have $10,000 of student loans, this is not necessarily a high stakes decision for you, but really if it is a high stakes decision for you, it’s worth getting a professional to advise you on this. So, that’s my little plug for you all for Student Loan Planner, mid-podcast.

41:33 Meagan: Thank you.

Changes to Rule of Thumb

41:33 Emily: So, having gone through the, you know, many of the terms of this modified REPAYE plan, is there someone for whom this makes a lot of sense? How has the rule of thumb that we discussed earlier been updated with this new plan as an option?

41:47 Meagan: Mm-Hmm. <affirmative>? Yep. If you’re someone who’s working towards PSLF, this rule of thumb will be different for you. So, keep that in mind. There are greater chances of you being eligible for PSLF, it making sense to go towards PSLF, even with smaller balances. So, this would be more of a rule of thumb for those that are not doing PSLF but are interested in the longer-term forgiveness. Previously, our rule of thumb was if your balance was two times your income, then forgiveness is definitely going to mathematically make more sense than trying to pay the loans off. Then we had the COVID forbearance happen, and 0% interest for a long time and we started to get a little more conservative with that number and saying maybe it’s like one and a half times your income because the federal student loan system is kind of interesting right now. We don’t know what’s going to happen <laugh>, they have a lot of flexibility to, you know, make student loan repayment better.

42:48 Meagan: And now, with this new revised REPAYE plan proposal, we’re starting to think that it could be, if your balance is around the same as your income, especially if you have a large household, if you have, you know, a couple kids and you’re married, then pursuing longer-term forgiveness might actually make more sense even if your balance is about the same or just barely above your income. So, it’s worth checking out, don’t write it off until you run the numbers. And then you can weigh the pros and cons of going both routes, but certainly don’t write it off before you take a look at it if you’re kind of in those balance ranges.

43:27 Emily: Okay, so quick restatement is if your income, and now right now we’re talking about your career income, we’re not talking about your grad student stipend.

43:35 Meagan: Yeah, correct.

43:35 Emily: Not even necessarily your postdoc salary, but your career income is, let’s say in the first year that you have that quote unquote real job. If it is around or less than your student loan balance at that time, that’s when you should be taking a look at this plan and possibly some of the other plans as well, depending on those ratios. If your income far exceeds your loan balance, mm, probably the standard plan most likely is going to be good for you.

44:00 Meagan: Yeah.

Should Current Students Consider this Plan?

44:01 Emily: Okay. Now we’re going to get into what I think is the super, super interesting part of this interview. Because so far, we’ve been learning about this modified REPAYE program generally, but what nobody is talking about <laugh> is what should current students do? Should current students be considering this plan?

44:22 Emily: Nobody’s talking about this. So I want to know, and we have a few different ways of asking this question. So basically, what I’m talking about is for people for whom deferment is an option, should they instead, what are the advantages of perhaps enrolling in this new proposed REPAYE plan versus sticking in deferment? And so obviously there are going to be different considerations for different people. So, we’re going to talk through a few of these different scenarios. Let’s talk first about someone, let’s say either a single person or someone with a family, but their income is lower than that 225% of the federal poverty line that we talked about earlier. Now we’re not giving advice because this is a podcast <laugh>. What are the thoughts about someone who has that level of income?

45:03 Meagan: Yep. So, thoughts there are that if you were to enter the new revised REPAYE plan, your payment could be as little as $0 a month. So, and that that is a legitimate income-driven payment. It counts towards the forgiveness timeline. If you were full-time, you know, working 30 hours or more a week, that could be an eligibility for public service loan forgiveness as well. So, that’s good as far as getting you on track for loan forgiveness and kind of getting free credit in a way. But what’s also good to consider is if maybe you’re unsure about loan forgiveness, you’re not too sure if that’s going to be the path for you, this could still make sense to get on the new REPAYE plan because it’s going to have that 100% interest subsidy. So, instead of your balance growing while you’re, you know, finishing this time period, this training period, it will be staying at the existing balance that it is today.

46:04 Meagan: So, let’s say you decide five years from now, 10 years from now, you know, forgiveness wasn’t going to be the route. Well, if you were on REPAYE all through this training period, even with your income being really low, your payment being zero, you’re paying back what you owe today. You know, the current principle and interest versus paying back what has accrued on that balance. Because the unsubsidized loans will be accruing while you’re in deferment. And so that just means interest is growing on your balance. So that’s a significant reason to consider going into this this new REPAYE plan if compared to going into deferment.

46:46 Emily: Yeah. So, let’s tease out the different types of loans you might have now. If you had subsidized loans, let’s say a hundred percent of your loans were subsidized, the advantage of going into this particular repayment, as I understand, would be then that you, and again in this scenario, we’re not making a payment because the income is low. You’re not making a payment, but you are accruing months and years under this repayment plan. So if you do end up choosing to go an IDR route and going the whole forgiveness plan, you have many more years that you’ve been in repayment even though you’re making that $0 payment. And there’s no advantage either way with the interest because it was going to be subsidized anyway. Now, if you had unsubsidized loans, throwing that into the mix, if you choose deferment, those loans are accruing interest. But if you choose this modified REPAYE plan, and again, your income is below this threshold level, you’re paying zero, which means that effectively your loans have become a hundred percent subsidized during that period of time. It looks like a for sure advantage for someone who holds unsubsidized loans and somewhat of an advantage for someone even with subsidized loans.

47:52 Meagan: Mm-Hmm. <affirmative>. Yeah, there’s an advantage either way. And it, you know, this new REPAYE plan makes deferment look very unattractive for a lot of reasons. There’s not a lot of advantage to deferment anymore. And even if you had a payment kick in, keep in mind, it’s a portion of your income. So, you gave me a good example before we had started this on, you know, maybe at most someone’s getting a stipend of about $45,000.

48:23 Emily: That’s real high-end people. Really outside.

48:27 Meagan: <Laugh>. So, we’ll go with like the highest number, which will give us the worst-case scenario payment-wise for this new REPAYE. That would be about 90 bucks, a hundred bucks a month. So, not too bad. And if you’re closer to let’s say 35, you know, $35,000 for your stipend, that’d be closer to maybe almost $10, $20 a month. So like, there’s less of a reason now to go into deferment. Because usually the first kickback I’ll get for that is, well, you know, I cannot afford a payment. I think you can afford $10 a month <laugh>, if it’s going to save you this amount of interest later, I think you can afford $10 a month or zero. Everyone can afford $0 a month <laugh>.

49:12 Emily: Right. So, if you’re under that 225% of the federal poverty level, it’s like, okay, your payment was going to be zero anyway. Awesome. If you’re above it, as you said, generally speaking for grad students, it’s only going to be slightly above. And if we’re talking about undergrad loans, let alone, that’s only 5% of your discretionary income for the calculation. And so, it could be just a few dollars, as you said, a few dollars, $10, $20, $50 if you had a particularly high income a month. And so, really in that case you’re making these small payments, but what you’re gaining is the interest subsidy on the remaining amount of interest that’s accruing each month and those years of payment towards this IDR plan. Is that right?

49:48 Meagan: Mm-Hmm. <Affirmative>, yes.

49:50 Emily: So, you can think about it as paying this small cost for those particular benefits. Now if you didn’t think for whatever reason that that was an advantage for you, maybe your loans are all subsidized, for example, whatever the case may be. Maybe you don’t think that small payment is worthwhile, but it is something to at least think about and consider and not just default into deferment as we have done for so many years in the past. Thank you so much for stating that.

Can You Be in Repayment and Still Taking Out Loans?

50:14 Emily: And then let’s think also about someone who, because this question might come up. So what about graduate students who think that there’s a possibility that they may be taking student loans out at some point during their graduate degree? Either they know they’re going to for sure, or do they think, “Oh wow, this is a possibility if x, y, z happens, I may take out a loan.” Is it even possible to be in repayment and still taking out student loans? How does this work?

50:39 Meagan: It is not. Yes and no. So, it depends. It always depends. But if you’re taking out loans for your current graduate degree, those loans in particular that are associated with that graduate degree cannot go into repayment until post-graduation. Your undergraduate loans can be. They can go into repayment. They can take advantage of maybe this interest subsidy or the forgiveness clock getting started. But loans for your current degree cannot. So, that’s one maybe downside for those who are borrowing.

51:12 Emily: Okay. So, let me restate. So, let’s say we have a current graduate student. The loans that they took out for their undergraduate degree could go into repayment if they want them to, or they can choose the deferment route.

51:21 Meagan: Mm-Hmm. <affirmative>.

51:22 Meagan: Loans from a previous graduate degree, maybe a master’s program, same deal. But any loans that are being taken out for the PhD program, let’s say that they’re currently in, those have to stay in deferment for the time being, until that degree is done? Yeah.

51:37 Meagan: Correct. Mm-Hmm. <affirmative>. Yep. You got it.

51:39 Emily: Excellent. So we talked earlier, Meagan, about how, you know, this is still <laugh> a little bit tenuous and so forth. How likely is it do you think that this is going to come into effect as stated? Or do you think there are going to be edits that we’re looking at over the coming months?

51:55 Meagan: I don’t think there are going to be a lot of edits. I do think this is very probable. So, I do think that they’re going to be implementing this. If there are any proposed changes, I don’t think they’re going to be to these big ticket items that we’ve already discussed. I think they would be like really minute changes. But stay tuned. We will keep people posted <Laugh>.

52:15 Emily: Absolutely. Again, follow Student Loan Planner anywhere you like. Especially their newsletter, their podcast. Meagan, thank you so much for sharing your knowledge with us. I knew I could not get this information from anyone else, so I’m so glad that you were able to come on the podcast. Thank you so much!

52:31 Meagan: Of course. Thanks for having me and letting me nerd out as usual, <laugh>!

52:35 Emily: Excellent.

Outtro

52:41 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. 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 This Grad Student Shifted Her Student Loan Strategy through the Pandemic

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In this episode, Emily interviews Lexi Jones, a 4th-year PhD student in the Massachusetts Institute of Technology – Woods Hole Oceanographic Institution Joint Program in Oceanography/Applied Ocean Science and Engineering. Prior to Lexi entering graduate school in summer 2019, she resolved to pay down her undergraduate student loan debt first and foremost. However, the confluence of learning more about personal finance, the passage of the Graduate Student Savings Act, and the student loan interest and payment pause starting in March 2020 caused her to adjust her strategy. Instead of paying down her student loans, Lexi has maxed out her IRA for the last few years, built a 4-month emergency fund, paid back debt to her parents, and started saving for a wedding. Lexi and Emily also discuss how Lexi is dealing with the frequent student loan policy changes announced through fall 2022.

Links Mentioned in the Episode

S14E5 Image: How This Grad Student Shifted Her Student Loan Strategy through the Pandemic

Teaser

00:00 Lexi: I will say that that happening was part of the reason I started educating myself about it. And I had remembered you did that podcast explaining this change. And yeah, so that all kind of coincided with when I started investing into that IRA, which I would not have been able to the previous year. So, it’s just been a confluence of a lot of different things happening and a lot of policy changes that have directly impacted me at least.

Introduction

00:33 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. This is Season 14, Episode 5, and today my guest is Lexi Jones, a 4th-year PhD student in the Massachusetts Institute of Technology – Woods Hole Oceanographic Institution Joint Program in Oceanography/Applied Ocean Science and Engineering. Prior to Lexi entering graduate school in summer 2019, she resolved to pay down her undergraduate student loan debt first and foremost. However, the confluence of learning more about personal finance, the passage of the Graduate Student Savings Act, and the student loan interest and payment pause starting in March 2020 caused her to adjust her strategy. Instead of paying down her student loans, Lexi has maxed out her IRA for the last few years, built a 4-month emergency fund, paid back debt to her parents, and started saving for a wedding. Lexi and I also discuss how Lexi is dealing with the frequent student loan policy changes announced through fall 2022.

01:56 Emily: It’s not too late to ask your grad school, postdoc office, grad student association, department, etc. to sponsor my tax return preparation workshop, How to Complete Your PhD Trainee Tax Return (and Understand It, Too!)! It’s really fast and easy to set up enrollment, and I continue to enroll new groups until very close to the end of tax season. I have four versions of the workshop available this year, covering postbacs, grad students, and postdocs and also both citizens/residents and nonresidents. This is a big expansion over who I’ve served in previous years, and I’m really excited for it. The workshop is asynchronous, so you can go through it at any point between now and Tax Day, and I also have a mechanism for answering questions if the core material doesn’t quite connect all the dots for you. Please send an email requesting sponsorship for this workshop to the potential host and include a link to pfforphds.com/tax-workshops/. I offer a bulk purchase discount to my university clients, and they have a choice between fully sponsoring the workshop or subsidizing the cost for the participants. Thank you in advance for recommending this content! You can find the show notes for this episode at PFforPhDs.com/s14e5/. Without further ado, here’s my interview with Lexi Jones.

Will You Please Introduce Yourself Further?

03:27 Emily: I am delighted to have joining me on the podcast today, Lexi Jones. She is a fourth-year PhD student at MIT. We are going to discuss the financial mindset shifts and also shifts in goals that she’s had since she started graduate school. So Lexi, I’m so glad that you volunteered to be on the podcast. Thank you so much for coming on. And will you please introduce yourself to the listeners?

03:47 Lexi: Yeah, thanks for having me! I am Lexi Jones, as you said. I am a fourth-year graduate student, PhD student at MIT. I’m studying oceanography, so I’m in the MIT-WHOI Joint Program, it’s called but I’m based in the Earth, Atmospheric, and Planetary Sciences Department at MIT.

Financial Mindset at the Start of Grad School

04:08 Emily: Okay, thank you so much. So, let’s kind of take it back to when you started graduate school. What was your financial mindset at that time? What goals did you set for yourself? What were you thinking?

04:20 Lexi: Yeah, so, I guess it’s relevant to say I came out of undergrad with some student debt. I did have a good scholarship, but it wasn’t a full ride, so I had both federal debt and I also had debt that I owed my parents. So the combination of those two, I had $41,000 in debt. And so, when I started graduate school, I did take one year off in between undergrad and grad, but I worked as a research assistant where I did not make a lot of money <laugh>. So, it was the most money I’d ever made. And I had come into graduate school really thinking that my number one priority would be to pay off those student loans.

05:07 Emily: Okay. Let’s put some years on this. So, what year did you graduate from undergrad?

05:12 Lexi: I graduated from undergrad in 2018 in the summer.

05:15 Emily: Okay. So, you started grad school fall 2019?

05:19 Lexi: Summer 2019.

Federal Student Loan and Parental Debt

05:20 Emily: Okay. And what was the nature of your federal student loan debt, and then what was the nature of the debt that your parents had?

05:30 Lexi: So, my federal student loan debt, that was all mostly from tuition. It was like around $27,000. And then my parents basically kind of kept tabs of how much they helped me out with things like housing mostly and groceries. And I also paid for some of that myself throughout. And that was at around $13,700. And so that was kind of just, you know, them keeping tabs that, that wasn’t growing interest or anything, but it was, you know, something I was going to have to pay back.

06:03 Emily: Okay. This is a similar situation to like what I was in when I came out of undergrad. My parents sort of sprung on me that they expected me to pay them back, to some degree, for some of their expenses that occurred during my college education. So, it wasn’t like there was a specific loan that they had that I was like then paying. It was just like this sort of overhanging <laugh> amount of money that I was supposed to pay them back. Did you and your parents have like a timeline or like payment amounts or anything kind of formal about this?

06:37 Lexi: Well, I mean, I will say that I was very aware that I was going to have to pay them back. They did not spring it on me. I did actually owe them $23,000, but my graduation gift was they docked off $10K of what I owed them. And I did know I would have to pay it back because they did remortgage their house. Like they took some really big financial steps to help me in college. We’re not very wealthy. I’m from a very blue collar, small town. And so, there wasn’t exactly a timeline, but the expectation was as soon as I started making my own income that I would start working on that. And I do think that they had mentioned to me, I’m trying to think back, but I think their real expectation was once I finished graduate school and started making a quote unquote real income that I was supposed to pay them back.

07:34 Emily: Okay. That’s great. And then your federal student loan debt, was that subsidized, unsubsidized, or a combination?

07:40 Lexi: A combination.

Income-Based Loan Repayment

07:41 Emily: Okay. Great. Since we will be talking about student loans further, I just wanted to get all those like specifics out there. Okay. So, you’re coming into graduate school and you have a degree of concern about this student loan debt. During that year when you worked as a research assistant, you must have gone back into repayment, is that right?

07:57 Lexi: I did, yeah.

07:58 Emily: Okay.

07:58 Lexi: Yeah, so I was looking back at my <laugh> my finances and like 2018, I did start paying it because I was so stressed, even though I was making no money at the end of 2018. So, I went into repayment for around I guess six months I think. Right? Because you have about six months of a timeline to not pay. And then I started graduate school in June, so it wasn’t too long that I was required to pay.

08:26 Emily: And were you on the standard plan at that time?

08:29 Lexi: I was on an income-based repayment plan. I was very nervous to do anything else because I was making so little money.

08:38 Emily: Yeah, totally. And were you eligible for PSLF?

08:44 Lexi: No, I was not.

Initial #1 Priority: Unsubsidized Federal Loans

08:46 Emily: Okay. Okay, great. So, you’re coming into graduate school. We have a really clear picture of the student loans. And so why did you, I guess what was your plan at the beginning of graduate school? Did you want to keep repaying down? Was it your own debt? Was it your parents’ debt? What were you planning on?

09:02 Lexi: At the start of graduate school, I was ignoring my parents’ debt. In my head, you know, that was not gaining interest. They didn’t have strong expectations until after graduate school as we talked about. So, my number one priority was the unsubsidized federal loans. Even though once I started graduate school, I wasn’t required to make payments. But I was so tunnel-visioned on needing to pay that down as soon as possible.

09:31 Emily: Interesting. Okay. But I understand that you have not carried this plan through to the present, so at some point you changed your mind. How did that happen?

09:41 Lexi: Yeah, I think that my parents helped me a lot to save money growing up. It was always save for college though. I don’t really feel like I was taught a lot of skills outside of just saving for college. And I definitely started graduate school with, again, the tunnel vision of paying off that college debt. So, I think I started to get interested in personal finance. I started listening to your podcast and just kind of starting to read about what other people have done and strategies for debt versus kind of building a financial base. I will say on like a personal note, I had one of my best friends in college was diagnosed with stage four cancer in undergrad. So in my head, you know, that was like the worst-case scenario, some financial situation that could happen to me. And I was very scared that I didn’t have any safety net or things like that. And so, I was trying to figure out how do I balance building up that kind of financial base versus paying off the loans.

10:50 Emily: Wow. I am sorry for your friend and also that you witnessed that experience. I definitely fell into the mistaken thought pattern of like young person invulnerability, like, why would you need an emergency fund? I’m just going to start investing and, you know, pay my debt and so forth. So like you unfortunately, but it’s a good conclusion to come to, had a different like perspective on that. Okay. So, you’re shifting into thinking that you need to build up some savings prior to seriously addressing the student loan debt. Were there any other goals that you ended up setting for yourself during graduate school? And I guess actually let’s, let’s talk for a moment about what, what happened with the student loan debt because, you know, whatever, eight months into your first year of graduate school, we entered the administrative forbearance for the federal student loans. And so not only, so effectively those unsubsidized loans became subsidized, right? And so you still didn’t have to make payments. Now you’re not concerned about the interest rate. How much did that shift play into you changing kind of your focus?

Administrative Forbearance

11:54 Lexi: Yeah, so I think, you know, 2019, the start of graduate school I started, I was paying my student loans and also starting to build up that safety net just mostly out of fear of the unknown. And then 2020 definitely changed everything for me. I do go to school at MIT, so we’re in a very high cost-of-living area. And when the pandemic hit, I decided to move back with my long-term partner who lives in Philly. So, just as my like base expenses, my rent cut in half when I moved back to Philly. And then what do we know, I was in Philly for over a year and a half <laugh>. So, my core expenses definitely decreased and my salary stayed the same because luckily I was in a secure position as a PhD student.

12:49 Lexi: The other thing, like you said, our student loans became frozen. And then I think also at that time I was starting to hear whispers, maybe not whispers, but the campaign ideas of student loan forgiveness. So, that was 2020 was when Joe Biden was running for president and that was one of the big kind of promises. And so, I really started to question what my strategy was at that point. And I think I was looking back at my spreadsheets and stuff and around April, 2020 was when I completely stopped putting money into the federal student loans.

13:28 Emily: And how much were you putting in a regular amount up until then? You were then able to divert how much money was that?

13:34 Lexi: Yeah, up until then I was putting in a hundred a week. And at that point when I stopped, I had put in over $6,000 and it really only took off a little bit under $5,000, like with the interest growing. So, I just felt like it was like sinking my money every extra penny I had into this student loan.

Shift from Paying Off Loans to Investing in an IRA

13:58 Emily: Okay. So, now we’re into the pandemic and as we’re recording this, this is November, 2022, so we are still in the administrative forbearance. Maybe we’ll talk in a few more minutes later on about sort of current student loans, what’s going on. But let’s talk more about then what you decided to do with your finances after no longer contributing to your student loan balance. Did you save? Did you invest? What happened?

14:23 Lexi: Yeah, so at that point I had a lot of extra money between lower rent costs and then I wasn’t going out, I wasn’t traveling. And then also the stimulus checks. So, all of that combined, I just had a lot of extra income that I originally had, which is a very privileged position obviously to be in during the pandemic. I, at that point, became interested in investing in an IRA. I was pretty uncomfortable with the idea of investing <laugh> up until 2020. And after I think just reading a lot and, and just learning about really what happens to that money, I decided it was the best thing for me to do at this point. Especially because the earlier you start investing for retirement, the more power that money has later on. So it just to me made sense to build that financial base and, you know, my partner was in a normal industry job with a 401(k) and I was just feeling like I needed to kind of build that up now.

15:36 Emily: I want to note, I think it’s kind of interesting that like I’m sure this experience wouldn’t have been unique to you during the pandemic, but I wonder if it sort of moved you out of like a student bubble? Like moving away from campus, living with your partner, witnessing your partner’s real job, real benefits and so forth. Like, did that give you a different, like less studenty mindset around your finances?

15:58 Lexi: I think so. And also, just the freezing, the combination of all the things I mentioned, kind of, there were so many signs pointing towards stop putting all of your energy into these student loans because you have a chance to really like build for your future. I think the other big thing I didn’t mention, like after putting all of that money into the IRA, I also decided to build up not only my safety net, but also pay my parents back because of this idea of if they were going to forgive student loans, why would I put money into it when it actually could be forgiven? In the beginning they were saying, you know, could be $50,000 forgiven or $20,000 forgiven. In that case I would really be sinking my money into nothing <laugh>.

16:45 Emily: Absolutely. This is the same, outside of this sort of like unique pandemic slash possibility of loan cancellation time period, this is the same mindset that anyone who’s on an income-driven repayment plan leading towards forgiveness needs to apply. You should, if you’re really committed to your income-driven repayment plan, maybe that’s in combination with public service loan forgiveness, you should never make more than the minimum payment because it’s literally futile. Everything will be forgiven at the end of that process. And so, it doesn’t matter whether you have, you know, made extra payments or not. So yeah, it’s hard to wrap your mind around because in the regular world of other types of debt, this is not at all how things work, but student loans are really their own beast that have to be thought about differently than other types of debt that we have.

17:32 Lexi: Yeah, and it really took all of those things for me to get to this point to really like not worry so much about it. Because it just always was such a heavy weight on my head and I think the possibility of forgiveness and them freezing just kind of released that burden. So it was definitely a very, like a combination of a lot of unique circumstances.

Commercial

17:56 Emily: Emily here for a brief interlude! Tax season is in full swing, and the best place to go for infor mation tailored to you as a grad student, postdoc, or postbac is PFforPhDs.com/tax/. From that page I have linked to all of my tax resources, many of which I have updated for tax year 2022. On that page you will find free podcast episodes, videos, and articles on all kinds of tax topics relevant to PhDs. There are also opportunities to join the Personal Finance for PhDs mailing list to receive PDF summaries and spreadsheets that you can work with. The absolute most comprehensive and highest quality resources, however, are my asynchronous tax workshops. I’m offering four tax return preparation workshops for tax year 2022, one each for grad students who are U.S. citizens or residents, postdocs who are U.S. citizens or residents, postbacs who are U.S. citizens or residents, and grad students and postdocs who are nonresidents. Those tax return preparation workshops are in addition to my estimated tax workshop for grad student, postdoc, and postbac fellows who are U.S. citizens or residents.

19:12 Emily: My preferred method for enrolling you in one of these workshops is to find a sponsor at your university or institute. Typically, that sponsor is a graduate school, graduate student association, postdoc office, postdoc association, or an individual school or department. I would very much appreciate you recommending one or more of these workshops to a potential sponsor. If that doesn’t work out, I do sell these workshops to individuals, but I think it’s always worth trying to get it into your hands for free or a subsidized cost. Again, you can find all of these free and paid resources, including a page you can send to a potential workshop sponsor, linked from PFforPhDs.com/tax/. Now back to the interview.

IRA Investment and Parental Debt Repayment

19:59 Emily: Okay, so let’s catch us up to like the present. Like have you continued with the IRA investing? How are your savings looking now? How do you feel about that?

20:07 Lexi: Yeah, so since 2020 I’ve maxed out my IRA every year. So, that’s kind of a non-negotiable for me. I just put in $500 a month and don’t think about it. I will say, I do have a higher stipend than a lot of other graduate students do. But yeah, that is very important to me now and I’m really happy with that <laugh>. During the pandemic, actually last August, I completely paid back my parents. So, that was an amazing feeling and felt so much better than putting my money into the government student loans just because I knew it would make such a bigger impact for them, and I wouldn’t have to worry about it anymore. As we know, like they’re still frozen right now, so I don’t know if I would’ve fully continued to commit to that as much if they had unfroze, but as of right now I still haven’t put anything else into my federal student loans.

21:20 Emily: And you mentioned earlier that you moved to Philadelphia for a year and a half, so I’m wondering how your budget looks right now. Like are you still living with your partner but now you’re back in Boston? Or like how are your, as your expenses have, I’m presuming increased as we’re, you know, moving through and beyond the pandemic, yeah, how have you set up your budget to still support these financial goals?

21:42 Lexi: Yeah, so I lived in Philadelphia until last July. So last July I kind of, I finished saving, paid off my parents. I built up a four-month emergency fund, my safety net. I was continuing to max out my IRA, and then I moved back to Boston. And so, now my rent is around $1050 every month just for me. So my partner and I split equally. So, my rent has doubled, but my income has also increased a little bit. At MIT we are unionized now, so I think that our salary will be pretty stable. And so, because my safety net is already built up now and my parental debt is paid off, now I have been putting money into planning for a wedding actually. So, the money that would be going toward my student loans, I’m instead saving for a wedding now.

22:55 Emily: That’s great. It’s like you caught up in all these areas, right? The emergency fund, the debt to your parents, the student loans still being on pause, and you’re on track with your IRA goals, and now you get to add in a wonderful new financial goal to the mix. So, congratulations on that upcoming life event! You mentioned earlier that, you know, near the beginning of graduate school you started listening to my podcast, but I’m wondering if you had any other recommendations for our listeners of other people or sources you listened to that kind of helped you with these mindset shifts?

Podcast Recommendations

23:27 Lexi: Yeah, I think that your podcast was really helpful for me for getting started just because it’s such a unique situation. All of the recommendations you hear are like, max out your 401(k) if you can. And it’s like, okay, well what if I don’t have a 401(k)? What if I have like just a weird stipend, a weird fellowship, and then don’t have retirement benefits, but I do have health insurance. It’s just a weird situation to be in. So, I feel like not only like with help paying taxes and how to do fellowship versus stipend, your podcast really helped me get started thinking about what should I prioritize specifically as a PhD student. And then I’m starting to think of, okay, what will happen beyond being a PhD student? How can I properly manage my money at that point when I have a quote unquote more normal job? So, I love podcasts. I like listening to the Financial Feminist, if you’ve heard of that one. I think Ramit Sethi has some really good podcasts, more about the psychology around money and just like getting your head out of like, this is this terrible thing I have to pay off the government for the rest of my life. I think just working through some of your psychology, especially if you didn’t grow up with a lot of money or in weird circumstances, I think that podcast is really great as well.

24:57 Emily: Yeah, thanks for those recommendations. The Financial Feminist, is that Tori Dunlap?

25:01 Lexi: Yes.

25:01 Emily: Okay. Yes. So the other part of her brand I guess is Her First 100K. Yeah, I do listen to Ramit’s podcast. It’s different from his other work. Like it’s very different from his book for example, but I like that they complement one another. So, thank you so much for those recommendations.

Shifting Student Loan Policy

25:19 Emily: As I said earlier, we are here in November, 2022 and just, I think it was last week we found out that the proposed student loan cancellation of 10 or $20,000 has been blocked and will not immediately be going forward. And we don’t really know a lot. I’ve actually been wondering how this is not being better covered by mainstream news sources <laugh>, because it seems like massive news just the way the announcement of the cancellation was. So, okay, all we know right now is that it’s blocked for the moment. We don’t know how this is going to resolve. We also don’t know whether the administrative forbearance will be extended again. One of the sources that I listen to, Student Loan Planner, thinks that it will be until we get some clarity on all of this. So, you as a borrower stuck in the middle of all this, what are you thinking and what are you feeling, and what are you hoping about all of this?

26:13 Lexi: Yeah, it’s definitely been a rollercoaster. I mean I thought it was a done deal when I submitted my name to get $10,000 forgiven. Because I definitely qualify. I think anyone in grad school with federal student loans will qualify. And so, I mean what we’re looking at now is I’m at $22,400 of federal student loans, still a mix of subsidized and unsubsidized. If that were to get $10,000 taken off, I think $12,000 is almost half, an incredibly more reasonable amount for me to pay off. And so, I think if the forgiveness goes forward, the way I kind of view that is I will likely get that amount of a pay raise at my next job at least, and can easily pay that off after graduate school. If it doesn’t get forgiven, if it stays frozen, I’m not going to put any money into it. If it does become unfrozen and post-wedding, I may start putting some extra cash into those unsubsidized loans. So, there are a lot of different possibilities. I think, say, none of it gets forgiven but it stays frozen until I finish graduate school, at that point I might you know, refinance and pay it down at a lower interest rate. So, there are a lot of possibilities.

27:46 Emily: Yeah, a lot of different paths that things could take going forward for you. And I actually don’t know this question, but I assume it would be the case, like let’s say that you did get $10,000 worth of cancellation. Can you selectively say that you want that to be your unsubsidized loans?

28:05 Lexi: I have been wondering the same thing, which is so frustrating, like why don’t we know the answers to these questions? But yeah, I really don’t know if it’ll be subsidized, unsubsidized, the lowest interest rate, the highest interest rate. I just really haven’t been able to plan exact numbers for any of that.

28:24 Emily: Yeah, I really have not heard that discussed at all. And it is probably because we really haven’t gotten close enough to the actual cancellation happening for it to have been dealt with by the servicers. As you said, there was an application open for like a few weeks I think, and now it’s been shut down again. Yeah, well I certainly hope that if the cancellation goes through that the borrowers are able to selectively say, you know, this is the loan I want reduced or paid off completely, et cetera. Because of course having those unsubsidized loans wiped out for you would be the most helpful thing in the short-term. And again, there are still lots of other things that could happen, like you were just laid out some possibilities. But the other one on the table is the new income-driven repayment plan that again, was proposed and we don’t know what the final terms will be for that.

29:08 Emily: But it could be that, you know, given that your loans were from your undergraduate degree, that once you are back in repayment after graduate school, you may have a very low repayment that you’re looking at. And so, it might or may not make sense to refinance and you’ll have to, you know, tackle that question when you get to that point. But I agree with you that it would be great if it was only $12K, but even at, you know, $23K ish, I think this is going to be fairly easy to handle on whatever your post-PhD salary is because it is, you know, it’s less than even your graduate student salary right now, one year’s annual salary. So, I hope that’ll be manageable for you. But of course it would be lovely if much of it was wiped out.

29:46 Emily: But again, we’re just waiting and seeing and maybe there’ll be more updates by the time this is published, or maybe we’ll still be waiting and seeing. But it sounds like for you, you have your goals clear. You’re going to keep going with the IRA, you’re going to get through the wedding and the associated expenses, and then you’ll revisit once we know the situation on the ground at that time. Graduate students are in a way, I guess I could say fortunate, just in that if you’re in graduate school, you know, you’re not going to go back into repayment if it’s federal student loans. Whatever happens, you don’t have to make payments while you’re still in deferment, so you have time to kind of figure out what the best course is.

30:20 Lexi: Exactly. Yeah, and I think that’s where, again, another very unique situation that we’re in as a PhD student that, you know, other financial advice is about debt that’s accruing interest. And if you’re in this weird position where your debt’s not accruing interest, you kind of need specific advice for that situation. And I think that’s hard to come by. So thank you for kind of going through all these very nuanced situations.

Playing the Waiting Game

30:47 Emily: Yeah, I will do what I can. I’ve been waiting and seeing maybe by the time this is out, I’ll have done something for the podcast feed, but I’ve been waiting and seeing how things go before making any kind of recommendations to like the grad student audience because again, we don’t know about the end of the administrative forbearance, we don’t know about the cancellation, we don’t know about the IDR plan. It’s just like everything’s up in the air right now. I have contacted again, this brand that I follow, Student Loan Planner, and they’ve agreed to come back on the podcast. They did once before to give some recommendations. But again, we’re going to wait on that until we know what this IDR plan looks like. So, it’s all just a waiting game, and it must be heart-wrenching for you to feel as you said that it was a done deal, that you were going to get this $10K in cancellation and have the rug kind of pulled out from under you on that. So, I am sorry about that.

31:37 Lexi: It’s okay. It honestly did feel too good to be true and I guess maybe it was <laugh>. We’ll see. But yeah, I think, like you said, because I’ve built a financial base, I really do feel prepared either way to take on the debt. Of course, it would be nice for anyone to be $10,000 less in debt. So yes, I hope for everyone that still has debt that it does go through.

32:04 Emily: Yeah, and that’s, I mean, that is the purpose of the administrative forbearance, right? Like there was a lot of uncertainty during the pandemic of course, you know people lost jobs, lost income and so forth. And pausing it for everyone was a quick solution to provide a great deal of relief for people not in graduate school who actually had their payments going on. So, it certainly served a purpose, but we’ll see when it actually ends and whether people are going to start defaulting when they go back into repayment and it could be a mess. We don’t know, again.

Saving for Retirement

32:32 Emily: Well, Lexi, is there anything else that you would like to add about your financial journey and these mindset shifts that you’ve had during graduate school?

32:39 Lexi: Yeah, I guess I would just add that, I think saving for retirement feels like a very far off weird thing to be doing. I’m 26 years old, but the stock market has performed on average at 10% growth. And I think most federal student loans are at most like 4.5% growing interest. So, I think if you have a math brain, which you might as a PhD student, it really does make sense if you have the opportunity to start saving for retirement because I mean even like, just saving now all of the growth that you’ll get on that money is going to be so much more than the interest you’re growing on your student loans. Just something to keep in mind, and that really helped me kind of rationalize this, to me, what felt like an uncomfortable decision.

33:37 Emily: I’m also reflecting that you started graduate school at an interesting time because at the moment you started, if you were on fellowship, I don’t know if you were, but anybody who was on fellowship wouldn’t have been able to contribute to an IRA from that particular source of income, but that changed just at the beginning of 2020. So, it’s just interesting that you were thinking about these things and there was all this news at the time about, you know, the opening up of this benefit to graduate students on fellowship.

34:02 Lexi: I will say that that happening was part of the reason I started educating myself about it. And I had remembered you did that podcast explaining this change. And yes, so that all kind of coincided with when I started investing into that IRA, which I would not have been able to the previous year. So, it’s just been a confluence of a lot of different things happening and a lot of policy changes that have directly impacted me at least.

Best Financial Advice for Another Early-Career PhD

34:31 Emily: Yeah, that’s a good summation of like this episode, just like dealing with the policy changes and sort of the winds of change buffeting you around as a graduate student. Lexi, thank you so much for this interview! I’m really happy to hear about how, you know, there’s been a lot of positive changes that have happened even through the difficult period of the pandemic. So, thank you so much for sharing those mindset shifts with us. The question that I ask all of my guests at the end of our interviews is, would you please share your best financial advice for another early-career PhD? And that could be something that we’ve already touched on in the interview, or it could be something completely new.

35:06 Lexi: Yeah, I mean <laugh> I would just double down on if you can, save for retirement, I think it’s going to be a huge impact for your future. And then also, I think a safety net is really important. Like I said, you never know what could happen even if you’re young. There are a lot of unknowns out there. Even if you feel very secure as I do in my position right now, anything could happen. So, just to have that financial security, I think helps me at least sleep at night.

35:41 Emily: Yeah, thank you for sharing that.

35:41 Lexi: That would be my advice. <Laugh>

35:44 Emily: I will put into the show notes, I have a, I call it like a challenge inside the Personal Finance for PhD’s community, which is a seven-step process for opening your first IRA. So, if any listeners are excited or curious about how to do that and you want a little bit of support from me, you can join that community and take that challenge. Again, we’ll link it in the show notes. And this, I’m imagining when this podcast is being released is a really good time to open a 2022 IRA because you can still open and contribute to one through tax day of the following year. So until, I’m assuming it’s April 15th, unless there’s a holiday, April 15th, 2023, you’ll be able to open and contribute to a 2022 IRA. So, that’s always a great idea. Well Lexi, thank you so much again for volunteering, and it’s been great to speak with you today!

36:27 Lexi: Yeah, thank you so much for having me on and thanks again for having this podcast! It’s amazing.

36:32 Emily: You’re welcome.

Outtro

36:38 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. 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.

This Grad Student Eliminated Her Housing Expense to Pay Off Her Student Loans

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In this episode, Emily interviews Dr. Erika Moore Taylor, an assistant professor at the University of Florida and the founder of Moore Wealth. When Erika started her PhD at Duke, she had $65,000 of student loan debt, which she committed to paying off before her graduation. One of the strategies she used that made the biggest impact was to serve as a resident advisor, thereby eliminating her housing expense. Erika shares how her money mindset fueled her motivation to achieve her debt repayment goal and how she is now pursuing FIRE.

Links Mentioned in the Episode

Eliminate housing expense to pay off student loans

Teaser

00:00 Erika: I did factor in cost of living. So being the poor broke graduate student is a trope that we’re all familiar with, but I think some areas lend to that trope more strongly than others.

Introduction

00:16 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 eight, and today my guest is Dr. Erika Moore Taylor, an assistant professor at the University of Florida and the founder of Moore Wealth. When Erika started her PhD at Duke, she had $65,000 of student loan debt, which she committed to paying off before her graduation. One of the strategies she used that made the biggest impact was to serve as a resident advisor, thereby eliminating her housing expense. Erika shares how her money mindset fueled her motivation to achieve her debt repayment goal and how she’s now pursuing financial independence and early retirement. If you want to be inspired to set an audacious financial goal and also plot your path to achieve that goal, I highly recommend joining the Personal Finance for PhDs Community at PFforPhds.community.

01:14 Emily: There are numerous courses, webinars, recordings, and eBooks to help you figure out what financial goal to pursue right now, for example, repaying student loans versus investing, and how to go about it. Just to take some examples that relate to today’s subject: I recently recorded a set of four workshops for the Community, two of which are titled, “Whether and How to Pay Off Debt as an Early Career PhD,” and, “How to Uplevel your Cashflow as an Early Career PhD.” These workshops teach frameworks and strategies for pursuing goals, like the ones Erika set during grad school, and actually can guide you for years and decades post-PhD as well. Best of all is the community aspect of the Community. There’s a forum available 24/7 to which you can post your questions and prompts, and I host a monthly live call for discussion and Q&A. We’ve spent a lot of our live call time in recent months, discussing homeownership, investing, and career and life transitions. But of course, any financial topic is welcome. To learn more about the excellent content and other opportunities available inside the Community, go to P F F O R P H D S.Community. I hope to see you in our October live call. Without further ado, here’s my interview with Dr. Erikca Moore Taylor.

Will You Please Introduce Yourself Further?

02:39 Emily: I am absolutely thrilled to have joining me on the podcast today, Dr. Erika Moore Taylor. She is actually an assistant professor at the University of Florida, and she finished her PhD in 2018 from none other than the Department of Biomedical Engineering at Duke University, which is the same department that I graduated from four years earlier. So we did overlap I think a little bit, but Erika is joining us today to tell us an incredible debt repayment story from her time in graduate school, as well as giving us some updates on what she’s been up to since she defended. So Erika, it’s a real pleasure to have you on. Welcome! And will you please tell the audience a little bit more about yourself?

03:17 Erika: Yes, thank you so much for having me Emily, or should I say, Dr. Roberts? It’s nice that we have that connection from Duke. And as you said, after I left Duke, actually before I got to Duke, I started thinking about finances and basically use my time at Duke to understand and learn my own personal finance mindset as well as what I wanted my journey to look like. And since then, I’ve been fortunate enough to start my position at the University of Florida, but also start a company focused on personal finance and financial literacy. So I think that’s all I want the audience to know about me so far.

Financial Mindset at the Start of Grad School

03:56 Emily: That is awesome. We’re going to talk so much more about that. So let’s take it back, rewind to when you were getting out of undergrad and starting graduate school. What was your financial mindset like at the time, and what did your finances look like at that time?

04:09 Erika: Yeah, so taking it all the way back to I think it was 2012, this was the year before I started graduate school and I was fortunate enough to do an internship in Boston. And I was kind of bored during the internship, and so I took up personal finance. I started reading books about personal finance because I realized that if I graduated on time from my undergraduate institution, I’d be graduating with $65,000 worth of debt. So in 2013, when I started my graduate program at Duke, I had the mindset of being shackled and weighed down with debt. I was very concerned about debt because I knew that no matter what I did after graduate school, that debt would follow me. It would be with me like a shadow that I couldn’t shake. And so it scared me because I felt like I had done the right moves in graduating and surviving undergraduate and getting into grad school, but I hadn’t made the right financial moves. So my mindset was scarcity.

05:11 Emily: It’s so interesting to me that that student loans, in particular, provoked that scarcity mindset. By the way, did you have any other debt at that time? Aside from the student loans?

05:20 Erika: I didn’t, but when I first started grad school, I bought a car for about 13 or $14,000. So then that added to my debt. So the fear amplified.

05:31 Emily: I think that some people have, I don’t necessarily want to say, like, they feel casually about their student loan debt, but especially when you’re going straight from undergrad into grad school, like you never entered repayment. So maybe the pain of the student loan repayment was not upon you logistically, although it was still there like psychologically. And so some other people I think are just a little bit more, maybe dismissive. And I’m talking about myself. I was very dismissive about the student loan debt that I had from undergrad. It was less than yours, but I was just like, “Oh, it’s subsidized. I’m going to grad school. It’ll still be deferred. No big deal.” Yes, I did know on the other side of graduate school that I would have to pay it off. But it did not bother me psychologically. So why do you think you had the view that you did instead of just feeling a little bit more comfortable with it?

06:18 Erika: Yeah. I think I had the view that I did because I knew I would have to get a job afterwards. And before I entered grad school, I had a job at a daycare working about $7 or $8 an hour. And I had never seen $65,000 in my bank account. I had never seen $65,000 in a job that I could work. And so the fact that I had that much debt was alarming to me, like you said, psychologically, because I had never secured a job that earned that much. And so I, again, was operating in scarcity saying like, “Well, if I have this much debt, I need to pay it off because, you know, I don’t know if I will be able to pay it off.” I didn’t know, you know, how much money I’d make in a job setting in using my degree. And so I was just motivated by that number by the sticker shock, I think price of my undergraduate degree, that really motivated me to pay it off.

Savings and Stipends

07:18 Emily: So starting in grad school, can you share with us did you have any savings or any kind of assets at that time, and also what was your stipend when you started?

07:26 Erika: Yeah, so starting in graduate school, my net worth was I think about negative $60,000. So I had $65,000 worth of debt. And then I had saved around maybe six or $7,000. I saved that money because I knew I would need to put a down payment on my car that I would need to buy in North Carolina, it’s not really public transportation friendly. So I knew that I needed a car as a vehicle. And then I saved a couple of other thousand dollars for a down payment on securing the place that I was going to rent. So first and last month’s rent as well as, you know, a security deposit. So I had, you know, maybe six or $7,000 in my checking account. I was fortunate enough to secure the National Science Graduate Research Fellowship, [GRFP]. And that set my stipend, I think at the time around $32,000 a year.

08:20 Emily: Yeah. Fantastic. And three years of guaranteed funding. That’s awesome. And so actually I want to rewind for a second because having won the NSF GRFP, you, I would imagine, had your selection of graduate programs. So why Duke instead of a different program?

Factoring in Cost of Living

08:40 Erika: Yeah, that’s an excellent question. And you’re right, securing the NSF GRFP, you’re kind of hot on the market, so to speak. So lots of schools will take you even if you didn’t even apply to the school. Thankfully I had already been encouraged to consider Duke because of my graduate research advisor who had just recently moved there. But specifically when I was making my list and considering what schools or programs I would attend, I did factor in cost of living. So being the poor broke graduate student is a trope that we’re all familiar with, but I think some areas lend to that trope more strongly than others. So I kind of eliminated going to Boston or going to San Francisco, even going to San Diego, where there are very strong biomedical engineering programs, but where the cost of living would make it extremely challenging to live independent of my stipend.

09:33 Erika: Additionally, I eliminated any program that had to add on top of the NSF GRFP to meet the standard of living. So that’s something that I don’t think a lot of people know. The NSF GRFP is already above the average stipend in most cases, but in some schools or programs where the cost of living is so high, they have to add on top of that. And so I was like, that means that even if I’m making above average, that’s still not enough to cover the cost of living in this area. So I eliminated those, which is how I landed at Duke.

10:07 Emily: I’m really glad you brought that up. I was thinking, you know, maybe you’re looking at, you know, $32K everywhere and then, oh, wow. It’s an easy choice to go to Durham over, you know, Boston or San Francisco or something. But even knowing that you were going to get a supplement above that, that’s really great that you consider that as well, because you’re right. Like if you look at the median cost of living in Durham, I’m pretty sure for a single person it’s still below $32K, or even below $30K, maybe at this point, I haven’t looked at the data super recently, but I know that when I was there, I did look at the living wage database from MIT. I think when I started at Duke, my stipend was $24,000, because I was getting the base stipend from the department, but I believe the living wage was something like 18, $19,000.

10:45 Emily: And so it was well above that number for a single person. That is not the situation when you go to these more high cost of living cities, but also just graduate programs that don’t pay super well. Duke pays fine for its base stipend as far as I’m aware. Okay. So I’m glad we, you know, we’re seeing how intentional you are when you are going into the selection of graduate school. Now we’re going to go back to where you are, you know, you’re entering graduate school. You have the student loan debt kind of hanging above you and you’ve talked about, you know, what motivated you. What was the exact goal that you set regarding your student loans? Did you want to pay them off entirely? Did you want to pay them off partially? Did you want to be doing retirement savings? Like what was your financial goal at that time?

Student Loan Goals

11:25 Erika: This is a great question, Emily, and I love this because it does break down where my mind was. So I had two buckets of student loans, the first were my own personal federally secured student loans, the second bucket were parent plus secured federal loans. And my parents made it very clear that I was expected to pay back both of those. So they were not going to pay back the parent plus loans. I was expected to cover both of them. The parent plus loan was in essence, a loan that they gave me through the federal government. And so my strategy initially was just to pay off the parent plus loans because I said, if I can lower the debt that I owe my parents or the federal government through my parents, then I’ll be in a much better shape. Additionally, those were the largest loans that I had. So I think I had one that was $20,000 and one that was about $25,000 in parent plus loans. My own personal federal loans were much smaller, you know, by comparison. So I said, it’d be great if, while I was in grad school, I could just pay those off. That was stage one.

12:31 Emily: Yeah. And so just to gain a little bit more clarity here. So your student loans that were in your name, those were deferred because you were in graduate school. Were they also subsidized? It wasn’t like you only took out the subsidized portion?

12:43 Erika: No, I had subsidized and unsubsidized loans.

12:46 Emily: Okay. So part of it subsidized, part of it’s un-subsidized. And then the parent loans that your parents had, those are not in deferment because they’re not yours, technically. So it’s so interesting. So you sort of considered yourself to be in repayment because your parents were in repayment for that portion of the loans. Do you remember what that minimum, like the minimum payment that they had to make that you were trying to make for them, was when you started?

13:08 Erika: Yeah, so actually, because I am the obsessive person that I am, I made a massive spreadsheet, which is something that I recommend to anyone who’s in debt, right? Making a spreadsheet of every single loan, all of the interest and all of the, you know, what the minimum payment is. So at the time, just for my parent plus loans, not my un-subsidized personalized loans, the payment was around $250 a month. The interest rates were low. So it wasn’t that high of a number.

Reducing Housing Expenses and Increasing Income

13:38 Emily: Okay. So let’s sort of progress in time through graduate school. What did you start doing during graduate school to, because I know you did, how did you increase your income? You’re already on the NSF GRFP, but I know you did even more to increase your income.

13:54 Erika: Yeah. So I was very fortunate to be encouraged to look outside of the box. And so when you look outside of the box, you start thinking about what are the most expensive items in my budget and how can I eliminate or dramatically reduce those? And for most people, the most expensive item is where you live. And so I applied to be a graduate resident at Duke, which is a very awesome program. I highly recommend it if you’re in grad school, look in to see if your university has a graduate resident program, because it allowed me to connect better with the undergraduate community, but most importantly, it allowed me to live for free. And so I applied and was awarded that role. And the first year was very challenging, but I served as a graduate resident for four out of the five years of my PhD. That was one major prong.

14:45 Emily: Yeah. Wow. So you completely eliminated your housing expense. That’s incredible. And I’m actually thinking, did that role play a part in your subsequent faculty applications? Like did that come up at all later on? Was it an asset, I guess, on your CV as it is what I’m asking?

15:00 Erika: Yes. It was an asset on my CV due to my familiarity with the administration and the structure as it relates to undergraduate curriculum and undergraduate engagement. And it also bridged me into serving as the Duke University Graduate and Professional Young Trustee. So it definitely allowed me to keep my hands in many pots at Duke and then it allowed me to leverage those opportunities into a faculty position.

15:32 Emily: Yeah. I love it when I can find something that benefits someone both financially and on the CV, and for future funding applications or, you know, whatever it might be. Did you do anything else on the increasing income side?

15:44 Erika: Yes. So the second prong of my approach was I sort of started serving as a house sitter or pet sitter. So this was a hustle that I was not able to maintain. Just because it took so much bandwidth. I was in lab, you know, a lot of time that I was also serving as a graduate resident, which took when I started out about 20 hours a week. So it was a tremendous time commitment. But I essentially wrote how much of the job was worth. And I wrote it in big letters and I just posted it on my door. And I said, you know, whenever you want to complain, just look at that dollar amount. And then during years two and three, I would house sit for professors for different professionals who were going out of town or who were in transient positions, watching their pets, doing things around their houses. So those are the main ways that I accelerated my debt repayment plan.

16:40 Emily: And you said that you didn’t maintain the house and pet sitting. It was too time intensive. Was that the main reason?

16:45 Erika: Yes. The house and pet sitting, I just found that, you know, in life you’re juggling a few balls and then you throw in the graduate resident ball, and then you throw in the stresses of graduate school and trying to complete your PhD. And then I threw in this other ball of house sitting and pet sitting. So it was just one too many balls and I had to think, what can I let drop? And it honestly wasn’t worth the time commitment always. So I definitely let it drop.

17:08 Emily: Yeah. Very, very strategic.

Commercial

17:13 Emily: Emily here, for a brief interlude. This announcement is for prospective and first-year graduate students. My colleague, Dr. Toyin Alli of The Academic Society, offers a fantastic course just for you called Grad School Prep. The course teaches you Toyin’s four-step grad boss method, which is to uncover grad school secrets, transform your mindset, up-level your productivity, and master time management. I contributed a very comprehensive webinar to the course titled, “Set Yourself Up for Financial Success in Graduate School.” It explores the financial norms of grad school and the financial secrets of grad school. I also give you a plan for what to focus on in your finances each season of the year that you apply to and into your first year of grad school. If this all sounds great to you, please register at theacademicsociety.com/emily for Toyin’s free masterclass on what to expect in your first semester of grad school and the three big mistakes that keep grad students stuck in a cycle of anxiety, overwhelm, and procrastination. You’ll also learn more about how to join Grad School Prep, if you’d like to go a step further. Again, that’s theacademicsociety.com/E M I L Y for my affiliate link for the course. Now, back to our interview.

Anything Else to Control Expenses?

18:40 Emily: Okay. So that’s on the income side. Did you do anything else on the, you know, controlling expenses, decreasing expenses side of the equation?

18:47 Erika: Yes, even though I purchased my car, I paid off my car within the first year that I had the loan. So that was really important to me because at the time that was my highest interest debt. And then I actually didn’t drive that much because I didn’t want to pay for maintenance of the car. So I think I got my oil changed about every 12 to 18 months. And because I drove that infrequently, I would, you know, get a ride with friends or I would just walk to a location or I would take, you know, some of the commuter trains into downtown. Commuter buses, excuse me, into downtown. And so I basically decreased my use of the car. And then also my friends know I’m pretty cheap or frugal as a person. So I ate out a lot, but I strategically ate out. So part of the graduate resident job comes with a food stipend. And so I would have meetings or hang out with friends, but it’d be on campus where I could use my meal points. And then also a part of the role was also facilitating community development. So that meant ordering food. And so I would go to the events because that was part of my job. But if there were leftovers, I would take that food and that would be lunch for the week. So I reduced my food expenses and I reduced my transportation expenses.

Balance Sheet and Loans at the End of Grad School

20:00 Emily: Yeah. I think the taking leftovers home from events is a very classic grad student. I think a lot of people are employing that strategy, but you combined it with the, “Oh no, I have a job that actually pays me to eat on occasion.” Okay. So let’s then jump ahead to the end of graduate school. What was your balance sheet at the time? How did you do against these student loans?

20:21 Erika: Yeah, so by the end of graduate school, I had completely eliminated my student loan debt, my parent plus loans and my personal loans. And I had, I think it was still around six or $7,000 saved.

20:35 Emily: Okay.

20:36 Erika: So positive net worth.

20:38 Emily: Yeah. Complete debt elimination. That’s amazing. Congratulations on achieving that goal. And obviously you, I mean, to pay off $65,000 of debt during graduate school while on a graduate student stipend, it’s just, it’s an amazing, amazing accomplishment. I did, if the listeners are interested and you want motivation for your own debt repayment journey during graduate school, I did actually do an interview back in season one with Dr. Jenni Rinker, who also went to Duke, who also had the NSF GRFP. And she also paid off, I think it was yeah, in the low sixties thousand dollars of student loan debt, while in graduate school. She had a different approach than yours. I think she was like a major, major side hustler, whereas you went this like RA route. They both can work fantastically. So really happy to have that. And actually also from season one, there’s another example of an interview I did with an RA. And he also had amazing benefits associated with his resident advisor position.

Would You Have Done it Again the Same Way?

21:26 Emily: So, okay. I still want to think about you back in 2018 when you defended, you’ve conquered the student loan debt. Would you have done it again the same way?

21:35 Erika: I would do it again the same way, because the skills that I’ve learned through the process of accumulating that debt and then paying it off are now with me today. So I apply them in different ways, but I think showing that I could be disciplined over wh at, at the time, seemed like a massive amount of debt to me has transitioned my discipline in so many different ways. So I’m grateful for the experience. Sometimes you kind of need to be slowed down or you need to learn a lesson. So I look at my student loan debt as the lesson that I needed to learn. And then I just try to apply those skills in many different ways.

22:14 Emily: I feel like, so when I finished my PhD, like literally, like when I passed my defense, like finished my PhD, I had this feeling, a very expansive feeling of, I can do literally anything. I can conquer any mountain, like in front of me. I felt that way a couple of other times in my life. But in the financial arena, I don’t know if I’ve had that. But did you have a moment like that? Like with the last payment that you made, did you feel, you know, you had these insights and so forth. Can you tell us about that?

22:44 Erika: Yeah. When I made the final payment, it was kind of anticlimactic. And maybe this is the scarcity mindset in me, but I have sisters and family members who had been working and contributing to their retirement accounts. I hadn’t done any of that. I was just focused on eliminating debt. And so I was like 27, I think, when I defended. No, 26, when I defended and I was kind of like, okay, now I’m really behind because I don’t have any retirement savings. So it kind of just clicked, you know, gears from debt repayment to retirement savings. And it wasn’t quite as I think, as momentous as I would’ve hoped.

Finances in Marriage

26:07 Emily: Yeah. Is there anything else you want to tell us about like, sort of what your life looks like now, financially?

26:12 Erika: Yes. So I got married, which has been an interesting journey. I think it’s been fun. But I love talking about finances. So I immerse that immediately into my relationship. And my husband actually came into the marriage with student loan debt. So there was a moment of panic where I was like, I don’t want to go back to that. And so we came up with a plan to basically, even though we’re dual income, we only live off of one income, and we attacked his debt. And now we’re just full steam ahead planning for really important things in our lives. And so I’m anti-debt now in a major way. And so we were talking about, oh, maybe in few years, we’ll buy a car. And so I’m like, okay, what’s our savings plan to afford this car? Because I’m not going back into debt.

27:01 Erika: Or we talk about going on trips. So later this summer, we’re going to Hawaii, which we’re really excited about. But we are trying to save and plan for that now. Right? All of the excursions and activities we want to go on, I’m not charging them. I want to have the cash to pay for them. And so that means we have to make sacrifices in other areas, but it’s been really fun, fine tuning. What are our shared, you know, drivers, what do we enjoy spending money on, and what things do we not care about as much? So that’s what we are continually working on now as a couple.

27:34 Emily: Yeah, that sounds amazing. I don’t want to put this in like a light where like, “Oh, it’s a great experience to have a low-income for a long time during graduate school with no hope of increasing it.” It’s not great. It’s not great. The silver lining on that very, very, very dark cloud is that in some situations you can embrace some good habits, maybe develop your mindset and so forth. And it really does sound like what you did. You mentioned the word discipline earlier. So you developed your discipline again over this long debt repayment journey. And again, within, you know, the confined circumstances that you had financially during graduate school. So I think that’s amazing. I certainly also developed really good financial habits during graduate school that have continued. And I’m happy now with a higher income to have them serving me well at this point because it’s really gratifying to have a higher income to work with when you have those good habits in place.

Moore Wealth

28:24 Emily: So you mentioned at the top that you have a company now, Moore Wealth, would you please tell us more about what you do through that?

28:30 Erika: Yeah, so Moore Wealth is kind of my love letter to what I wish I would have done when I was a younger student. And so I think one of the plights of education in the United States is a lack of financial literacy training. Like I made the joke the other day, we learned how to write cursive, but we don’t learn how to budget, which is insane because you don’t need to write cursive in life, but you do need to know how to budget if you’re going to, you know, have command over your finances. And so through Moore Wealth, we have a two-pronged approach to addressing this. Our mission is just empowerment through financial literacy. And so the first prong is our scholarships and fellowships. And so I was really excited because I finally have the income to give my money away to people who I think are deserving.

29:17 Erika: And so we established a nonprofit organization to basically grant scholarships and we had our first cohort that was awarded in February. And so that’s a lifelong dream of mine that we’re doing through Moore Wealth. And then the second prong is financial seminars, mainly targeted to high school students. So before you even get to college, take a step back and figure out what you want your life to look like and how finances are going to play a in that. And that’s what we do. So seminars and scholarships, and that’s the company, that’s the mission of Moore Wealth.

29:49 Emily: That sounds so incredible, amazing that you decided to set that up after having this journey. Tell us more about the scholarships and fellowships. Like who are the kinds of candidates you give them to, and then how does that benefit them? What do they get to do with it?

30:02 Erika: Yeah, great question. So right now we had our inaugural class that was awarded in February. And so we solicit proposals and we solicited proposals from over 50 universities. It was actually a tremendous response. That was kind of unexpected for this first year. And we awarded them to anyone who was entering into or completing a degree granting program. So we are specific in that terminology because we consider certificates and trade school or nontraditional routes of access also really important. And so it’s a very inclusive scholarship at this point. There was a Google form that’s on our webpage where people had to respond to a series of short answer questions. And then we had a blinded review that basically scored the essays based on the rubric that was established by the scholarship committee. Those were the only requirements or prerequisites for entering into the scholarship. We did have a GPA minimum of a 3.00 on a 4.0 scale. But other than that, there were no limits in terms of if the person was in graduate school, if the person was entering high school, if the person was completing their plumbing certificate, or anything else like that, we wanted to be as inclusive as possible.

31:24 Emily: And is it a grant that they then do work with, or is it just completely goes into your pocket? You can do whatever you want with it?

31:32 Erika: Yes. At this stage we awarded each of the recipients, they did have to send a follow up about how they’re going to try to implement financial literacy skills that they learned in their reflection essays into their life. And what we’re hoping to do in the future as this builds out is actually have small courses for them and potentially get them up to date with their financial literacy skills. And yeah, so currently they’ve gotten their money and they’ve reflected on financial literacy concepts. But to date, that’s it for that first cohort. So we’re looking to add additional responses and interactions with them in the future.

Best Advice for An Early-Career PhD

32:11 Emily: Incredible, wonderful. We can easily tell the passion that you have for this material in your voice. I’m so excited that you’re in the space as well. Erika, the question that I ask all of my interviewees at the end of our conversation is what is your best advice for an early-career PhD? And it could be something that we’ve touched on already in the interview, or it could be something completely else.

32:33 Erika: Yes. I love this question and I love the responses that you’ve gotten in the podcast so far to it. So I’ll echo what a few other people have said, which is to say that the advice that I have for you is two-pronged: if you have debt, understand what your debt is. Generate a spreadsheet, get clarity on that debt. It’s so important to do now than just ignoring it. And I know it’s hard because you’re like, “I live in denial. It’s the best thing, you know, it’s the best. Ignorance is bliss.” But getting clarity on your debt really can inform what lifestyle you need to live in the future and what lifestyle you want to live and how your finances interact with that. The second piece of advice, if you don’t have debt: contribute to a retirement savings account. This is something I wish I would have done. I didn’t have a lot of extra money, but I know that there were opportunities that I passed up because of ignorance and because of fear for how to interact with a Roth IRA, for example. And so you can never get back time. And so while you’re in grad school, I really recommend just contributing to a Roth IRA if you have any extra money.

33:41 Emily: Absolutely, absolutely. Totally co-Sign each of those pieces of advice. Wonderful. Erika, thank you so much for this wonderful conversation. And I hope that the listeners will find you after this. What is your website?

33:53 Erika: Yes. My website is Moore Wealth, M O O R E W E A L T H.org. And you can also just email me or find me on Twitter. My handle is @DrErika E R I K A Moore M O O R E. And then you’ll find more information there.

34:15 Emily: Wonderful. Thank you again for joining me.

34:18 Erika: Thank you, Dr. Roberts.

Outtro

34:25 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 episode 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 four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple Podcasts, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media, with an email listserv, or as a link from your website. Three, 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 prerecorded workshops on taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps! The music is Stages of Awakening by 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 Handle Your Student Loans During Grad School and Following

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In this episode, Emily interviews Meagan Landress, a Certified Student Loan Professional who works with Student Loan Planner, about how a grad student or PhD should best handle their federal student loans. Meagan outlines the financial profiles of someone who should use an income-driven repayment plan to pursue forgiveness, including Public Service Loan Forgiveness, vs. someone who should consider refinancing. She answers the questions: Should a graduate student pay down their student loans while they are in deferment? How should a graduate student who needs to take out debt decide between a student loan and consumer debt? Meagan also explains how marriage affects student loan repayment under each of the income-driven repayment programs. Don’t miss this episode jam-packed with actionable information!

Link Mentioned in this Episode

student loans grad school

Trailer

00:00 Meagan: We are taking a non-traditional approach to debt and so I kind of backed that up with, make sure you know, that federal student loans are just not a regular debt. That’s one. That’s the biggest thing we need to remember.

Introduction

01:18 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education and personal finance. I’m your host, Dr. Emily Roberts. This is season seven, episode 13 and today my guest is Meagan Landress, a certified student loan professional who works with Student Loan Planner. We’re discussing how a grad student or PhD should best handle their federal student loans. Meagan outlines the financial profiles of someone who should use an income-driven repayment plan to pursue forgiveness, including public service loan forgiveness, versus someone who should consider refinancing. She answers the questions: should a graduate student pay down their student loans while they’re in deferment? How should a graduate student who needs to take out debt decide between a student loan and consumer debt? Megan also explains how marriage affects student loan repayment under each of the income driven repayment programs. If you have federal student loans, and there is any question in your mind as to how you should handle them, you should absolutely listen through this entire episode. When you have a really high stakes student loan decision to make, such as which forgiveness program is right for you and your family, or whether to pursue PSLF versus refinancing, I highly recommend working with a certified student loan professional or a certified financial planner. Student Loan Planner can refer you to one of their partners who is a qualified professional.

01:39 Emily: On the other hand, if you’re looking for assistance with determining what your current financial goal should be, evaluating your budget, or figuring out what your financial life should look like in your next position, please consider working with me. I also serve as a financial coach and I specialize in funded graduate students and PhDs. You can sign up for a free 15 minute introductory call with me at pfforphds.com/coaching to see if one-on-one coaching with me would be a good fit for you. Alternatively, if a group coaching and accountability program is attractive to you, The Wealthy PhD might be your best option. I’m enrolling for the next round of The Wealthy PhD in January, 2021 and you can go to pfforphds.com/wealthyPhD to learn more and join the wait list. Whatever the financial decision you’re facing, it can really help to get an outside perspective. Without further ado, here’s my interview with Meagan Landress.

Will You Please Introduce Yourself Further?

02:36 Emily: I am so pleased that Meagan Landress, a certified student loan professional, has agreed to join me on the podcast today to give an interview all about federal student loans for graduate students and PhDs. Meagan has her own coaching business around student loans, and she also works with Student Loan Planner, which is a really well-known brand in the space that I respect a lot. So I was really pleased to be connected with Meagan and so pleased that she accepted the invitation to be on the podcast. So Meagan, will you please introduce yourself to my audience a little bit further?

03:05 Meagan: Definitely. I’m Meagan Landress, born and raised in Atlanta, Georgia. And yes, I have my own financial coaching practice where I work with folks on the basics of financial planning. And Student Loan Planner, I consult for specifically on student loans, helping people navigate that big elephant on their chest, I would say. I’m excited for this conversation today.

03:29 Emily: Yeah. When I approached Student Loan Planner, I said, I would love to interview someone. I need someone who’s going to be able to speak to PhDs and the specifics of their situation. They said, Meagan’s going to be the perfect fit, so I’m really excited for this conversation.

Federal Student Loan Forgiveness Programs vs. Refinancing

03:42 Emily: Let’s jump right into it. I’m imagining a person who, whether they’re in graduate school, whether they’re maybe out of graduate school, they need to know whether or not they should be pursuing a forgiveness program at the federal level. One, maybe you could just remind us briefly of a few of those acronyms that are involved with the federal level forgiveness programs, and then let us know who is the type of person, what is the financial profile of a person who really should be looking carefully at pursuing one of those forgiveness programs?

04:13 Meagan: Yeah, so I think the most maybe well-known is public service loan forgiveness. That is, if you’re dedicating your career to a public service opportunity, so government, nonprofit, 501(c)(3) work. But also each of the income driven plans, there are four, each of those income driven plans have a forgiveness component and it’s really more so like their maximum repayment period. The folks that should be pursuing or entertaining forgiveness, there is a rule of thumb on balance.

Meagan: For the longer term income driven plans, if your balance is much greater than your annual income, we use 1.5 times your annual income, then you should probably be entertaining that longer term forgiveness route on the income driven plans. It’s not public service work. It’s not career-driven anything like that. You just have to be making payments on that plan for either 20 or 25 years. PSLF, I think is a little more straightforward. If you find yourself in a public service position and you can foresee your career continuing to go that route. I see this a lot in education, you know, public universities, and so that’s where we want to be entertaining, maybe public service loan forgiveness, which is 120 qualifying payments on an income driven plan. And then you reap the benefit of forgiveness. So it’s much shorter. Those would be some maybe identifying factors there.

05:42 Emily: So just to put a real fine point on this, when we’re talking about a debt to income ratio, is that the income that the person has post all education or during the course of their education

05:54 Meagan: Post-education. So I would say the first couple of years of their career.

05:59 Emily: Okay. So someone coming out of their PhD, first post-PhD job within those first couple of years, if they see that their debt is more than one and a half times, their post PhD income, that’s when they should be looking pretty hard at enrolling one of these forgiveness plans and potentially seeing it through to completion. Is there any difference in that rule of thumb, around whether if the program is PSLF, which only would take 10 years, versus one of the ones that would take 20 to 25 years,

06:27 Meagan: There’s a little bit of, because that ratio is not quite right since it’s such a shorter period of time. And so folks who have about the same, or maybe even a little less than their income, could still benefit from public service loan forgiveness. We just have to do the math on it because the payments are going to be based off of your income. And we need to project that out to see, would you just pay it off in 10 years or would you reap the benefit of some kind of forgiveness? The debt to income ratio isn’t so relevant with PSLF, but it could be maybe a rule of thumb to start with, and then you have to go and do some math.

07:07 Emily: Yeah. I’m fully anticipating there being a lot of answers like, well, this is the starting position, but really we have to fine tune it through doing some more math. So I fully anticipate a lot of those answers during this interview and that’s perfectly fine. I just want to get people a starting point, because when you’re sitting, prior to getting out of graduate school and you’re wondering whether or not you should be, your loans are probably in deferment, but you’re wondering whether or not you should pursue a forgiveness plan afterwards. It’s just helpful to see whether or not you have to go further into the details of it or not. There’s another option for repaying your student loans. Well, there’s a few options. You can do the standard repayment program for the federal government. That’s going to take 10 years, and it’s just based on your debt amounts, not based on your income at all, the repayment amounts. Or you have the opportunity to potentially refinance your loans. And there’s been a lot of advertising around student loan refinancing in the last 10 years. Very, very low rates are being offered. What is the financial profile of person who should be considering refinancing rather than potentially pursuing PSLF or another forgiveness program?

08:13 Meagan: Yeah. Refinancing is a big, you’ll see these commercials on TV all the time now. But when it’s right to consider refinancing, I think that’s when your balance is lower than your annual income, and you feel comfortable walking away from the federal system. And what I mean by that is the federal system has a lot of flexibilities that private loans just don’t offer. You won’t have very generous for forebarance availability. You won’t have access to income driven plans. There’s no forgiveness opportunity with private loans. And so if you feel comfortable with your financial situation and you can commit to the term for refinancing and you weren’t a good candidate for forgiveness in any way, then that’s when I think it’s appropriate to pull the trigger on refinancing.

09:00 Emily: Yeah. And I think what concurs with that is that you have to have a fairly low debt to income ratio to even qualify for the really good refinancing options. Like it pretty much has to be below about one-to-one anyway, to do that, which for people in my audience, PhDs, oftentimes refinancing is not going to be an option during graduate school because the income is just so low. However, if your post PhD income is going to jump up quite a lot, then refinancing might make sense once you get to that point. You may wish you could have refinanced earlier, but you probably wouldn’t qualify if your debt is maybe a few multiples of your graduate student income, but less than one year’s worth of your post PhD income. Thanks for that clarification.

09:40 Emily: I know there’s a lot of anxiety going on right now about PSLF. There was a report, I think it was in 2018 or something about how 90-whatever percent of people were being rejected by PSLF. Can you shed some light on this? Should people be concerned about the health and the future of PSLF?

09:54 Meagan: I wish I could take this article down. This one, everyone references, I feel like, when we’re talking about PSLF, but it’s funny when you go back to that article and you break apart the math in that article, you’ll see that about 70% to 80% of that 99% number of denials was due to one of two reasons. One was because people applied before reaching 120 payments. I think there’s a lot of reasonings behind that. Some people truly may have just been off a couple of payments and got denied. It didn’t mean that they’re denied for the whole program, they just have to make a couple more payments to get to 120. But I think the other big reason was there was a buzz about PSLF in 2017 and 2018. That was the first year we could have applied for the forgiveness. People in public service got excited about it and they were like, “Oh, I’ll just apply to see what happens,” and they hadn’t done the due diligence to check all the boxes and they definitely didn’t do the time. And so that’s my unofficial hypothesis on what happened there.

Meagan: Then there are some other things too, like there are some specific things you need to make sure you’re checking the box for, like having the correct type of loans, only direct loans qualify for forgiveness and being on an income driven plan. Those are two that were another percentage of why people got denied. They had either the wrong type of loans or weren’t on the right repayment plan. That article, while although looked horrifying, if that was the route you were going, it was very misleading. And I wish they would have pulled out some of that bad data. But PSLF is a great program to pursue. We just have to make sure we’re doing the due diligence and keeping a pulse on our payments over time to not have any surprises, that’s really the big important part with PSLF.

11:49 Emily: I guess I’ve also heard sort of anecdotally that I believe you have to do a recertification every year to make sure that your employer is still the type of employer where you would qualify for this program and that maybe you need to stay on top of your employer and your lender to make sure that all that paperwork is going through. Sort of you as the borrower need to take on a little bit more responsibility than you might like to, just to make sure that all the I’s are being dotted and the T’s are being crossed and everything.

12:16 Meagan: Yes. There’s what’s called the employment certification form that we recommend submitting at least once a year, even if you haven’t switched employers. What that form does is yes, it does verify that the employer still has that tax-exempt status. It also verifies and certifies that you still work there full-time. That’s one of the other requirements, working full-time for that entity. Once they get that form, then they update your payments since the last time you submitted it. And what’s nice too, they just updated their portal to where it shows your PSLF payment track, which is new because he used to have to wait for that confirmation email after submitting the ECF form to know where you stood payment-wise, but now it reports real time. So I’m excited about that. It’s a great addition, I think, to the portal,

13:04 Emily: I’m sure that gives the additional peace of mind to not have to wait for that communication to come back.

Making Payments on Student Loans During Grad School

13:11 Emily: Now I’m thinking about a person in graduate school, their loans are in deferment. They’re looking ahead to their post PhD career and saying, yeah, “I think I’m going to be able to pay these loans off once I get to that point. I don’t really think I’m going to have to do an income driven repayment program. PSLF is not an attractive…That type of employment is not really my plan.” That’s what they’re saying to themselves in graduate school. In this particular scenario, this graduate student has the flexibility to be able to make some kinds of payments towards their student loans. They’re receiving a stipend. It’s enough for them to live on. They’re able to pursue some financial goals aside from just paying for basic living expenses. Is that a good idea? And how does the person determine whether they should go that route, of repaying a bit of debt during graduate school, or whether they should just kind of defer it all and wait until afterwards?

14:00 Meagan: Yeah, that’s a good question. And I think, yes all of those things you mentioned before have to exist. We need to know that we’re not pursuing PSLF one way or another. And I would suggest before putting money down on the student loans, making sure your emergency savings is healthy. We never want to be in a position where we have thrown all of our money towards our debt, we can’t get it back out, and we need it for an emergency. That is a bad situation to be in. I think having a buffer and savings is important, but I think one thing being in graduate school, we can’t officially enter repayment until we have graduation status. We can, with some of our undergrad loans, if we wanted to, we can enter repayment on those specifically. We can make payments, we just can’t officially enter a repayment plan on our existing school loans, so if you wanted to make payments, you could.

Meagan: Your un-subsidized loans do accrue interest while you’re in school. So that’s anything that says un-subsidized from undergrad and from grad school, and also grad school loans are considered un-subsidized. Those loans specifically accrue interest. Subsidized loans do not. If you wanted to prioritize which loans you’re applying payments to, subsidized loans aren’t going to be growing while you’re in school. So you can maybe prioritize the unsub and I think you can apply it straight to that interest. Again, it’s going to accrue on a monthly basis, so maybe you can find out how much that is and make those payments so it doesn’t grow while you’re in school. Those are some thoughts there. Post-graduation you can immediately enter repayment if you wanted to, by consolidating. You typically have a six month grace period where you can decide what plan you’re going on, get established. But if you wanted to enter repayment officially sooner, you can consolidate and kind of force yourself into repayment.

16:03 Emily: I see. How big of a factor should the interest rate on the unsubsidized student loans play in this decision, about whether to pay them down a bit or pursue other financial goals? We already covered the emergency fund, but if a graduate student is looking at “well, I can start investing for retirement, for example, versus paying down the student loans,” what are your thoughts about how the interest rate should factor into that decision?

16:28 Meagan: Yeah, so the interest rates on student loans do a lot of times fall in a gray area where, I mean, between 5% to 7% — I’m not sure, I’m not confident that you might get a longer term return if you were to invest that extra money instead. It really just depends and it kind of depends on your risk tolerance there. But any interest rates that are below 5%, we can kind of put those lower on the totem pole because if we took that extra money and we put it into our IRA or putting it towards our financial independence, long-term investing tells us on average, we can get close to 7% to 10%. I know that’s a big range, but it just depends. So if our debt is charging us 4%, or 5% even, there is that that net value that we’re missing out on. So I would say lower interest rates, I wouldn’t prioritize necessarily. If you have extra dollars, put that towards savings or put that towards your IRA or have a split approach — put some towards the loans and some towards retirement. When interest rates are higher though, when they’re in the 7% range, which is normal for graduate students, that’s where they’re a little iffy and we might want to prioritize them a little more. Those would be ones that you’d want to prioritize and you can kind of take a avalanche approach where we tackle the highest interest rate loans first, if you wanted to do it that way.

18:01 Emily: Yeah. What if we flip the scenario a little bit and say, okay, well instead this graduate student is someone who is going to pursue an income driven repayment plan and potentially forgiveness, maybe PSLF, but they still have that disposable or discretionary income during graduate school, then I guess the weight would tilt towards starting to invest. If you know that you’re going to be enrolling in one of those plans later, my understanding is, hey, never make an extra payment, never pay more than the minimum, if that is your plan and all that extra money should be going towards your other financial goals.

18:35 Meagan: You said it. Yeah. And we can’t have a qualifying payment while we’re still in school. Sometimes that’s a misconception. People feel like they can enter repayment and start having payments count towards forgiveness. We can’t necessarily with our existing degree loans, we have to wait until post-graduation for those payments to count. So, yes, we don’t want to pay a dollar extra. So throw that towards something that’s going to serve you in the future, and that would be retirement or savings.

Commercial

19:04 Emily: Emily here for a brief interlude. If you are a fan of this podcast, I invite you to check out the Personal Finance for PhDs Community at pfforphds.community. The community is for PhDs and people pursuing PhDs who want to take charge of their personal finances by opening and funding an IRA, starting to budget, aggressively paying off debt, financially navigating a life or career transition, maximizing the income from a side hustle, preparing an accurate tax return, and much more. Inside the community, you’ll have access to a library of financial education products, which I add to every month. There is also a discussion forum, monthly live calls with me, book club and progress journaling for financial goals. Basically, the community exists to help you reach your financial goals, whatever they are go to pfforphds.community to find out more. I can’t wait to help propel you to financial success. Now back to the interview.

Taking Out Student Loans During Grad School

20:08 Emily: Yeah, I think another point that might be helpful for the listeners is to understand, if you want to take out federal, and if you have any conception in your mind that there might be a possibility you want to take out a federal student loan during graduate school, what are the steps you need to do in advance to have that be an option for you versus what you just said: well, maybe at the given time that you need money, maybe you can’t take out a loan right at that moment. What steps should a person do in advance? If they’re thinking, yeah, this might be a possibility for me down the road.

20:34 Meagan: You’d want to complete FASFA each year. As a graduate student, your parents information, does it factor in anymore so it is solely on your financial situation. That’s going to help you with the un-subsidized funding, which you can get up to $20,500 for. You’ll also might want to consider looking at signing the graduate plus promissory note, which your financial aid office will tell you to do if you need that additional funding. But it is a separate promissory note. If we need above and beyond that $20,500, then you can spill over into the graduate plus loans. That’s what I would, I would do each year: FASFA and then for the first time you borrow, graduate plus, or if you don’t have graduate plus now, maybe go ahead and sign that promissory note. Either way you have to accept the aid that you’re being awarded. It’s not like you’re just willy-nilly applying for a loan. You have to intentionally accept it, but that gears you up to be able to accept it without having to do all that paperwork in a rush or being too late.

21:41 Emily: Yeah, I guess I’m just thinking financial planning wise for graduate student, going into or in a graduate program where they just know this program is not paying me well, I can barely make ends meet, that might be a thing to do in advance. It’s actually a little bit like having an emergency fund. If you know you can’t build up your own emergency fund right now, where it’s not going to be very big because they just aren’t paying you enough to make that happen, then maybe this is a good sort of backup plan to have. Do all the paperwork in advance, if anything adverse ever happens this is another step that you could take. I don’t love that idea because of course it’s better to just have your own emergency funds and go and you go forward and of course that’s, most of the strategies that I talk about through the podcast is how to overall be building up your savings during graduate school, but just as like a backup plan, it seems like it could be prudent to take these steps so that money, the loans could be available to you if you came upon a situation where you needed it. You do need to take some steps in advance to make that happen, so thank you for clarifying that.

The Intricacies of Student Loan Repayment

How Marriage May Affect Your Repayment

22:40 Emily: Okay, now we’re getting to a couple, maybe more niche kinds of questions. I get a question sometimes from people who are either married or they’re considering getting married, but they want to know how their status as being legally married or not is going to affect things like their tax returns and therefore their student loan repayment amounts. Can you just explain how that works? I’m thinking especially for someone who is maybe considering getting married, but wondering about the timing of it and wondering if they’re going to have to do married filing separately and these kinds of questions. So with taxes and student loans, what happens when you get married and you have student loans or your spouse has student loans?

23:25 Meagan: Yeah. When you get legally married, your tax filing status, when it comes to being on an income driven repayment plan matters. If we’re filing taxes joint with our spouse, and we’re on an income driven plan, it is going to factor in our spouse’s income. We not want that to happen. We may keep our finances separately. We may be trying to keep our payment as low as possible to pursue forgiveness. One strategy we talk about is considering filing separately and what this does, depending on the plan, if we file our taxes separate and we’re on an income driven plan, either pay as you earn income based repayment or income contingent repayment, then we’re allowed to exclude our spouse’s income and keep our payment off of just our own, which can be hugely beneficial.

24:18 Meagan: There are downsides to filing separate that need to be weighed, so you want to do an analysis of what is the cost difference between filing separate and joint? Because you’re missing out on some tax discounts and maybe some benefits. And how does that compare to how much it saves us over the course of the year in our payment? I never want someone to be scared to get married because of their student loans. We can always pivot. It’s just in the year of marriage. You need to know that being married will impact the income driven plan that you’re on and you might want to take a closer look at how you file before you file.

24:57 Meagan: Then the last thing I’ll mention on that is revised pay as you earn, which is 10% of discretionary income, that plan does not care if you file separate. It’s going to count spousal income or all household income regardless. If you’re on that plan and you don’t want your spouse’s income factored in, you might need to switch to either PAYE or IBR and that can kind of solve that problem to where if you don’t want income factored in.

Choosing a Repayment Program

25:25 Emily: Gotcha. Thank you so much for clarifying that. You said earlier there are four different programs plus PSLF you mentioned a few of them just now — for someone who’s looking at this landscape and wondering how in the world do I choose which one of these programs I should enroll in. How can they do that?

25:43 Meagan: A really simplified way to think about it is if you’re going the forgiveness route, you want to choose the lowest income driven plan available. So that would be revised pay as you earn or pay as you earn. If you don’t want spousal income factored in, that would be pay as you earn or IBR, if you don’t have access to pay as you earn. From an income driven plan perspective, that’s how I would think. If our plan is to pay off the loans, then we might want to be choosing one of those amateurized options like the standard 10 year until we can commit to refinancing, or, and this might dive into one of your other topics I know we had mentioned, but if our income is really low now, and we want to take advantage of an income driven plan, but we are not ready to throw a lot towards it, then starting out on REPAYE could be really advantageous because of its interest subsidies. What that means is it has discounts on how much interest accrues when you’re in repayment, but the payment itself might not be as much as it needs to be to cover interest and principle. So it keeps that balance from ballooning and instead of being in forbearance or pausing loans during that timeframe, interests won’t continue to grow in that way. I know we were going to touch on that. I might’ve skipped ahead, but let me know if you want me to slow down on that one again.

27:11 Emily: No, I think it just gives a flavor for how complex this decision is, and how your individual career path and income path will affect the decision that you make, plus what you’re doing in your personal life, whether you want to get married or not. Who should be working with someone like you? What’s the kind of person who should be working with someone like you to figure out what the best decision is? And who’s the kind of person who, well, it’s simple enough, you can figure it out on your own?

When to Consult a Professional

27:38 Meagan: Yeah, I think if you have any anxiety or stress about making this decision, and it’s overwhelming doing this research for yourself, in a one hour consult, we will have your plan put together. If you want to save the time, save the energy and the stress, that’s somebody who would be a good candidate to work with us. For someone who might not be such a great candidate, I think if you are already very familiar with all of these repayment options if for sure that you’re going to be refinancing or just paying it off really aggressively, then I think that would be more so like a quick, “Hey, yup, I think you’ve got the right idea.” And again, that would be if your balance is lower than your income and you’re ready to walk away from those federal flexibilities. I think we won’t be able to provide as much value there, but for folks who have balance is much greater than income, and they’re a little nervous about that decision or navigating that, we would be helpful in that situation.

28:40 Emily: Yeah. I guess the way I’m thinking about it is like how high are the stakes here. If they’re pretty high, if that loan balance is pretty high compared to your income, that’s the time when you need to be sure you’re making the right decision and it helps to get some professional guidance at that point. And like you said, if you can have a one hour session and get a firm answer, that’s going to do well for you for the next 10 years, or unless and until your situation drastically changes, then that is awesome peace of mind to pay for in just an hour. That sounds wonderful.

29:09 Meagan: Yeah, and just the strategy too. There’s a lot of technicalities that go into when to file, like when to certify income, how to reduce income. There’s a lot of things that go into it, so if you wanted to get really sexy with your planning, that’s where we could come into.

The Emotional Aspect of Repayment

29:24 Emily: Okay. Yeah. Great recommendation on that front. Another question occurred to me, pulling together some of the threads that we’ve mentioned so far in the interview, if you are deciding to go in an income driven repayment plan and your intention is eventually to have a lot of that balance forgiven. We mentioned earlier never make more than the minimum payment you’re required to. Don’t make payments during deferment. Don’t make more than the minimum once you’re in repayment. Emotionally, how does a person deal with potentially seeing their balance, plus the interest increase and increase and increase, which is the situation that some people would be in pursuing that route over those 10 years, or even 20 or 25 years, while they’re in those types of programs? How do they emotionally deal with looking at that until they do get to the forgiveness at the end?

30:13 Meagan: It is something I feel like you need to compartmentalize because we are taking a non-traditional approach to debt. I back that up with make sure you know that federal student loans are just not a regular debt. That’s one, that’s the biggest thing we need to remember that if we were going by traditional debt advice, and if this was a traditional debt, we would have the opposite mindset. It would be, let’s pay this off like our hair’s on fire. But the federal system has some really unique opportunities like income driven plans and forgiveness that we can take advantage of that really help us prioritize other financial obligations. Maybe instead of getting anxiety about the loan balance increasing, maybe focus more on your savings increasing. So you have a lot more cashflow to be able to throw towards your financial independence and as long as we’re working towards that forgiveness timeline the balance will grow, but there is an end in sight. That’s something that I think can bring some peace of mind and just knowing and remembering that federal loans are not a normal debt.

31:18 Emily: Yeah. Thank you for that insight. I think I’ll add to it. The real danger here is going into one of these forgiveness plans, one of these income-driven repayment plans, and taking advantage of the lower payment and then not having any movement in the rest of your financial life — not doing the investing, not doing the saving. That’s the real danger when you get to the end of the 10 years or the 20 or the 25. And yes, hopefully everything goes smoothly and the rest of the balance is forgiven, but you kind of have nothing on the other side of it because the whole time you’re thinking, “well, I still have my student loans, so I’m not going to be investing.” If you’re making the intentional decision to pursue an income driven repayment plan and pursue forgiveness, then your high priority needs to be, “yep I’m taking advantage of this, but at the same time, I’m going to be working on my finances over here. I’m going to be building up my portfolio, building my net worth.” And who knows what might happen in the future. If it turns out that the forgiveness was taken away or didn’t happen or something went wrong or something happened in your life, I don’t know, at least you have some net worth on the other side of the equation to potentially deal with the debt or whatever might be going on. It’s really just shoring up your finances in one spot rather than paying off the debt. Thank you so much for that insight.

What is Your Best Financial Advice for an Early Career PhD?

32:31 Emily: Meagan, I like to end all my interviews by asking for your best financial advice for an early career PhD, a graduate student or a PhD. That could be something that’s related to what we’ve talked about in this interview, or it could be something completely else, but would you please share that with us?

32:46 Meagan: I would say, I think my best coin of advice would just be to have a plan. And I know that sounds like so blah, but I think looking at your student loan situation or your financial situation head on is not as scary as it may seem. I think people avoid a lot of financial things because they’re not sure how to tackle it or they’re overwhelmed by it. I promise you, you will feel so much better if we just have a plan from the beginning. Because if you ignore it for three years, which sometimes I see, then we’re three years behind when we finally do pick up and start focusing on it. Having a plan is important for your peace of mind for your future self. It’s self-care to have a plan now. I think that would be what I’d part on there.

33:33 Emily: Yeah. I absolutely totally, totally concur about having a plan. I know looking back at myself when I was in graduate school, not having a financial plan. When you have so little income, so little wiggle room, you know you can never do everything you want to do with your money. You know that you can’t pay off your student loan debt and invest and do all the saving and all the lifestyle. You just have to prioritize and then triage the situation. So that’s what a plan helps you do and thank you so much for that advice.

Where to Find Meagan Online

Emily: Meagan, if people have enjoyed this interview and they’ve learned a lot from you and they want to potentially work with you, how can they get in touch with you? Or where can they learn more?

34:08 Meagan: Yeah. So studentloanplanner.com is a wealth of information. We write a lot of blog posts about anything student loan related. We have a podcast. And if you wanted one-on-one help, you can schedule a consult through our website, studentloanplanner.com.

34:22 Emily: Yeah. Wonderful. There are so many free resources available and it’s really nice to know that there also professionals like Meagan backing that up and there for you, if you need those consultations. Meagan, thank you so much for giving me this interview and joining me today.

34:35 Meagan: Thank you. It was fun nerding out with you.

Outtro

34:38 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the personal finance for PhDs podcast. There you can find links to all the episode show notes, and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind the scenes commentary about each episode. Register at PFforPhDs.com/subscribe. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is stages of awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

 

This Soon-to-Be PhD Is Facing Debt and Underemployment as He Goes on the Academic Job Market

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In this episode, Emily interviews Chad Frazier, a graduate student in history at Georgetown University who is about to complete his PhD and go on the academic job market. Chad’s career plans and personal finances have changed a lot during his PhD (and a master’s before that). When he received his stipend offer from Georgetown, he thought he had made it. But seven years later, the pay increases haven’t kept pace with housing prices in DC, and Chad has accumulated credit card debt. As he applies for faculty positions, Chad faces underemployment, and the grace period on his student loans from his undergrad and master’s degrees is quite limited. Chad argues that universities have a moral obligation to pay their grad students a living wage so that they can thrive academically. (Update: Chad successfully defended his PhD just prior to the publication of this episode!)

Links Mentioned in the Episode

PhD debt and underemployment

Teaser

00:00 Chad: I just spent the last 10 years at an institution, and I’m now actually financially worse off than I was when I started. At times that makes me really scared and angry. And that wasn’t something that I imagined it would be like when I would get to this point.

Introduction

00:21 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 four, episode 16, and today my guest is Chad Frazier, a rising eighth year PhD student in history at Georgetown. Chad and I discuss some really tough and even emotional issues in this interview including large student loan balances, credit card debt, underemployment, the difficult academic job market, and the feeling of being let down by your university. Chad shares quite openly the current state of his finances and career aspirations. We discuss what universities can do to alleviate financial stress among their grad students as well as what prospective grad students should think about when they look at a stipend offer letter. Without further ado, here’s my interview with Chad Frazier. You don’t want to miss this one.

Will You Please Introduce Yourself Further?

01:15 Emily: I am joined today on the podcast by Chad Frazier, who is currently a PhD student at Georgetown. And we’re going to be talking about the financial issues that arise, particularly as you’re getting close to the completion of a PhD. Right? You’re getting to to the end of graduate school, and what happens next and how do you handle that with your finances? It’s a really challenging situation for many, many, many PhDs. So Chad, I’m really delighted that you joined me today. And will you please tell the audience a little bit more about yourself?

01:46 Chad: Yeah, sure. First off, happy to be on the podcast, Emily. So just kind of a little background. I’m, like you said, just in the process of finishing up my PhD. I’m kind of planning to defend middle to late part of September. I focus on US history. Before that, I got my MA at Georgetown, which is the institution I’m currently at, BA at Dickinson. I guess those are kind of the broad highlights. I’ve been in the last couple of years, very active with the graduate union here at Georgetown. I’m part of the organizing committee and started getting more and more interested as part of that work in the last couple of years.

Evolution of Career Plans in Grad School

02:32 Emily: Yeah. Super interested here. Maybe not specifically about the unionization issues or your role in that, but just about your thinking around those issues as it relates to what we’re going to be talking about today. So, you’re almost done with your PhD. What are your current career plans, what you think you’ll be doing next, and also maybe how has that changed over the course of your degree?

02:54 Chad: Okay. Yeah. So when I started out the PhD, which would have been fall of 2012, the plan was generally that I was going to just tenure track, ideally at a liberal arts college. I was a peer writing tutor in undergrad and I really liked the experience of teaching. That said, I was kind of amenable to the idea of like maybe doing alternate career paths, kind of sidetracks, that led eventually to this final goal. But I can’t say that I really thought about them in any sort of depth. I think I figured, “Oh, I’ll just figure it out as I go.” So, like last year, I tried the academic job market for the first time, kind of a soft search. I didn’t get anything, which was not unexpected where I was with my dissertation. And then I’m going to try it again this year–be better, generally more competitive I think–and we’ll see what happens there. But over the course of the sort of last several years, I have just gotten more interested in other possible career paths. Because there are maybe some things about academia that I’m not always a fan of. And I think in particular, one would flag, like I mentioned, the unionization, maybe involvement with something to do with the labor movement, either as an organizer or researcher for a union. I’m also working with a professor here on building an online archive. So it looks at teachers in the labor movement. So it’s kind of up in the air.

When Does Your Graduate Student Position End?

04:18 Emily: Yeah. So it sounds like you’re getting other kinds of work experience. Right? Other kinds of, or not necessarily work, maybe it’s volunteer as well, but other kinds of experiences that’ll help you figure out what you want to do with your career and maybe you know, land, whatever that next job is. So you said you’re planning on going back on the job market again this fall. When does your position as a graduate student actually end or do you have an end date for that?

04:41 Chad: So I actually just put in paperwork with the graduate school. So the way this basically works is, I will defend, ideally late September. Once I do that, and generally, I am sure this is true for a lot of people, the assumption is that when you get in the room, you’re ready. Then there are revisions, which part of that is what your committee says, part of it is shaping it to the graduate school. And, as far as the university is concerned, when I’m in that mode, I’m still a student. And it’s just then once those are done, you file it with the graduate school, and then you apply to graduate, which for me the plan is to do that in December.

Plan for Income Until Graduation

05:24 Emily: And so as far as your income goes, in the meantime, do you have an assistantship that’ll still be ongoing, or what’s the plan for the income?

05:32 Chad: So the plan for the income by sort of Georgetown rules is basically after seventh year, which my seventh year technically concluded in May, I’m not eligible for any kind of assistantship, whether as a TA or an RA. So, the work I’ve been doing with the online archive is paid out of an Institute here at Georgetown called the Kalmanovitz Initiative. And I’m figuring out how many hours they will be able to pay me for that. But I’m also looking for sort of part time jobs. One of the advantages of being in DC is there’s a fair amount of work for research with journalists or stuff like that to kind of make enough money that I can make ends meet until I can have something more definite.

Are You Considered an Employee at Georgetown?

06:20 Emily: So, the position that you’ve had at Georgetown, not your assistantship, are you an employee technically or is that like an independent contractor position?

06:32 Chad: So, I’m an employee. It’s routed through sort of the student payroll office. It’s a little complicated just because the way the rules are here with PhD students, we have to estimate how many hours a week I plan to work and how many weeks. And then they are like, “Oh, this is his stipend.” And then that gets dispersed out in biweekly installments. They changed that recently. It used to be able to have been, oh, just hourly, as long as I didn’t exceed like some certain restraints, that would have been fine. Bureaucracy.

What is the State of Your Finances at this Point?

07:05 Emily: Yeah. So, it sounds like you have a part-time position that’ll be ongoing through Georgetown. And then on top of that you do need to work a bit more as well as actually finishing up your dissertation and doing the defense and all of that. So, it’s a lot going on at this juncture. It’s a time of transition and a challenging time. So, can you tell me a little bit more about the state of your finances at this point? It sounds like, well first of all, is that income that you anticipate making going to be enough to sort of keep your head above water or is that still a question mark?

07:43 Chad: So, the way it’s kind of shaping up is that income that I’m going to get from the job with KI, with Kalmanovitz Initiative, probably I’m hoping that’s enough to cover rent. And then the additional work–the idea is basically enough that I can feed myself and pay for Metro and sort of living expenses and hopefully get enough too that I can start paying down credit cards a bit more. Because I’m very cognizant of the fact that, six months after I graduate, the student loans are going to start coming due. And that’s going to drop like anvil from heaven, it feels like. So, I want to have hopefully something ready for that where I’m not getting hit from two sides.

History of Chad’s Student Loans

08:37 Emily: Yeah, totally. So, you’ve mentioned you have student loans. Do you want to share like the amount of that, or like which degree you accumulated them from?

08:47 Chad: Yeah, sure. So, I went to a private liberal arts school, Dickinson College, for my undergrad. And I got lucky. I got a pretty good financial aid package there that most of it consisted of scholarships and grants. And I only had to take out, I think, anywhere from 10 to 20,000 [dollars]. Most of the student debt I’ve accumulated was because of my master’s degree that I took before I started my PhD. And for that, I basically have to look through the records and that’s about 80 to 81,000 dollars. So that’s, yeah.

09:20 Emily: Yeah, that’s going to be a large minimum payment. Even if you go one of these income-driven routes, depending on what you’re doing the rest of the year, assuming you haven’t gotten like a full-time faculty position yet. Anyway, it’ll be a large payment, presumably. So, that sounds really, really tough, but it’s also pretty common as you might imagine. Okay, so you have the student loan debt from your earlier degrees, not from the PhD itself. And then you mentioned credit card debt. Do you want to share the amount of that, and how it was that you accumulated it?

Accumulation of Credit Card Debt

09:54 Chad: Yeah, because I’m not sure. I don’t think I can pull the dollar amount right off the top of my head. But it’s basically–so, a little background about how a PhD sort of works at Georgetown. I was admitted with a five-year package, which meant that for three years there was a service obligation, which I TA’d. Two years was non-service. And then basically, for year six through seven, the department was able to fund me kind of on a discretionary basis. I got a fellowship my sixth year where I got to teach my own class, and then I got a semester of non-service. And then this last year I was on service. And I got a decent enough job working kind of as an administrative assistant to a professor. But the big issue was, that fellowship when I was getting paid was only nine months out of the year, which is pretty common for humanities and social science students here at Georgetown.

10:55 Chad: And so that meant that like, I tried to set aside money so I could cover rent. I would basically always try to find an extra, some sort of job either during the semester where I could save up money or a job during the summer where I could kind of live off of that. Invariably, credit cards became the sort of go-to during the summer. And the usual MO is, in the summer months, pay them down during the year, and then in the summer months make minimum payments until–maybe a little extra if you can–you get back into the fall, and then start paying them down again. And that worked actually pretty well the first couple of years. It’s just in the last two, three years, cost of living has been going up in DC with rent. And also with like, you know, last summer I had three really close friends who got married, and I wanted to go to their weddings and I had to pay for that. And I went to a conference in November that I didn’t get reimbursed for that was on the West coast, which was expensive. And it’s been hard to sort of do that, pay it down this last year where, come June, they were all maxed out, and I just was boxed in.

12:15 Emily: Yeah. I think what you’re describing is super common for PhD students, for people in their twenties and thirties, generally. I mean the nine-month pay, of course, is fairly unique to our mode of work, depending on what kind of field you’re in. But yeah, I mean it sounds like you had the right idea, right? Save up during the year, so you’re cognizant of that in advance. You’re trying to plan for it in advance, save up during the year, live on that over the summer, plus you work a little bit. But it’s really hard to do that planning. It’s just a really, really challenging situation to be in. So yeah, it sounds like credit cards came into that for you as well as the whole irregular expenses thing, you know, going to people’s weddings. I also really value attending weddings.

13:00 Emily: I love being able to go, I always had to travel. It was a challenge, financially. And what you mentioned, of course, the conference thing. We all know inside academia that conferences either are not paid for at all for students, or the student has to pay upfront and then the reimbursements, and it’s months later. That can definitely get people into cycles of credit card debt as well. It’s a huge, widespread problem, I would say. So, I’m sure all of this sounds very relatable to the audience, and I’m really thankful to you for sort of bearing yourself this way and sharing this because it is a really difficult thing to talk about publicly. So, thank you so much for doing that. Is there any other debt that you’re dealing with at this point aside from the credit cards and student loans?

Any Other Debt Besides Credit Cards and Student Loans?

13:41 Chad: I think those are the two biggest sort of issues. Like, yeah, there’s nothing else really out there. I rent so I don’t have to worry about like a mortgage. I don’t like to drive. I don’t own a car. So, it’s public transit. So yeah, it’s pretty much just credit cards and student debt.

14:01 Emily: Yeah. And it sounds like, given that you don’t own a car–which is one of my very go-to suggestions for people trying to reduce their expenses–you live in an expensive city. That’s how it is. You pay a lot in rent. You don’t own a car. Rent’s been going up, presumably, as is almost always the case. Stipends do not keep up with rising rent costs and yeah, it’s just a really, really tough spot to be in. I’m curious actually what your thought process was about choosing–and maybe it’s not really like a conscious choice, but like you have been accumulating credit card debt over the past couple of years. You know, at first, you said you were in a cycle of, “Okay, I build it up and then I pay it down.” But as you said, the last couple years, it’s been more building up than paying down.

14:43 Chad: Yeah.

14:44 Emily: Why did you go that route instead of taking out additional student loan debt?

Why Credit Cards Over Additional Student Loans?

14:50 Chad: I think part of that was I was just being cognizant of the fact that I had a fair amount coming in from my master’s program in particular. I actually had this conversation with my mom a couple of times. Where she’s like, “Well you should just put in for FAFSA and try to get more. You should try to get another student loan or something.” And I was like, “But I’ve already got at least 80,000 perhaps up to a hundred thousand, and it sort of seemed like I would be mortgaging my future even more so than I did. In the early years of the program, kind of you brought up the whole idea of stipends not keeping up–throughout sort of my time here at Georgetown, usually the stipend has gone up in each year by about a thousand dollars, which in year one that meant I went from 22 to 23 thousand. That was like a 5% increase. And that I think helped keep ahead of a lot of stuff.

15:50 Chad: And then, more recently it’s like now that last year–the university introduced a wage freeze this year, but the year before it was like–that amounted about 3.5%. I don’t have terribly many expenses. I used to joke that I only allowed myself sort of three very basic luxuries, which was food, like going out to eat. Not that I go out anywhere very expensive. Booze. I like beer, but I like cheap beer. Weirdly enough. And then books. And those, even there, I’m like, “Oh, I won’t spend more than like 25 bucks.” So, it was like, “Oh, these are really small things.” And it’s not like I was going on trips to Europe or anything that expensive. So it was like, “Okay, the credit cards just seemed more manageable.”

16:48 Emily: It really seems like just mentioning those little luxuries that you allowed yourself–which again, like you just said, did not amount to a lot of money–it really illustrates for me how large a chunk of your income must be taken up by your necessary expenses. Because what you mentioned as discretionary expenses have not been outrageous by any means of course. So, it just for me really illustrates this like probably 60, 70, 80% of your income has probably been taken up by like your rent and your basic food and you know, basic transportation and all that kind of stuff, which is a really, really, really tough spot to be in. There’s a benchmark that I like to reference which is called the balanced money formula, which I don’t know if it was created, but it was definitely popularized by Elizabeth Warren and her daughter in their book from, it must be 10 plus years ago now, All Your Worth*.

[* This is an affiliate link. Thank you for supporting PF for PhDs!]

The Balanced Money Formula

17:43 Emily: And they introduce this concept of the balanced money formula. And in that, a person’s necessary expenses–so you know, stuff to keep you alive, housing, food, et cetera. Also, all the contracts that you are in, your insurance, that kind of stuff–that should amount to no more than 50% of your net income after-tax income. And that’s to live like a balanced life. On a sustainable basis, it shouldn’t be more than 50%. If you go above that, it’s like warning, warning, warning. This is not going to feel sustainable for you. It sounds like you’ve probably been in that warning zone your entire time you’ve been in graduate school most likely. And again, really, really common for graduate students, especially those who live in higher cost of living areas. So, that benchmark can feel really discouraging to people who have lower incomes. And it’s just kind of something that like, I don’t know, just you need to acknowledge. It’s going to feel really difficult to live on your stipend if you can’t fit your rent and your transportation and your food under that 50% figure. And is that something that’s worthwhile to attend the institution you want to attend and do the research and pursue our passions in our careers. It’s a tough spot to be in.

Commercial

18:59 Emily: Emily here for a brief interlude. As a listener of this podcast, every week you hear strategies that another PhD has used to improve their financial picture. But listening and learning does not automatically translate into action in your own financial life. If you are ready to change how you think about and handle your money but need some help getting started, I can be of service. There are two main ways you can work with me to create and implement a financial plan tailored for you. First, I offer one-on-one financial coaching, either as a single session or a series as you make changes over the longterm. You can find out more at pfforphds.com/coaching. Second, I offer a group program called The Wealthy PhD that is part-coaching, part-course, and part-community. You can find out more and join the waitlist for the next time I open the program at pfforphds.com/wealthyPhD. I believe it’s possible to succeed with your finances at every stage of PhD training and throughout your career. Let’s figure out together how to make that happen for you. Now, back to the interview.

Anything Else You Would Like to Share?

20:14 Emily: I wondered if you had any additional thoughts, feelings that you wanted to share regarding what we’ve been talking about. Your career transition upcoming, about the state of your finances right now. Anything you haven’t said so far?

20:28 Chad: I think in terms of sort of the way this has all been. Because again, I don’t come from money. My dad works as a supply manager at a college bookstore. My mom recently started working for Chick-fil-A. Like, working-class family. And there was even this weird stretch when I started the PhD in 2012, my dad who had gotten fired from his job like just after the financial crisis and just took the opportunity to go back to school himself, to finish first his undergrad degree. He could only find a job working part-time for a big-box retailer. And you know, there were moments where mom was calling me up and having to borrow little bits of money from me and then she’d pay them back to make their ends meet. And there was just this sort of sense of like, “Oh, I made it. I’m okay. Like this is not a lot, but it’s going to be kind of uphill, you know, all going up from here.”

21:35 Chad: And then now to be in this position where I kind of feel like at times I just spent the last 10 years at an institution, counting the same institution for both my MA and my PhD, and I’m now actually financially worse off than I was when I started. And I think at times that makes me really scared, and at times it really also bothers me–like now, my mom has to front me money for stuff like getting a new cell phone. Because my old one was four years old and couldn’t hold a charge for like a few hours–and angry. And that wasn’t something that I imagined it would be like when I would get to this point. I felt like it would be tough. There’d be an adjustment, but I didn’t think there would be quite this type of problem.

Supporting Family Members During Graduate School

22:27 Emily: Yeah. Thank you so much for sharing that. Yeah, just thank you for sharing the point that you’ve gotten to here. I think that graduate students supporting their family members to a degree–and it could be their parents, it could be a sibling, it could be a dependent child–is something that is, in my opinion, not really talked about that much openly. But it happens a lot. And your degree of like, you know, maybe short term loans to your family that happened over what seems like a relatively short period of time is a more brief, just smaller kind of support that you were able to provide at that time, which is awesome. And other graduate students support their family members for a significant fraction of their stipend for years.

23:19 Emily: And maybe it’s remittances they’re sending to another country. It could be within the US. That situation happens all the time, too. And so, I’m glad to share your perspective on the podcast of thinking, “Okay, I made it into my PhD program. I’m no longer taking out student debt. I have an income. I’m making it. I’m living in DC. The future ahead of me is bright. I’m going to be a professor.” And then, you know, seven years later coming to this point, like, “I’m not so sure what my career is going to be. I have a lot of student loan debt. I have consumer debt. I don’t quite know how I’m going to be making it from month to month starting in just a few months.” So, really, really tough spot to be in. But again, I don’t think it’s that uncommon for PhD students. What has been your observation about how your situation maybe compares to some of your other peers?

How Does Your Situation Compare to That of Your Peers?

24:11 Chad: Actually, I think you’re right. In talking with my peers, there are a lot of similarities. Like you were talking about grads supporting other grads. I’ve got friends in my program, other departments that I’ve gotten familiar with thanks to my involvement with the union, where they’ve got families–or like one of my really best friends in my cohort was from the Philippines and throughout the program he was sending money home to Manila to help his family out. And yeah, it is very common. It’s just, the more jarring thing about it is that for me, on one hand with history, more and more of an awareness of like, “Okay, the job market has sort of changed. Higher ed: We’ve seen this sort of adjunctification of labor. Okay, we need to start thinking about alternative pathways or career diversity.” Different labels get used for different fields. But there really has never been this sort of awareness about the financial dimension. I think the only time it’s ever come up in conversations with faculty are like, “Oh, the stipend’s enough, right? You’re doing okay.” Or, “You’re not having to take out loans for this, are you?” And I’m like, “No, I’m living within my means. I’m fine.” And part of it is, this stuff is kind of new-ish. It’s not necessarily out of the blue, but it is new-ish. And for a lot of faculty, this is wasn’t their experience and isn’t their experience now. So yeah, those are kind of two broad impressions.

Universities Do Not See All of Our Financial Struggles

25:45 Emily: Yeah. I think what I’ve observed from maybe more of the university perspective is they track things like amount of student loan debt taken out. And so, if they don’t see a lot of, let’s say, PhD students taking out student loans–like you have consciously avoided student loans because of your existing level of debt–then they may not be aware of the hardships that people are undertaking outside of the university system, like racking up credit card debt or like borrowing money from other sorts of lenders or from family members or whatever it might be to again sort of keep their head above water. And also, the whole side hustling thing, which is super, super common. And I’m generally a fan of side hustling, especially when it advances your own career, like what you’ve been doing with your other position. Like that’s exposed you to a new area of work and maybe you’ll keep going in that area.

26:40 Emily: So, what can be really beneficial in a lot of ways, but it’s something that can be distracting from the degree, especially if a student has a lot of other responsibilities going on too, like they have a family or whatever. So, it’s not great if a student has to side hustle. It’s okay if they want to and they can balance it or whatever. But it’s not a good situation when they have to do it to just keep their heads above water. So, all of that can be very stressful. Of course, of course it’s stressful and can affect career decisions. And I think what you’ve been talking about–that we’re specifically talking about transitioning out of graduate school–the idea that your stipend is enough to make it on like a month to month basis is kind of one thing. But is it enough to actually bridge you until you get to the kind of job that you’re supposed to have as a PhD?

27:27 Emily: And we know as you were just mentioning from the academic job market that it can take multiple cycles of going through this before maybe you get a possession or maybe you don’t. And what are you doing in the meantime? Are you adjuncting? Like that’s not a really solid situation either. So, it’s not only a stipend needs to serve you in getting, you know, from month to month, but it also should be enough that you can actually transition into the next position, you know, and not have to take on let’s say a bunch of credit card debt or whatever it is in the transition. Like to have to move and to have to have a lapse in employment and all the expenses as you enter the job market. Anyway, that’s me going on for a while about that. So, these challenges are definitely common. What do you think are some solutions or better practices that either the universities could be doing or individuals could be doing or anybody else could be doing to kind of alleviate this situation?

Solutions for Universities and Individuals

28:21 Chad: Yeah. Well, I think universities kind of start from the top and work down. Because I very much do believe in sort of this idea of agency and personal responsibility. But you have an obligation to make the best of the cards that you’re dealt. But you’re also not the one dealing the cards. And I think universities really do have an obligation–for PhDs or master’s students who are working– to pay them sort of a living wage. And there are definitely forces that are nudging them in that direction. Whether it’s like Washington DC, which has passed a referendum that I think will eventually set the minimum wage to $15 an hour which has started leading new improvements for friends that I know or master’s students who work hourly. Graduate unionization, kind of nudging for upped stipends. Also just, there’s the competitive angle of this, you know, trying to get the best recruits. I know with Georgetown we want to get the best people and we’re competing against universities like, for example, Emory or Vanderbilt that actually pay better and are also in cheaper cities compared to Washington DC. So I think universities have an obligation there.

29:40 Chad: I also think sometimes with just like master’s students, it’s a thing that is kind of maybe a joke or a truism, at least with the people I’ve talked to here, that, “Oh, master’s students, your job is basically subsidizing the PhDs or you’re subsidizing the department,” so you have an incentive to bring in more people. And it’s not necessarily going to be a funded program. And you know, okay, I paid in my $80,000. So as a PhD, I don’t always feel bad when I go into the department supply closet and be like, “I need a notepad.” But part of the function of some master’s programs is to recruit people, like identify people that would be good in PhDs. And I don’t know, the sort of like treating folks as a revenue source in that way. It’s just deeply unsettling. And not that I necessarily have an answer to that, but I think universities thinking of alternative ways to handle that or to control sort of tuition is important.

Are Students Primarily Producers or Consumers?

30:38 Emily: What I’m thinking about when you’re saying this is whether the student is primarily a consumer of what the university produces or a producer of that work. And scholarship is part of what a university produces, right? As well as the teaching and everything. So, for undergraduates I guess we kind of accept that they are consumers of the university, and they or the government or whoever should be paying for them to get this lovely education. PhD students we generally see as producers. They’re either teaching and spreading their knowledge and mentoring people, or they’re producing scholarship that is worthwhile. Master’s students I feel like could fall in either category and maybe are viewed mostly as consumers, yet as you were just saying, especially if they’re going onto the PhD level and producing scholarship of their own, even at the master’s level, maybe they should be viewed more as like producers.

31:40 Emily: But anyway, all of this is so, so complicated. And I’m really glad that you brought up like the unionization movement and how that’s affecting this conversation, as well as the competition thing. Of course. I was just thinking that, if we are going to view PhD students as producers of work, it makes a lot of sense to pay people enough that they don’t have to feel stress. Because if what the university wants is a product out of a graduate student, whether it’s a class or whether it’s a paper or whatever, it makes sense to give them an environment where they can produce a good product. And paying them enough that they don’t have to side hustle and they don’t have to take out debt and they don’t have to feel stressed, and it’s not a cloud looming over them all the time. It makes sense to me in terms of producing the best product out of those people as possible. I don’t know what your thoughts are on that.

Quality Work Requires Quality Pay

32:30 Chad: No, I absolutely agree with it. And I think it’s interesting because for me when I first got involved with the unionization effort here at Georgetown–it’s really funny if like, someone had tried to talk to me and get me involved by talking about how low my pay was, that wouldn’t have worked. It would have just been like, “Well no I make enough. It’s not a lot, but I make enough to just get by, and I have a little extra if I want to go out to eat with friends, I can do it.” For me the issue was sort of more transparency about things like job listings and responsibilities. But kind of over the last two to three years, as I have gotten closer and closer to the sort of end, it’s now much more about sort of money and like the awareness that, like what you were talking about earlier, a stipend that just allows earning a living in a livable wage that kind of also gives people a cushion. I’ve been lucky. I haven’t had any sort of serious medical problems or family issues that would’ve required like a massive outlay at one time. But there are a lot of people that don’t have that privilege. So, that’s for me like the big part of the unionization effort. Now it’s just like, we want people to do good, so we should create conditions where they can do good. Like, can do the thing that they signed up to do, whether that’s research, whether that’s teaching.

34:04 Emily: Yeah, absolutely. Thank you so much for that part of the discussion. I think we’ll just conclude the interview here by asking you what is your best financial advice for one of your peers? Maybe someone who’s anticipating the end of the PhD coming up fast.

Best Financial Advice for Your Peers

34:21 Chad: I think probably my best advice would maybe be more geared towards people earlier on, which is recognize that you’re going to change. When I started, I was 25 years old. $22,000 sounded like a lot of money. And like I said earlier, I felt like I kind of had made it. Recognizing that by about now I’m 31. I’ve had friends getting married and needs change. And seven years is a long time to be in one place. So, be aware of that, and when you’re starting out, make a plan kind of on that basis. You’ll hear some of the faculty here talk about, “You need to have like a 10-year plan for academic stuff.” Like when you’re going to publish and do all this sort of stuff. But I think also just the idea of having some sort of longterm financial plan, especially when you’re a graduate student and you’re dealing with pretty thin margins already.

Consider Long-Term Financial Goals and Changing Needs

35:17 Emily: Yeah. I totally agree and want to just underline what you said. To someone who’s in their early twenties or mid-twenties or something, that first stipend offer can seem great. Totally adequate. Fine. You’re looking at your rent, whatever it’s going to be fine. And then you get a few years down the line and your life changes and your career goals change and your responsibilities increase, often. I had another interview in season three with Scott Kennedy and he talked about getting married and having children during graduate school, which is not something that he had in his plan when he accepted that first offer letter. But it was, you know, over the years that he spent in graduate schools, something that came into his life. And so an amount of money that can seem workable at a younger age doesn’t necessarily seem so workable later. Not just because of the individual and your own life changes that you incur, but also as we were just talking about, because stipends don’t keep up generally with the cost of living and inflation, especially in these higher cost of living cities.

36:12 Emily: So, it could be that you’re actually falling behind in terms of an indexed amount of money as well as you yourself are getting older and having all these changes occur in your own life. So, it’s just an argument for prospective graduate students to be not accepting of something that seems “okay,” but really looking, as we were just saying, for competitive offers that will offer you well above the living wage for whatever area you’re moving to. Another thing which we didn’t discuss in detail, but tuition and fees–the responsibility that falls upon the graduate student for paying those–that can sometimes change. And universities who are facing funding shortfalls can change the package that you receive. So, hey, maybe your stipend doesn’t decrease or maybe your stipend goes up, as you were saying. Maybe it’s $1,000 a year, but maybe your fees are also going up by hundreds of dollars per year. That could easily be the case too.

37:04 Emily: And once you start in a program, you start feeling stuck and you’re invested, and there are sunk costs and so forth. And so, it’s just something to think about at the beginning to have more margin than you anticipate that you’re actually going to need because over five years, over seven years, whatever it is, a lot can change. So, Chad, thank you so much for this interview. It was really a pleasure to have you. Thank you for sharing so openly about your situation.

37:26 Chad: Yeah, thanks for having me. It was great talking with you.

Outtro

37:29 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the personal finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in like investing, debt repayment, and taxes. Four, subscribe to my mailing list at pfforphds.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is “Stages of Awakening” by Podington Bear from the free music archive, and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

This PhD Student Is Paying Her US Student Loans with Her Swedish Krona Salary

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In this episode, Emily interviews Crista Wathen, an American PhD student in archaeology at Stockholm University. As a PhD student in Sweden, Crista is considered more of an early-stage researcher than a student, which was one of the reasons she chose to study there. Crista’s salary and frugal living habits permit her to pay down her US federal student loans from her master’s degree. Finally, Emily and Crista discuss her blog, Richful Thinker, and why she is pursuing FIRE as a graduate student.

Links mentioned in episode

student loan repayment from Sweden

0:00 Introduction

0:58 Please introduce yourself

Crista Wathen is a US citizen doing her PhD in Sweden. She is in the field of archaeology. She’s from Florida and went to the University of Florida for her undergraduate degree. She did her Masters in the UK.

1:51 What made you choose to go abroad for your Masters and PhD?

Crista says when she was an undergrad, she did an archaeology excavation trip in Ireland. She met another student who was applying to Masters in the UK, who explained that a Masters is cheaper in the UK.

Crista says that a Masters in Archaeology in the UK is only one year. This makes the degree half as expensive as a two year Masters degree in the US.

3:24 Was a Masters degree from the UK viewed differently than a degree from the US?

Crista says the degrees were viewed the same. For PhD programs in Sweden, they looked for people who could speak English or Swedish. She says most people speak English. Crista started learning Swedish, which helped her when she first arrived. However, she does not have a proper immersive language experience in Stockholm because most people speak to her in English.

5:24 What are the differences between doing your PhD in the US and doing your PhD in Sweden?

Crista says in Sweden, she is considered an early stage researcher as opposed to just being considered a student. When she applied, she had to propose a project and submit a research plan. She has two years of classes and two years of only research, though she does research all four years.

Crista says that many Masters degrees in Europe are research based. PhD programs in Sweden require applicants to have a Masters degree. Crista says she already has experience creating a project, and she built upon what she did for her Masters for her PhD application. She explains her PhD classes emphasize reading theory, and do not focus on lab or skills training.

8:33 How is your pay for your PhD research?

Crista shares that she has a salary for her PhD and she doesn’t have to worry about applying for grants. She receives monthly pay. The university pays into an annual pension fund on her behalf. In Sweden, she receives socialized healthcare. She pays up to about $100 US dollars out of pocket. She receives dental and vision care, and she has access to several other benefits such as parental leave.

Crista says she thinks she can take her pension with her if she leaves Sweden, or she can leave the pension in Sweden until she retires. When she moved to Sweden, she was given a person number and is always in the tax system.

Emily says that PhD stipends in the US are not generous, and in many cases they are barely enough to live off of. Crista says that she lives frugally. She lives in subsidized student housing, which she is able to stay in for the duration of her degree. She estimates she is paid about the median income for Stockholm, about $2,000 to $3,000 per month. She explains that the pay for PhD work increases each year. She gets 28 days of holiday leave.

14:26 Tell me about your student loans

Crista had a full ride for her undergraduate degree, the the state of Florida Bright Futures. Her loans are for her Masters program. When she exited her Masters, Crista’s loan balance was $60,000 and now it is $45,000.

Crista has federal student loans, even though her Masters was at a UK institution. When she was accepted into the PhD program in Sweden, she called the loan offices to learn about income based repayment. The loan offices told her that her pay in US dollars is effectively zero, so her loan payment is zero.

Because of compounded interest, Crista wanted to make loan payments even though she wasn’t required too. Crista is considering whether to keep her savings and make payments or to take her savings to pay off all her loans. The interest rates on the loans are nearly 7%.

Crista says the loan payment process has been smooth except for the fees to send money to the US and the exchange rate. Recently, the Swedish krona has been worth a little more than the US dollar.

22:02 Do you have any advice for a US citizen who is doing graduate work abroad and has student loan debt?

Crista says she was looking for a university that would take her project. It’s a new culture and experience, which is worth a lot. She advises to save up because it’s expensive to move. She says take logistics into account.

23:21 Where can people go to learn more about your story?

Crista has a blog called Richful Thinker. After her Masters, she worked in banking. She learned about the benefit of having a banker and all the things a banker can do for you. She thinks more people should know about this. She also talks about what it’s like to be an American doing her PhD abroad.

24:30 What is the FIRE movement and why are you part of it?

Crista explains that FIRE is financial independence, retire early. She is most interested in financial independence. She says most people who retire early are in their 30s or 40s. But since retiring is typically 65, even retiring at 50 is retiring early. Crista says she wants to be comfortable without worrying where her money is coming from.

Emily adds that for many young adults learning about personal finance, financial independence refers to being independent of parents. In the FIRE community, financial independence is being independent of a job. This could be through passive income, like making money from rentals or investments.

Crista says she knows it can be difficult to find a job after your PhD, so financial independence is a way to assure she finds a job that she will like. She doesn’t want to take the first job that’s open. Emily shares that financial independence can make having a job more fulfilling.

28:49 Conclusion