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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.

This PhD’s Social Mission Pulled Her from Academia into Entrepreneurship

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In this episode, Emily interviews Dr. Rasheda Weaver, the founder of the Weaver’s Social Enterprise Directory. Rasheda studied and taught social entrepreneurship as a graduate student and faculty member and along the way launched her own social enterprise out of her research and work with social entrepreneurs. As her business grew, she felt pulled toward full-time entrepreneurship and eventually left her faculty position. Rasheda and Emily discuss the financial steps that Rasheda took while still in her full-time job to give herself runway when she went full-time in her business, including opportunities uniquely available inside academia. Rasheda describes her weekly schedule in detail and how much time and money she allows herself to invest in physical and mental health and her growing business. If you are passionate about a social cause, don’t miss this interview—even if you’re not currently pursuing or planning to pursue entrepreneurship!

Links Mentioned in the Episode

S14E6 image: This PhD's Social Mission Pulled Her from Academia into Entrepreneurship

Teaser

00:00 Rasheda: It was just like everything just started to come to a head because I started getting a lot of speaking engagement opportunities that were paying thousands of dollars. And then the Bootcamp was doing well and then, you know, it was just all these different things happening, and I was teaching four classes as an academic. I just felt like I was being pulled in a lot of directions, and I could still do the teaching that I was doing in the classroom for Weaver’s Social Enterprise Directory. It’s just a different format. Sometimes it’s online, sometimes it’s in person, but it’s the same thing with a lot less stress.

Introduction

00:34 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 6, and today my guest is Dr. Rasheda Weaver, the founder of the Weaver’s Social Enterprise Directory. Rasheda studied and taught social entrepreneurship as a graduate student and faculty member and along the way launched her own social enterprise out of her research and work with social entrepreneurs. As her business grew, she felt pulled toward full-time entrepreneurship and eventually left her faculty position. Rasheda and I discuss the financial steps that Rasheda took while still in her full-time job to give herself runway when she went full-time in her business, including opportunities uniquely available inside academia. Rasheda describes her weekly schedule in detail and how much time and money she allows herself to invest in physical and mental health and her growing business. If you are passionate about a social cause, don’t miss this interview—even if you’re not currently pursuing or planning to pursue entrepreneurship!

02:00 Emily: We’re within one month of the deadline to file your annual tax return, pay your quarter 1 2023 estimated tax, and finish contributing to your 2022 Roth IRA. If you want some help with two or more of those actions, this is a perfect time to consider joining the Personal Finance for PhDs Community at PFforPhDs.community. Within just your first month of membership, you can take my tax return preparation workshop and estimated tax workshop, complete the Open Your First IRA Challenge, and attend our next general discussion and Q&A call to ask your questions directly to me on April 11, 2023. This can be the month that you really get on top of your finances! Again, go to PFforPhDs.community to check out all that you gain access to with the membership… and join us today! You can find the show notes for this episode at PFforPhDs.com/s14e6/. Without further ado, here’s my interview with Dr. Rasheda Weaver.

Will You Please Introduce Yourself Further?

03:12 Emily: I am delighted to have joining me on the podcast today, Dr. Rasheda Weaver. She is the founder, creator, owner, CEO of the Weaver’s Social Enterprise Directory. She’s also a former faculty member. So Rasheda, thank you so much for joining me on the podcast today. And would you please introduce yourself a little bit further for the audience?

03:30 Rasheda: Yes, it’s my pleasure to join you. Thank you Dr. Roberts for having me! And so my name once again, Dr. Rasheda L. Weaver. And I’m currently the founder and CEO of Weaver’s Social Enterprise Directory that I also call WSED. And I’ve been a faculty member for over five years and have taught over 1,000 students globally. I started my career at the University of Vermont in Burlington, Vermont as an assistant professor of community entrepreneurship. And most recently I worked for Iona College for the last four years. And I was their first assistant professor of entrepreneurship and innovation at their Hynes Institute. And that was started with the 15 million grant in 2017. And so I came on and literally I was the only faculty member, so I helped build the teaching, the research, and the whole service programming.

04:15 Emily: Fantastic! And so, our kind of topic today is your journey from academia into entrepreneurship, but it’s so interesting because it’s like your academic topic of social entrepreneurship is also like you’re living it, right? So it’s like a meta thing going on here.

04:29 Rasheda: Absolutely.

Defining Social Entrepreneurship

04:29 Emily: So, can you tell us a little bit more about like what is social entrepreneurship and why do you think that grad students and PhDs should understand this and explore it?

04:38 Rasheda: Yes. So, social entrepreneurship is a process of using business to combat social problems, societal issues like hunger, poverty, inequality, disease. Any kind of major social issue. And it’s really organizations that, a social enterprise is an organization and it can be a nonprofit organization or for-profit, but we’re often seeing a combination of both. So, somebody has a for-profit business that they use to make all this money, and then a nonprofit that they use to funnel the money into different charities or social causes and things like that. And so, I’ve been studying this. It’s a new field, so it’s been around for 40 to 50 years. And my book, Social Entrepreneurship: A Practical Introduction, actually comes out December 15th, 2022. And it’s called a Practical Introduction because the majority of the world does not know this term. And it’s really important for graduate students and PhDs, in particular, to know this term because many of us already, if not all of us, have a social issue that we’re very passionate about.

05:39 Rasheda: That’s why many of us become social scientists like the both of us. And when you understand how, you know, entrepreneurship can be utilized to fulfill the same goals that you’re trying to fulfill in as a PhD, but you could actually sustain yourself with it, I think that’s just very, very important for PhDs to understand and graduate students. It also provides an alternative career path for academics that maybe want to pursue entrepreneurship or have a different kind of vision for what they envision their career to be like, or what they envision life to be like. And I’ll talk about that a lot today. And you know, social entrepreneurship just paves the way for us to do that.

06:21 Emily: I’m actually struggling to think of an example of a PhD who maybe would want to start a business where it wasn’t socially motivated, almost like can almost anything fall under this umbrella?

06:33 Rasheda: Yes. But it would have to be positive social change. Because I always say that social change, you know a riot can be social change <laugh>, but it has to be positive, something that uplifts community advances, human and community development. So I would say the majority, if not all PhDs are already working towards some kind of societal change anyway.

Do Solopreneurs Count?

06:53 Emily: Yeah. I’m thinking of myself now. And certainly there’s a, I want to better the lives of graduate students and postdocs and PhDs as like part of the mission for like my business. So, I’m actually wondering a little bit more about the entrepreneurship term within social entrepreneurship. Do I count as like a solopreneur single-person business? Or is it only like enterprises?

07:14 Rasheda: You do! You most definitely count and especially because your mission is to, you know, improve the financial well-being, essentially, of PhDs. And that is very important I think as a PhD, I understand the importance of that, but I think maybe the majority of people might not understand it. But what you’re doing is you’re helping people that are literally contributing to society in a positive manner. Literally building generations upon generations of, you know, future professionals and leaders for our world. And you’re saying let’s take care of yourself financially because finances affect our holistic well-being. It just does.

Starting Weaver’s Social Enterprise Directory

07:52 Emily: Absolutely. That’s how I think about the mission of like I and what I do on the financial side of things. It’s like supporting and bolstering and helping all these individual PhDs with all of their dreams and their missions for how to better our world because, and they’re so talented and I just want them to be able to do their work and contribute and like, and of course, the finances being part of that is something that can enable them to, you know, live those dreams out and yeah. So, that’s <laugh> my motivation for being here. Let’s talk a little bit more about your business and how and when did you start that?

08:25 Rasheda: Yeah, so I started Weaver’s Social Enterprise Directory in 2018, 1 year after finishing my dissertation. So, my dissertation was the first large-scale study in the United States of social enterprise business models. So, their social mission, how they make money, and what legal structure they incorporate under, so the perfect way to help you design a social enterprise. And I found all this data, and I had literally mapped 1,200 social enterprises across the United States. And so I said, well, this information should be public. And I first just started it as a public database. And so, it’s sort of like an accident that happened that turned out to be now my full-time career because I made the database public. But then I realized in order to have this website and to have the URL and to own the domain and all that, I have to finance that and I was doing it out of my pocket.

09:12 Rasheda: So, I started selling the database in order to cover those expenses. And then once I started seeing what was happening with the people that were using the database, like they’re starting companies that are helping them make six-figure salaries. And I was like, “Wow, okay. Like, I didn’t know that could happen.” And then, so I started doing more, but then other people, entrepreneurs started reaching out to me and saying, “Well, we’re social entrepreneurs. We really need to learn how to make money. Like the database is wonderful.” And that was great for academics and people that know how to use like email databases for business. But the average entrepreneur wanted to know how can I help them with their finances? How can I help them design a social impact model that enables them to maximize the impact they’re having on their local communities? And so, I developed the Ready, Set, Launch Social Enterprise Bootcamp during the pandemic actually because people started reaching out to me. And that’s a five-day online bootcamp. It’ll be in person in 2023. We’re doing it in Italy, but it’s a five-day bootcamp that literally trains entrepreneurs how to design organizations with a strong financial mission as well as a strong social mission.

10:19 Emily: I love to see that progression over those years of like, you turned your dissertation into something useful for the broader community outside of academia. And then you listened to the people who were using it and understood what their needs were and understood how you could take one more step to fulfill those, and then you did it again, and so forth. And I’m sure you’ll keep iterating that way.

10:39 Rasheda: I’m doing it again now with the coaching <Laugh>.

10:41 Emily: Yes, exactly.

10:43 Rasheda: Because after people have taken the Bootcamp, they’re like, well, well some of them just missed me because they missed the Bootcamp. It’s a really good environment, and someone to do coaching. But now they’re asking for a longer program, which is like a monthly training program where entrepreneurs can meet with me and I’ll help them throughout the month and we figure out one task that they’re working on and we’ll work on this throughout the month. Month two, we do another task. And so, they’re coming to me with these issues that they’re having as entrepreneurs, and I’m just delivering solutions, essentially. Which is what social entrepreneurs do. We deliver solutions to social problems,

Transitioning from Faculty to Full-Time Entrepreneur

11:15 Emily: This sounds like so seamless to me <laugh>. But you had another job when you started this. Like, I can feel that like this business was pulling you, “Oh, you can see how your work is being applied and helping all these people and this is wonderful,” but you still had this other job. So like, how did you make this transition, especially financially, from being a faculty member and having this side business to doing the business full-time?

11:37 Rasheda: Yeah, I love that you used the word pulling, because it really was. Because I would be in the classroom and I can see the impact that I’m having on students in the classroom and I love that as well. But at the same time, I remember in spring 2022, it was just like everything just started to come to a head because I started getting a lot of speaking engagement opportunities that were paying thousands of dollars. And then the Bootcamp was doing well and then, you know, it was just all these different things happening. And I was teaching four classes as an academic and then the grading and you know, I love teaching classes, but there’s so much more to academia and the service and being the only faculty member for my institute. I just felt like I was being pulled in a lot of directions, and I could still do the teaching that I was doing in the classroom for Social Enterprise Directory, which is, I’m doing the same thing, it’s just a different format.

12:27 Rasheda: Sometimes it’s online, sometimes it’s in person, but it’s the same thing with a lot less stress. And so, it really was sort of pulling me and then I think, you know the pandemic inspired me to also just like think about life a lot differently. Like, what do I genuinely want? I want peace, I want relaxation, I want financial prosperity. When the pandemic hit, I started saving money like a crazy person. Like I’m like, I don’t know if this is going to be like the next Great Depression. And so, I went from saving like $600 from my paycheck to $800 to sometimes a thousand dollars per paycheck. Just in case something were to happen to my job and I needed to do entrepreneurship full-time. And I started just dreaming a bit more. But then when I realized that, you know, what the pandemic allowed me to do and the pulling that was happening to me at the same time, it just allowed me to sort of push me into maybe what’s really my destiny. Because I always actually wanted to be an entrepreneur. And I went into academia hoping to do more research. And like I said, I was teaching four classes, so there’s not a lot of research happening there. I was still able to maintain it, but I was losing myself as an individual in the process.

13:36 Emily: Yeah. Wow. Okay. I actually want to back up a tiny bit and like, before you left your full-time position, you know, we’re in the midst of the pandemic, so it’s a strange time already. You mentioned you upped your savings because you were concerned about financial security as so many people were at that time and still are <laugh>. So, were there any other steps that you feel like are worth mentioning in terms of how you really got the business off the ground in scaling up and so forth that you did financially while you still had your full-time job?

14:04 Rasheda: Oh yes. A lot of this happened during my first year on the tenure track when I was at the University of Vermont. So, they had a really great startup package and well, I was able to negotiate that, so you have to negotiate your startup package. I think you should be very, very strategic about how you do that. And I negotiated one that was very you know, it just directly aligned with me taking steps to further my dissertation research. And I planned a whole social enterprise day party where I invited scholars and social entrepreneurs from all around the country to come help celebrate the introduction of Weaver’s Social Enterprise Directory. Not at that time realizing that it would’ve been a business idea, just an output of my research and a resource to my field. And I think that’s so, so important because we’re not just academics.

14:49 Rasheda: We are a part of a whole entire field as academics and that we can contribute in so many more ways than we realize. And so, I never just thought of myself as, you know, I’m going to use this startup package and it’s just going to fund what I do at the University of Vermont. I thought about it in terms of the bigger field overall. Because this is a journey, a life journey, and I’m committed to the field for life essentially. Also, one thing I took advantage of different funding opportunities. So, a lot of campuses now will actually have entrepreneurship funding for faculty. And I’m seeing this more and more. And University of Vermont had developed a program like that. And so, I was able to literally use some of that funding to commercialize Weaver’s Social Enterprise Directory.

15:34 Emily: That’s fantastic! And definitely, I mean it’s so great to think about academia as like an incubator. I mean, sometimes it’s literally they have like incubators for small businesses, but you were able to use your position as a faculty member and your access to these resources to sort of incubate your own business. And I love what you’re saying about like the continuity here between yourself, your business. Like you weren’t thinking of yourself as just a faculty member, you’re thinking about yourself as a contributor to this field and you’re still doing that. It’s just, you have a slightly different title in the way that you’re doing it. And so, it does make sense to me that investing in you and your business is still in alignment with that phase of what you were doing inside academia. Does that make sense?

16:17 Rasheda: Absolutely. Yeah.

16:18 Emily: Yeah. So, I still see alignment there. Is there anything else that you want to share with us? You know, we’re talking about these steps that you took prior to leaving your full-time job. Anything else you want to share with us about this transition from full-time academia with the side business to that full-time business owner?

Understanding Root Causes of Issues

16:34 Rasheda: Absolutely. I think one of the things that all PhDs have in common is that we are really adept at studying the root causes of why issues occur, right? We’re studying, in order to do our dissertation, we have to look at the history of the problem that we’re trying to address in our dissertation or the question that we’re trying to answer. That is the same thing all entrepreneurs do, social or not. Because they have to find a problem, and they have to develop a solution. But what PhDs do differently is, we find the deep root cause and the history of that problem. And because we’ve done that, once you’re trained in entrepreneurship, you can see the holes that exist in the market and you can fill them. All you need is entrepreneurial training to fill them. Because you already have the understanding of the problem, you have a better understanding than the majority of the planet has. And so, I just want to empower you to really understand that.

17:24 Emily: Mm-Hmm. <Affirmative>. And can you talk a little bit more about how that applied to your business and your journey?

17:29 Rasheda: Yes, because I could see those problems so clearly, and I always saw, you know, entrepreneurship, it’s not like the field of psychology, for example, where psychology is the mind. It’s something that you can’t really touch. I’m working with entrepreneurs, or nonprofit organizations, or any organization. And so, my work directly has an impact on someone else. And so, I can work with them and I can learn from them and talk to them and apply my work to them. And because I can do that, what it’s taught me was how do I communicate with those people? Not just communicate with journals, not just communicate with the research audience, but how do I communicate? Like I started doing policy briefs through the Scholar Strategy Network, an organization that any PhD can join. And so, they talk to civic groups, they teach, they train you in how to talk to policymakers. So, I literally started doing that and getting my work out into the community. So, that’s how, actually, social entrepreneurs found me <laugh> because they saw my work in newspapers and in policy briefs and in magazines and on YouTube. And they found me and said, “Well, we like that you’re doing this, but this is what we need.” And so, I was able to then develop the solutions for them.

Scheduling Paid and Unpaid Business Work

18:36 Emily: This is reminding me of a need that I’ve sort of started sensing in my own business and for myself which is that I want to do more advocacy work. And I am now trying to see how I can set up my business so that I have time in my schedule to do advocacy work that is not necessarily going to be paid. I’m anticipating that being unpaid, but I still think it’s an important part of like my mission. So how, and I think as like sometimes I feel a little, I don’t know if you ever do as well, jealous of people who have like a salary <laugh>, like a full-time position where like maybe they can take some time to do things that are definitely unpaid on their own because they have this holistic sort of safety net for themselves within their salary.

19:20 Emily: And I’m sort of thinking to myself, how do I do that for me within my business? How do I cover, you know, 20% of my time that’s going to be unpaid by the 80% that I have for paid work? Or whatever the case. And so yeah, I’m just, I think that you are demonstrating how you did this as well, right? Starting as a faculty member. And you’re probably still doing it now as an entrepreneur, right? So like, preserve time within your schedule for things that are going to be unpaid because they further the overall mission of the business slash your own life mission as it relates to work.

19:50 Rasheda: I’m so happy you asked me this question, it actually skips to another question that you had when you gave me the outline. But I dedicate now two days a week just to learning how to make money. So, learning about how to make money and how to grow money. How do I advance multiple, so if you see my vision board from January, 2022, it has all the different streams of income that I have coming in. And so, what I’m doing now that I don’t have a full-time position is I’m using those two days to just figure out how do I multiply the streams of income that I already have. Because if I didn’t, if I hadn’t done that, it would’ve been very hard to leave my job. And so, when things started, you know, getting chaotic and I decided this is not the route that I want to take, and actually if I do go back to academia, it has to be a position that I love and I’m going to thrive in.

20:39 Rasheda: It’s not going to just be any position. I’m not going to just take any job. And so, I wanted to set myself up for success in order to make that a reality. And the reality of doing that is having a solid financial base. And so, literally, taking Mondays and Wednesdays, the same days I had off in academia, because I worked on Tuesdays and Thursdays, so I kept those same days. Those are when I do my business stuff, create products, promote things. But Mondays and Wednesdays I’m reading books on estate planning, on investing profit first. You know, I’m reading Smart Women Finish Rich by David Bach and The Latte Factor, all those different things, just learning how to make money because, here’s the truth. And I love this book, The Psychology of Money, that I just finished reading the other day.

21:24 Rasheda: You cannot always, when you’re working for somebody else, there’s a cap on how much you can make. In entrepreneurship, there is no cap. You can make a limitless amount of money. So, what your job as an entrepreneur to do, and this is what I teach in my Bootcamp, you have to figure out how you can get to limitless <laugh>. You know what I mean? And so, there’s a lot of investment that happens. And like, with me putting aside an emergency fund for these couple of years, what I was doing with that was saying, “I’m buying myself time just to learn.” And that is something I talk about a lot in my book. I talk about patient capital. My emergency fund gave me patient capital as opposed to waiting for somebody else to give it to me. I decided to take this time, I gave myself a whole year. We’re just going to learn, and we’re going to implement things. We’re going to test them over time, and we’re going to make certain investments. Like I invested in a book marketing company because if I want to sell books, that’s, you know, being strategic about those investments. And so, yeah.

22:23 Emily: This is something that I did not understand very well when I started my business. I was so focused on making money immediately, that I didn’t give myself the runway that you did and all these wonderful steps you’ve been taking. And I hope the listeners are taking notes about this. I didn’t do the investment in myself and growing in all these like entrepreneurial sort of related ways that you’ve just been discussing. It took me years into this journey before I started making those investments. And then obviously seeing like the returns from it. But it’s just something that now when I talk with other sort of budding like solopreneurs or people who are interested in my journey, I tell them like, be taught either like in a community or buy a coach, or read books. Like you have to make the investment in yourself, like you said, to be able to grow to that level. Because if you stay stuck in the cycle of like, I have to, you know, have 35 billable hours per week to like make my, you know, the nut that I need to survive on, that’s not any way to grow into the future. You may be able to survive on that, but it’s not a path to growth within your business. So, I’m so glad that you said that. It’s such an important message.

Commercial

23:37 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.

24:52 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.

Investing in Yourself and in Your Business

25:37 Emily: Can you give any other examples of how you’ve been doing this investing in yourself slash in your business for present and future growth?

25:47 Rasheda: Absolutely. So, I always say you need time and space for creativity. And so, I have the days, the two days where I’m working on just learning and learning how to invest and then implementing that and then the two days where I’m working and then Fridays are my self-care day. So, I invested in a health coach because I need to be healthy to make great decisions. Like, I’m so serious about this, like I literally eat blueberries because it’s good for your memory and as an academic you need to have a good memory <laugh>. So, that’s how serious I am. You need to have carrots, I hate carrots, but you have to eat carrots because they give you good eyesight and we need things like that in order to read. So, that’s like how serious I am. And I hired a health coach, not because, because I also have a ton of health books, not because I need someone to you know, I can’t do this myself, but you do need accountability.

26:30 Rasheda: You do need guidance. And so, one of my friends, for example, she runs a company called, an eight-figure company, called The Product Boss, where she trains females that have a product to turn their businesses into six- and seven-figure businesses. And so, I started investing in, I appeared on her podcast and then I invested in her social media kit because you can always learn something from someone else. So, I’m investing in myself in a variety of different ways, and I set aside two years. Year one, we’re going to learn a lot and we’re going to implement, we’re going to test and see what works and we’re going to track it, because we’re academics and we’re good at tracking things. And then in year two, I should start to see the flourishing. I’m already seeing the revenue coming in, but I’m reinvesting that into growing the organization.

27:16 Rasheda: And so, when I make a sale, I’m not thinking, “Oh, let me get excited and just sell this.” I do treat myself, but I also you know, I call it being scrappy. Like I started shopping less at Whole Foods and started shopping more at Trader Joe’s and having a budget around those things so I can invest more in my business because one day I’ll be able to make a lot of money and it won’t even matter if I spent, you know, do you know what I mean? Like it’s short-term sacrifices for long-term gain, deferred gratification. And that is what we’ve all done in our PhD programs, but now we have to apply it to entrepreneurship.

27:50 Emily: That’s such a great point of, I sometimes think about the sort of, I guess personality or characteristics that you develop in the course of doing a PhD that are going to very well apply to, it could be your career that’s more conventional afterwards or if it’s entrepreneurship. It’s such a proving ground and you’re going to learn a lot and you’re going to be different when you come out from the PhD. And those skills, those soft skills as well as hard skills can be applied in so many different ways. Now, just because you are on the topic of like your weekly schedule and so forth and I love hearing that rhythm. Can you share with us anything more about how your life looks today and how it’s similar or different from your life as a faculty member?

28:30 Rasheda: I think the most important thing that I noticed, like I feel so good, and like I’m healthier. I’m just not stressed. <Laugh> I don’t have that stress on me and being in academia can be very toxic, and we all know that. Anyone that has a PhD knows that, because we went through a toxic experience getting it. And it was a beautiful experience because it allowed us to become who we are today, but it has severe psychological and physical and medical effects on you. And I think the most important thing that I’m seeing now. And also I think the most important thing I did was be honest about that. Because that’s another reason why I had to get a health coach, right? So, going through this and it’s a holistic health coach as well, so I can talk to her about these things.

29:12 Rasheda: Like yes, I was under a ton of stress last year. How do I heal my body from that stress? You know? So just taking walks in nature, drinking bone broth, like little things like that. And I just, I dedicate less time to work. I don’t work more, I work smarter. I work not harder. I work smarter. It’s like I said, learning how to make more money. Scheduling. I’m having two days for a week where I’m doing deep work in my business and allowing that to just sit so I don’t stress myself out, because understanding that stress isn’t going to help me. And then spending more time with my kids and doing things that I love, like doing art and I want to get back into dancing again. That’s one of the things that, but I have to find somebody that does dancing classes of the day. That’s the hardest thing <laugh>. But things like that. And just making sure I just take care of myself and do things that I love. I think that’s very important.

Time Management and Slow FI Movement

30:02 Emily: I’m a little curious about your time management right now, because I can already see you’ve blocked off what I’ve learned are called theme days, like you said. You know, you have your days of investment in yourself and your business and you have your days of producing you know, saleable work, and you have your day for health and so forth. I wonder, are you tracking your hours and almost like do you see actually even a distinction between the hours you spend working and the hours in your personal life? Or are they all, like the investment in yourself could go either way, right? I don’t know. What do you think about this?

30:33 Rasheda: I do think, I do track my hours now. I had to learn to say no. Like if I can’t, so when my kids get home around 2:30, I just, I can’t work with them home. It becomes stressful. That makes me stressed out and so I have to do everything before two. And so, yeah, in a way it’s like a limit to my hours and I do everything between 10 and two because making time for yoga in the morning <laugh> and making time to take a walk around the blocks, I can get fresh air. That’s just become really, really important. And that’s the beauty of entrepreneurship is that I can choose to do that. And so, once again, I might be making a little less money now. Because here’s the truth, with the kind of organization that I’m running, I literally could make [inaudible] in a year.

31:18 Rasheda: Like, I’ve literally done the math, I’ve started working with government officials and all these things, but I don’t need to do that right now. I need to get my health on track and my family and have a great familial and health foundation so that I can grow later. So, I’m making the sacrifice now, but I know that that’s coming because, one, I’m an entrepreneurship professor, so I know how to do this <laugh>. I’ve literally trained people and I’ve studied it, and it’s like, it’s working. It’s literally working. People are buying the products, people are buying the books. And so, it’s just a matter of scaling that and through investing in myself and learning how to do that in a way that doesn’t deplete me, but in a way that nourishes me. So I can do what I love, but I’m also you know, I’m not sacrificing my health and wellness in the process. Because when I was an academic, I was, I had to, there were sometimes you just, you have deadlines, you have to get, you have to get your slides ready for class, you have to grade by a certain time.

32:09 Rasheda: There’s just all that adrenaline. And like I said, I was the only faculty member teaching four classes. So that was hard. Because if you’re teaching even one class, you know that after you’ve done that you’re just exhausted. It takes a lot of mental and physical energy to do that. And you have to be very alert and you’re just exhausted after one. So, imagine doing four in two days. And it works if you have to do it five days a week or four days a week because what I’ve found is that you need a day off. You need that break day to just help you recuperate from the physical, physical demand of that. But because my programs are online, it just, it takes care of itself, you know? So like when you mentioned a certain amount of billable hours, I don’t have that.

32:49 Rasheda: So, most of my meetings on Tuesdays and Thursdays are meeting with people to do things like this, podcasting because I’ve already either developed my programs or I can just dedicate those days to developing online programs that are then there. And then I can create the schedule of the live programs or live talks that I want to do. And I can say “yes” and I can say “no” to whichever opportunity. It’s just all about priorities. So for someone, so for example, if somebody’s single and they have no kids, they can do a lot more than me at this time. And I would say use that as a great opportunity because that’s the benefit of being, you know, a solo, completely solo, like genuinely solo entrepreneur. But if you have kids and you know, I feel like they help me keep my balance, my family. And fortunately I did, I actually had my son while I was an academic while I was in my PhD program. So, I’ve always had to take weekends off and had to sort of navigate around that because I still have to be a mom, you know.

33:43 Emily: Your entire description through this episode of like the synergy between your academic life and your business and what you feel is your life’s mission and then how you arrange your schedule and the investments in yourself and your health and all these things. I don’t know how much you’ve explored, you obviously mentioned earlier you’ve read numerous personal finance books, but the whole like FIRE movement, right? Financial independence and retirement early, there’s a component of that. There’s like a subset which is called Slow FI and maybe you’ve encountered this concept, so like you are going to get to financial independence eventually, like you talked about, okay, well eventually I can build my business. Right now I have a different goal, which is, you know, in this other area. The Slow FI movement is like, make your life awesome right now.

34:25 Emily: And yes, eventually you’ll get to financial independence early retirement, but it almost doesn’t even matter because you’re living such a fabulous life. There’s almost no like end point to like this goal, right? And that set to me just sounds like the life you’re setting up right now of working, you know, part-time doing also investment in yourself and your health and having this wonderful time with your family. There are a lot of parallels of that in my own life. I also only work like four to five hours per weekday because that’s the schedule that allows me to spend a lot of time with my kids when they get home from school. And it’s just, it’s more balanced. I feel like working eight hours a day, yeah, maybe I had the energy of that in my twenties. I don’t anymore. Anyway, so I just.

35:03 Rasheda: And it’s also the stage, the stage of life that we’re in. Like my daughter is three and my son is seven and she’ll be four. And like I just made up my mind and said I have to do Slow FI because I’m very, I love the FIRE movement, but I have to do it slowly right now to still do what I love because that’s nourishing in a different kind of way. And also making money to support the family. But at the same time, I don’t want to miss these moments. So, because money isn’t everything, right? So like I said, I could make, I projected I could make [inaudible] a year like easily. But I want to be here for my daughter. I want to be here for my kids. I want to cook for them. I want to you know, have a thriving romantic life, you know what I mean? Like go on dates and all those things. I love that, and that matters to me. And go on vacations and all that stuff. And so, you know sacrifice in some areas. Well, here’s what I say. I always say, “What I can’t do now, I can do later.” <Laugh>, you know? I won’t do what I can’t do, but what I can do, I will do.

Where Can Listeners Find You?

36:02 Emily: Rasheda, this has been such an invigorating conversation. It’s been so lovely to meet you. I have two more questions for you. The first one is, if anyone else is as excited as I am about this conversation and wants to follow up more with you, where can they find you?

36:14 Rasheda: So, my website is rashedaweaver.com and also my Instagram is @rashedaweaver_PhD. And I’m also on LinkedIn. And that’s been fun. If you sign up for my newsletter, I’m starting a newsletter called Weaver’s Review starting January, so you’ll be able to have updates on me but also updates on social entrepreneurship in general, the field, funding opportunities, employment opportunities, and information about my boot camps and training programs. That’ll all be, you know, we’re going to really be doing that in the next year.

36:46 Emily: Yeah. And mention one more time, I think you said you have a book that’s just about to come out. We’re recording this in December, 2022. So, it’s about to come out, right?

36:53 Rasheda: It comes out exactly one week from today. It’s called Social Entrepreneurship: A Practical Introduction. And the main question that I ask in the book is, if I teach good people how to make money, will they do more good with it? And so you definitely want to get that book because it’s all about entrepreneurship and exactly what we’re talking about. How do you create an organization that allows you to do good for yourself as well as good for your community?

Best Financial Advice for Another Early-Career PhD

37:15 Emily: Fantastic! Okay, Rasheda, the last question that I ask all of my guests is, what is your best financial advice for another early-career PhD? And that could be something that we’ve touched on already in the interview or it could be something completely new.

37:29 Rasheda: My best financial advice is that there’s no greater investment in life that you can make than the investment in yourself. So just like I had that emergency fund, I also called it a dream fund. And so, putting money aside, even if you don’t know exactly what you are you going to use it for, emergencies always happen. So, it’s better to have an emergency be annoying than for it to be catastrophic. And so for me, you know, when I became unhappy with my career in academia working there, I just, I was able to just easily transition into entrepreneurship because I had that fund already set up because I was investing in myself even when I didn’t know what the investment really was, <laugh>. And so, I think you should really do that and that’s a holistic investment as well because your health, your wellness, your family, your romance, all that matters into making you the best individual that you’re going to be in. But that all takes investment.

38:23 Emily: Well, Rasheda, thank you so much for volunteering to come on the podcast. It’s been a real pleasure to talk with you!

38:29 Rasheda: Thank you. It’s been a pleasure to be on the podcast, and I’m so happy to get to know you now. I hope to be back and share more!

38:35 Emily: Sounds great!

Outtro

38:41 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 Deferred Her Acceptance to Work on Her Finances

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In this episode, Emily interviews Brittany Trinh, a PhD student in chemistry at the University of Wisconsin-Madison. Brittany originally applied to grad school in fall 2018, but she elected to defer her acceptance for two years in favor of taking a job. Brittany shares how she developed her finances, side business, and professional life in the 2.5 years she worked prior to matriculating. She started graduate school in fall 2021 in a much stronger financial position—and more confident in herself—than she would have in fall 2019, even though it was a bit of a rough transition. At the end of the interview, Brittany explains for whom deferment of grad school acceptance is a good option.

Links Mentioned in this Episode

PF for PhDs S14E4 Image: This Grad Student Deferred Her Acceptance to Work on Her Finances

Teaser

00:00 Brittany: I think the biggest thing was just, one, knowing how the PhD stipend is, and just the whole grad school process. I was just really afraid about like how like setting up my like financial future when like the stipend makes it kind of difficult to do that, savings and things. Like it is possible. But just at that time, I knew that like with my job, I could do that a lot faster than like going to grad school right away. And we know that like with time and investing, like time is like the most valuable thing.

Introduction

00:41 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 4, and today my guest is Brittany Trinh, a PhD student in chemistry at the University of Wisconsin-Madison. Brittany originally applied to grad school in fall 2018, but she elected to defer her acceptance for two years in favor of taking a job. Brittany shares how she developed her finances, side business, and professional life in the 2.5 years she worked prior to matriculating. As a result, she started graduate school in fall 2021 in a much stronger financial position—and more confident in herself—than she would have in fall 2019, even though it was a bit of a rough transition. At the end of the interview, Brittany shares from her perspective for whom deferment of grad school acceptance is a good option.

01:57 Emily: If you’re a prospective graduate student currently in the thick of admissions season, I encourage you to check out my asynchronous workshop, Set Yourself Up for Financial Success in Graduate School. You can pick and choose which modules are most relevant to you now and over the coming months. For instance, if you’re staring at a cryptic funding offer letter, you might want to join “Interpret and Compare Offer Letters.” If you’re not sure if your stipend offer is really livable for a certain city, you might want to join “Stipends vs. Cost of Living.” If you know already that your top-choice program is offering a sub-par stipend, you might want to join “Negotiate Your Stipend and/or Benefits.” You can learn more about Set Yourself Up for Financial Success in Graduate School and the various modules at PFforPhDs.com/setyourselfup/. You can find the show notes for this episode at PFforPhDs.com/s14e4/. Without further ado, here’s my interview with Brittany Trinh.

Will You Please Introduce Yourself Further?

03:06 Emily: I am delighted to have joining me on the podcast today Brittany Trinh. She is a first-year graduate student at the University of Wisconsin Madison in chemistry. By the way, we are recording this in April, 2022, but I’m expecting to publish it in early 2023. So, for reference, you know, Brittany will now be a second-year graduate student at the time of publication, we expect. Okay, Brittany, thank you so much for joining me. Will you please introduce yourself further to the listener?

03:31 Brittany: Hi, yeah, my name is Brittany and I’m, like you said, currently a PhD student in chemistry at UW Madison and part of the Boydston group studying metal-free ring-opening metathesis polymerization. And before that, I was getting my BS chemistry at the University of Houston and then also working at a polymer company for about two and a half years before I became a grad student.

Timing of Grad School Application and Deferment

03:58 Emily: Excellent. And that is the subject of our interview today. So, Brittany applied for graduate school, got in, and decided not to go for a bit. So, we’re going to talk about that deferment process and why it happened and how it happened and how she used that time to better her finances and be in a stronger position when starting graduate school. So, I love this topic. Okay, so starting off, what was the timing of this? Like when did you apply for grad school? Were you also applying for jobs that same time? Just like walk us through the beginning of this process.

04:28 Brittany: Yeah, so I actually graduated a little bit later. So, in the fall of 2018 was my graduation semester, so that’s when I started applying for jobs and grad school at the same time. And then throughout that process, I actually only applied to one grad school, which was UW Madison because of like a fee waiver I got from a preview program. And simultaneously applying for a bunch of jobs and we all know how job searching goes.

04:59 Emily: Interesting. So, when you, because you were graduating like at that end of fall semester timing, were you already anticipating that you would have to have a job between, you know, let’s say January and August or whenever it was that you would matriculate if you had gone directly to graduate school?

05:16 Brittany: I think that I wanted to do something but I wasn’t expecting to honestly get into the graduate program because I did get the job offer by October, 2018. So, I had already like accepted the job offer before I even knew that I was getting into grad school.

Receiving an Acceptance Letter

05:38 Emily: Okay, great. So, when you got the acceptance to UW Madison, what were your thoughts at that time? Were you thinking that you wanted to enroll or were you already thinking by that point that deferring was going to be a good idea?

05:51 Brittany: So, this is actually a really funny story. I got my acceptance letter the same day that I came home from like my first day at work. And I was super surprised because I did not think I was going to get in. And so, of course I’m like kind of freaking out and thinking like, well, what do I do? You know? But ultimately I decided that it was better for me to just stay at my job because I literally just got started. And so, I wanted to see if there was an option for me to defer just for some time so I could get the work experience but then still pursue grad school later.

Role of Finances in Decision

06:27 Emily: And what role did finances play in that decision to defer?

06:33 Brittany: I think the biggest thing was just, one, knowing how the PhD stipend is and just the whole grad school process. I was just really afraid about like how like setting up my like financial future when like the stipend makes it kind of difficult to do that savings and things. Like it is possible. But just at that time, I knew that like with my job I could do that a lot faster than like going to grad school right away. And we know that like with time and investing, like time is like the most valuable thing. And then of course there were other some like emotional things related to that. Yeah, and I think the thing was that my job offer was really good and I just really could not turn it down. And that was why I ended up deferring my grad school enrollment.

07:32 Emily: Yeah, I think it definitely makes it easier to imagine what else you would be doing if you didn’t go directly to graduate school already being in that job, which is awesome. I’m wondering, did you have any particular financial concerns? Like I know generally things are hard, right? For grad students and finances, but I don’t know, were you like looking at like student loan debt that you wanted to pay down? Or were you like, “Oh, I have zero in savings and I really want a certain amount in savings.”? Like was there any specific element of your finances that was a top concern?

08:01 Brittany: Oh, yes. So, I am very fortunate that I did not have any like student loan or other like personal debt. But for me it was definitely zero savings. Because I obviously just graduated from school, and I had just like a little bit of savings from like summer research or things like that. But yeah, I really wanted to build up my emergency fund, my 401(k), and just kind of let it sit there while I’m in grad school and things like that. Those were like the main concerns.

Informing the Grad Program About Deferment

08:37 Emily: Okay. So, we’ve talked about like the decision to defer why you did it, what you were planning on doing with your time anyway. How is it actually like telling your program <laugh> that you got into that that was your plan, that you would like to exercise a deferment option? Like, I don’t know, like how did those conversations go?

08:55 Brittany: Yeah, so I don’t remember exactly like how I came up with the idea of deferring. But I think maybe I’ve seen it somewhere. So, I think I was just like searching the department’s website to find any reference in like the handbook or their FAQ or whatever about the deferral process. And so, I remember seeing this on their FAQ page saying that like, yes, it is possible because they’ve granted it to people before, you just have to like let them know and it’s up to two years. So, what I did was I waited until I went to the official visit weekend and I wanted to talk to the graduate program coordinator personally as opposed to like over e-mail. And it was actually a little bit awkward because it was at like a poster session when I approached her because the schedule is like pretty packed.

09:45 Brittany: But she had just finished chatting with another student and so when I came up to her, I introduced myself and explained to her my situation and I just said like, could you tell me more about the deferral process? Like I would love to come here, but like as of right now, I’ve just started my job and it’s only been like two months and I don’t really want to leave that yet. And in the end she was very kind and reassuring about it and she just told me it’s totally possible just like stay in contact with her and she would like follow-up with me and let me know what the steps were.

10:15 Emily: It’s actually like, I hadn’t thought about this before, but sort of thinking about it from the program director’s perspective, you’re going to be an even stronger candidate when you actually join the department in like a year or two or whatever having had that relevant work experience. So, it actually feels like they’re getting like a bargain or something, like, we’re going to get an even better grad student than like the one we accepted. Like that’s amazing. So, I can see how that would maybe be attractive. But something I hadn’t asked you yet is, when you were admitted to the program, were you admitted already like knowing who your advisor was? Or was that a process that would maybe happen during like your first year?

10:52 Brittany: Yeah, so when I was admitted, we don’t know who our advisors are yet. It’s just like you’re just generally admitted, and then once you enroll whatever semester, that’s when you go through like the whole rotation process and stuff. So, that wasn’t a concern at that point.

What About Funding?

11:07 Emily: Yeah, I can imagine if, you know, for anyone listening to this who’s maybe going to consider this, if you’re admitted directly with an advisor, that’s the way I was admitted to graduate school, then it’s like two levels, like you have to make this okay with the department level, their program level, and also with your advisor. And the other like sort of wrinkle in there is like, what about your funding? So, what was your funding situation and did the deferment matter at all in like, you know, was your funding automatically going to come again? Or did you have to like apply again? Or how did that work?

11:36 Brittany: Yeah, so I think when I was accepted, they offered me full funding as a student and then they also gave me an additional fellowship which was a surprise to me, but when I followed up with her about deferring and such, I just asked her what the situation was like. Because I would understand if they decided to rescind the additional fellowship which I think was like an additional $4,000 or $5,000 just for the first year because I deferred, but actually she said, “No, your funding will [I guess] transfer.” And I was really surprised. And so I think it, it just is a matter of just asking very directly. Like it was a little uncomfortable for me to be so forward about it because I didn’t want to seem like, you know, I’m just only concerned about money, but it was something that they offered me and I just wanted to see if that was still available to me.

12:36 Emily: Yeah, well that’s great. I mean, it sounds like this person was like very receptive to the process. I mean, even them having it on their website is a good indication that yeah, this is something there that happens from time to time, and they can handle it. And especially like you were saying, just being admitted generally to the program I think makes the whole process easier since you’re not negotiating with like a certain person with a certain number of spots that are available or whatever the case might be.

Finances During Gap Years

12:57 Emily: Okay. So, let’s move beyond like the decision to defer and talk about what you did with your time about two and a half years, you said, between when you started your job and when you ultimately entered graduate school. So, we talked earlier about like the financial reasons for why to pursue this job instead. What actually ended up happening during that period of time with your finances?

13:18 Brittany: Yeah, so during that time while I was working, I was able to save over like $60K in my 401(k). And so, I’m like really proud of that, and a lot more like for emergency funds, my future house, as long as like PhD expenses because I know that like moving would be expensive and like school fees and such. So, I wanted to have like an additional fund for that that I could tap into in case I needed it. The other thing was I also just learned a lot more about my own financial habits and values and such. And so, all of those were like really good to know before coming to grad school just in terms of like spending and how you save and such. And then of course the last thing was like, I started my business, which was really a fun learning experience.

14:12 Emily: Yeah, let’s put a pin in the business for just a second. I definitely want to talk about that further. But I just want to like congratulate you because it sounds like you made great use of the time that you’re working to like build up 401(k) balance and the savings and all that. And just like hearing all that, I’m just so happy for you like starting graduate school in such a strong financial position. You’re not precarious in the same way many other graduate students are. Especially having those like investments in place because, I mean, maybe you’re still adding to them, but even if you weren’t able to add your investments at all during graduate school, like I mean five years or more in graduate school, like that money is going to grow. I mean, we’re like assuming the market behaves like sort of average over a long period of time, but it’s going to grow like a lot, like at least 50%, maybe even, you know, closer to doubling during just that period of time that you’re in graduate school. So, it’s amazing to have that wind at your back is what I call the financial wind at your back of having investments. So, that’s just awesome.

15:04 Emily: One thing I did want to ask you though is that like since you had this plan of eventually going to graduate school, were you concerned at all about like your lifestyle or like experiencing lifestyle deflation upon entering graduate school? Because I know that I’ve heard that as like a reason against deferring or against taking time between undergrad and graduate school. It’s like, oh no, what if I become used to spending $60,000 a year and I can’t do that in graduate school, that’s going to be painful. So like, what was your thought process around that, like lifestyle setting aspect of the question?

15:38 Brittany: Oh yeah, that’s a really good point and question. Some other people also brought this up to me as well. But for me there was a little bit of a transition, which I guess we can talk a little bit more later, but the reason why I was able to save so much was because like I was already, I never saw that money because it was always like going direct deposit to my 401(k) or to my savings accounts and things like that. So even though yes, I was making like was like $65K a year or so, I didn’t see that $65K every year. It was like most of it’s already gone to savings. And so I was kind of living as if like I was making more of like $40K or something like that. And so, it wasn’t as bad. And then again, like I mentioned, I learned a lot about like my own habits and values and such. And so then once I came into grad school, I was able to kind of realign that with my current budget.

16:42 Emily: Yes, that makes total sense. And yeah, just having those extra couple of years of experience, as you said, learning about yourself, learning about your own like systems and habits and mindset and so forth with respect to money can be so super helpful with that.

Commercial

16:55 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.

18:11 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.

Web Design Business

18:58 Emily: Okay, let’s come back to the business. So, what is the business that you started during this time before entering graduate school? And I guess, you know, did you have it in mind that you would continue it after starting graduate school?

19:12 Brittany: Yeah, so the business that I ended up creating is a web design business specifically for scientists, researchers, and academics, helping them build their online presence and their websites and such. And so, I started this business unofficially in April of 2019. So that’s like about four months after I started working. That was like kind of the, beginnings of it, but I didn’t start like actually getting clients until September. And that’s when I officially launched. And then since then, I’ve been working with a lot of clients one-on-one and doing workshops, collaborating with organizations and such and all those like fun things that come with an online business. And throughout the process, I made about like $15K in revenue, which most of it was reinvested into the business. But I always did have the intention of continuing it in grad school because I wanted to have that additional income.

20:14 Brittany: I think that was like the thing that really was also another concern for me was that I didn’t want to feel limited by my stipend and I wanted to do other things. One of them being visiting family because I’m in Wisconsin now and I’m from Houston, so, you know, flying home at least like three or four times a year is kind of a priority for me. And so, if I’m able to have like this extra side income, then I don’t need to worry about it, like cutting into like my daily expenses.

20:48 Emily: I just love how intentional you were with the choice of the business to start. And also just using again, your time before starting graduate school to establish it. Like you mentioned, you know, your revenue was like largely put back into the business as an investment and that actually makes a lot of sense to do that while you were working your job because the point at that time was not to get income from it, it was to, I assume, it’s to establish the business so that you can really reap that income once you have your graduate student stipend that you’re living on. So yeah, I just, this is so great and like of course also the subject matter of your business is still like related to like academia and like science and so forth, so it’s still like, it’s something that isn’t totally out of left field for like a graduate student to be doing, right? So, I love that choice because you can still sort of market it and it makes sense like even once you start graduate school. So, just to commend you on all of that. That’s great. Is there anything else that you want to say about the business? Where can people find you by the way, if they want to work with you?

21:43 Brittany: Yeah, if you want to work with me, you can find me on my website, brittanytrinh.com. Or you can also just connect with me on Twitter and Instagram, which is b r t t n y t r n h. So, that’s basically my name without the vowels. Yeah, so all the things about like website design start building and starting your website. That’s what I love to do and yeah.

Starting Grad School

22:09 Emily: Okay, great. So, let’s go back to our timeline. So, you’re doing great with your finances, you’re liking your job and so forth. How did you decide that it was finally time to start graduate school?

22:20 Brittany: So, the program that I applied to, or at least in my time, it was a limit of two years for deferral. So, what happened was the graduate program coordinator contacted me at the one-year mark which would’ve been fall of 2019 for me to enroll in fall of 2020, to ask if I was still interested. And I said, I am, but I still wanted to defer another year. And she was like, okay, that’s that’s totally fine, just keep in contact. And so then again, she did that in fall 2020 and well, we all know what happened then. And so at that point, at work things were kind of slowing down because of COVID, and I was just thinking, you know, maybe this is a good time now to go back to school. Because I also felt like I could not progress in the way that I wanted to at my workplace with my current credentials. And just in general, if I wanted to move up in the chemical industry, having a PhD would strengthen my application.

23:20 Emily: You know, we didn’t even mention that earlier, I guess because in your case this was a deferment of an acceptance instead of like a choice to just wait to apply to graduate school. But I love that you also ended up using that time to confirm that you really did need a PhD like for the career because of course you could have just bailed if you said, “Oh no, I have plenty of room for advancement, this is great, my BS is awesome, maybe I’ll do a master’s on the side.” Whatever it is. You could have gone that track, but yeah, I love that you really are sort of once again intentionally like choosing the life and career that you want to have, and use that time to like confirm this is the right path. So, that makes so much sense to me. I understand you did have to technically apply again to Wisconsin, right? So, in that fall of 2020, right? So you’re submitting another application to them. Were you also looking around at other grad schools? Because as I said earlier, now you’re a two-years better candidate than you were the first time around. So, tell us about that too.

24:11 Brittany: Yeah, so this was something that I brought up with the graduate program coordinator at Wisconsin. I was wondering if I was allowed, like if the deferment meant that I was kind of confirming my acceptance and she said, “No, feel free to apply to other schools that you want.” And I was like, okay, that sounds great. So then I did end up applying to four other schools, really reach schools like MIT, Colorado Boulder, Rice, and University of Michigan. And so, I applied to those four other schools, but in the end, I still went with Wisconsin because I thought that they were the strongest program for what I wanted and needed for my own career.

24:57 Emily: Yeah, that’s great and it makes sense. I mean, I guess maybe someone else considering a deferment would still have to check with their program, but it doesn’t really make sense that you would be obligated to go. It’s more like they’re obligated to you <laugh> to still like accept you. Right? But you’re not really obligated in the same way to them. So, that makes sense. Okay. So, you technically apply again, you apply to some other schools. You still decide on Wisconsin. Did you go to a second visit weekend? Did you get to do that again?

25:21 Brittany: Yes, but because of COVID, it was virtual but I still came anyways to, originally it was to look for apartments, but it ended up just being hanging out. And actually, I did meet some professors during that trip, and one of those professors is now my advisor, <laugh>.

25:39 Emily: Okay. So that worked out on multiple fronts.

Financial Transition

25:41 Emily: So, let’s then talk about like the transition to graduate school, like specifically through a financial lens. You mentioned earlier that you did have to make some adjustments. But you have the savings in place, you know, for the moving fund, all that. So, how did that transition go?

25:57 Brittany: So, it was definitely rough in the first semester. Like you mentioned, there was a little bit of a time period where I had to transition my finances in that curbing my spending was a thing. So, I was trying to keep a closer eye on spending, especially like online shopping, clothes, and things like that because obviously I wasn’t making as much as before. And then on the other side of my business, I also made the decision to kind of put it on the back burner for the first semester because I was trying to focus on just transitioning, TAing, coursework, and finding a lab group. So, all those things were happening and I was like, my business does not need to be going on right now. The other thing was that I experienced a little bit of financial anxiety which was mostly avoidance.

26:47 Brittany: And this was because I just didn’t want to think about like how much I was spending now that my budget or my income was a lot less. But obviously that’s not the greatest way to go. So earlier this year, like in January I just decided to, you know, kind of clear all those things up on like my spending habits and things and trying to keep track of like, what do I spend for groceries and all those things and kind of get a good better handle on that. The other thing was that like related to the financial anxiety, it was mostly about like financial future because now it’s like I don’t have as much money as I did before to put towards savings, but I definitely still want to keep saving, which was why I decided to kind of get a better handle on my spending. So then I can see like, okay, can I save like $200 a month? Right? That would equal out to be, I think the $6,000 for like a Roth IRA contribution per year, is that right?

27:49 Emily: It would be $500 a month.

27:50 Brittany: Oh no, it’s $500 a month. Yeah. So yeah, actually $500 a month, not $200. But yeah, so those are some of the things that I wanted to do.

28:00 Emily: Yeah, that makes sense. I’m glad you’re being like, so like open about this and honest about it because I bet other people who had a similar experience would have similar emotions around it of like, you know, feeling more insecure and more anxious even though you knew it was coming <laugh>, like still to see like the smaller numbers in the bank account and like your savings going down because you’re, you know, you’re spending on moving expenses and whatever else is going on. But really glad to hear that you sort of eventually like kind of firmed up on the mindset and the processes and so forth. So, that’s great and thank you so much for sharing. And have you re-ramped up with your business? Again, we’re recording this in April 2022. So now that you’re in like your second semester, is that more, is that something you’re spending time on now?

28:43 Brittany: Yes, definitely spending more time on it. Really wanting, I’m really trying to push for teaching more workshops. I’m still taking on one-on-one clients, although it’s just a little bit different than before. So, definitely taking that first semester off to kind of recalibrate to see like how do I want my PhD experience to go and what I want to get out of it has also helped me realign my own business goals as well. So, that’s been really fun.

29:10 Emily: Okay. Well, this is an unexpected tie-in, but in season 11 we published an episode with Dr. Toyin Alli sort of along these same lines of like moving from one-on-one services to more scalable like passive products. So, interesting. If anyone is like jibing with what Brittany is saying, then check out that episode with Dr. Toyin Alli where we talk more about these like strategies.

For Whom is Deferring a Good Option?

29:32 Emily: Okay. So, kind of to wrap up here, for whom do you think deferring is a good option?

29:39 Brittany: I think deferring may be a good option for anyone who’s like at all doubting their decision to do a PhD because that’s how I felt. Like I did not want to do a PhD yet, at the time that I was accepted for not just financial reasons, but also a lot of like emotional and like mental health reasons. I felt a lot of burnout from undergrad and I wasn’t sure if I could complete a PhD successfully given where I was at at the time. And I don’t really think that the decision to do a PhD should be taken lightly, right? And so if you’re not sure, like you’re honestly better off taking that time to work at a job and figure out like what you like to do or like in my case, like do you even really need a PhD for what you want to do? And like just in general learning more about the industry that you want to work in and ultimately you should just do the PhD, or I guess when you decide to do the PhD, it’s because it’s an experience that you want to have in your life. So, getting to like a more like affirming position rather than like feeling FOMO about not doing a PhD.

30:53 Emily: Love that. I had, so I didn’t defer my acceptance to grad school. I just waited to apply until, I was planning on taking two years between undergrad and grad school. I ended up applying so that I enrolled just one year after I finished undergrad. But for some of the same reasons that you just mentioned, like I felt like I was a stronger candidate having had like extra work experience. I wanted to see what science was like in a different kind of setting than what I experienced during undergrad. All of that still just confirmed for me that I did want to do the PhD. What you did that I did not, was really working on the finances in that time because I did a post-bac program, which paid me basically what a grad student stipend is. So, there were no financial advantages there, but there were those other advantages still that you mentioned. So, that’s so great.

31:35 Emily: And where could people find you if they want to follow up? You mentioned your business website earlier, do that again, but let’s say someone wanted to follow up more on like the personal side about deferring or something. Where can people find you?

31:44 Brittany: Yeah, so definitely you can still visit me on my website, brittanytrinh.com. Or you can email me at [email protected] if you want to like send a longer message. And also just again, connect with me on my social media accounts. You can just tag me or DM me as well.

32:02 Emily: Sounds great.

32:03 Brittany: Totally open to share more. Yeah.

Best Financial Advice for Another Early-Career PhD

32:05 Emily: Good, good. Okay, so, we’ll finalize here with the question that I ask of all my guests, which is, what is your best financial advice for another early-career PhD? And it could be something that we’ve talked about in this episode or it could be something completely new.

32:19 Brittany: Yeah, so I would say that my best financial advice is to find a skill that you like enough to leverage for extra income. So, a lot of people do like tutoring, writing, editing, whatever. And like one of my, like my roommate, she like does like cover art for like, you know, for like for publications and such. So, it’s like having those types of skills or just having something that you like to do. Especially like if it’s something that doesn’t require too much time or effort from you, it’s always more, it’s more beneficial to you anyways. And like you don’t have to build like a whole business, but it’s good to know that you have another way to make extra money if you want to.

33:05 Emily: Yeah, that’s interesting you say that because I mean, I totally agree. I’m so on board with this advice <laugh>. But like furthermore, you’ve built like a business and you have like a brand and all of that, but someone doesn’t need to go to that level to make extra money on the side. Like they could do more like freelancing or like put themselves on, is it called Upwork now? Is that the current name for the website?

33:24 Brittany: Yeah, Upwork.

33:24 Emily: Yeah, Upwork. So, they can put themselves on Upwork or something like that where like you’re finding clients but you don’t need to necessarily build a whole infrastructure around it. At least not at the start while you’re just like trying things out. So, I love that, just like thinking about what skills you enjoy that you have that might be a little bit unique in the marketplace. I definitely see how your skills with like the website building is unique and something very needed. And especially if you can speak like the language of, you know, your clients, that’s a big advantage. Anyway. I love your business so that’s awesome. Brittany, thank you so much for joining me for this interview! It’s been wonderful! I hope the listeners got a ton out of it. Thank you so much!

33:56 Brittany: Thank you for having me!

Outtro

34:03 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.

The Tax and Retirement Effects of Receiving Fellowship Funding

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In this episode, Emily interviews Dr. Jamie Lahvic about her experience being funded by fellowship during grad school at Harvard and her postdoc at the University of California, Berkeley. Regarding the tax complications of being on fellowship and the lack of retirement benefits, Jamie and Emily outline the issues, discuss possible solutions, and suggest advocacy avenues for instigating change. Listen through the end of the interview for the Big Questions regarding the true nature of fellowships and employment.

Links Mentioned in the Episode

S14E3: Image The Tax and Retirement Effects of Receiving Fellowship Funding

Teaser

00:00 Jamie: Because I often felt, you know, in addition to like the confusion and the frustration and wondering what to do, that I don’t know, it felt like an emotional hit. I felt unvalued when I’m put into this weird little category where my earnings don’t make sense and I can’t open an account and I can’t figure out how to pay taxes. And I went on this really kind of rollercoaster from feeling like, “Oh, I’m a valued scientist and worker in this field,” down to like, “Oh, nobody really cares about me or the type of work that I’m doing.”

Introduction

00:38 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 3, and today my guest is Dr. Jamie Lahvic. We discuss Jamie’s experience being funded by fellowship during grad school at Harvard and her postdoc at the University of California, Berkeley. Regarding the tax complications of being on fellowship and the lack of retirement benefits, Jamie and I outline the issues, discuss possible solutions, and suggest advocacy avenues for instigating change. Listen through the end of the interview for the Big Questions regarding the true nature of fellowships and employment.

01:43 Emily: If there are any prospective PhD students listening—and I hope there are—I want to point you to a new workshop I’ve been publishing in installments throughout this academic year, Set Yourself Up for Financial Success in Graduate School. Now that we’re in admissions season, the modules are getting really exciting and immediately actionable. The two most recent modules are titled “Decipher and Compare Your Offer Letters” and “How to Negotiate Your Stipend and/or Benefits.” One from last fall that you might want to check out as you’re evaluating the cities your offers are in is “Stipends vs. Cost of Living.” I sincerely want you to go into grad school with your eyes wide open regarding the financial realities and in the strongest financial position possible for the program you choose. I hope you will check out the workshop and enroll in the modules that will help you accomplish that. Go to pfforphds.com/setyourselfup/ for more information. You can find the show notes for this episode at PFforPhDs.com/s14e3/. Without further ado, here’s my interview with Dr. Jamie Lahvic.

Will You Please Introduce Yourself Further?

03:01 Emily: I have joining me on the podcast today, Dr. Jamie Lahvic. Super delighted to have Jamie here. We actually met at a conference last summer. I’m recording this in November, 2022. So, we met at the Graduate Career Consortium Annual Meeting, which was in July, 2022. We ran into each other during like a break or something, and we just started chatting and we had this electric conversation about funding, about fellowships, about benefits, about systemic issues that need to be addressed. And I just wanted to capture some of that magical conversation here on the podcast. So, Jamie, I’m super delighted to have you on. Will you please introduce yourself to the audience?

03:42 Jamie: Sure! My name is Jamie Lahvic. I am currently working as a Program Officer at the National Institute on Aging, where I focus on some policies as well as programs related to graduate students, postdocs, and early career faculty. But today I’m kind of excited to talk about my own personal experiences as a graduate student and then a postdoc. So, I went to grad school at Harvard Medical School studying biomedical sciences and then I moved on to UC Berkeley to do a postdoc in cancer biology. And I wrapped up that postdoc in 2021.

04:18 Emily: I’m really excited to see all these different perspectives from you being at a private university, a public university, now in government. Like, this is awesome! And I’m of course going to share some of my own limited experience as well. But we’ve both had some observations about these issues about the finances and the benefits and so forth that are offered to graduate students and postdocs as employees or as fellows. So, I want to, for the listeners just to introduce them. I have a framework, this is not necessarily the way that everybody talks about this, but in my mind there are sort of two broad classifications that graduate students and postdocs can fall into. One is as an employee. The way you know that you’re an employee especially if you’re a citizen or resident, is if you receive a W-2 <laugh> at tax time, that’s like really indicative that you’re an employee.

05:04 Emily: So, you have this employer/employee relationship with the university and that may cause different benefits and so forth to be offered to you. The other classification, a little harder to name, a lot of people use the term fellowship, but not only things called fellowships could fall into this classification. So, I broadly call it awarded income when your income comes from an award that you received. Could be certain types of grants, could be a fellowship, could be some other things. So, that’s the language we’ll be using. We’ll just say fellowship for shorthand, but that basically just means non-employee or at least under the, you know, the timing and circumstances of receiving that award, you’re a non-employee.

Switching Between Grad Student Funding Sources

05:37 Emily: Okay. With that clarification out of the way, let’s talk about, you know, your personal experiences, my personal experiences with being an employee and/or being a fellow during grad school and postdoc. So, we’ll probably take this like topically. What would you like to share? What you know surprised you about maybe switching between these two types of funding? What issues did they bring up? Go ahead.

05:59 Jamie: Sure. Yeah, so as a graduate student, I was never an employee. I was always either paid a student stipend coming straight from the university or then a fellowship stipend once I got an NIH fellowship. So there, it still was a really complicated process. I remember being very surprised first year as a graduate student to try to figure out how to pay taxes, how to pay estimated taxes every year. And it seemed to become more complicated every year, especially because once I got my fellowship, some of my money would come from the fellowship, some of it would come from the university. Those would come in separate paychecks. And then later on once I was teaching I would get a third paycheck to cover the teaching that I was doing. And throughout all of that, I never received a W-2. Every now and then I would receive a 1099 for the teaching, but they were kind of inconsistent in whether they would send that. So come tax time, I kind of never knew what I should even do. So, that was a big struggle.

07:01 Emily: Yeah. Let’s talk about the tax issue for a minute longer, because I mean, you probably know this is like part of the bread and butter of my business now because so many graduate students and postdocs are running into confusion around the tax issues. And basically, I mean we will link in the show notes some episodes I’ve done on this in the past, but it basically boils down to like when you’re an employee, your employer has certain responsibilities in terms of telling you how much money you’ve been paid and how much money they withheld on your behalf and so forth. And once you get into this weird non-employee status, they simply don’t have those legal responsibilities in the way that they do for employees. And so, universities take like all these different approaches. And you’re saying even within Harvard, different pools of money were being reported in different ways.

07:46 Emily: And so, yeah, of course, that gets confusing for the recipient when the vast majority of our like, I mean already the U.S. tax system is so complicated to navigate, but if you step outside of the simple like employee world, it gets even harder to find, you know, the support and the resources that you need. That’s part of why I do what I do. But yeah, tell me a little bit more about how you dealt with these like challenges or complications of not having income tax withheld, for example, or like the reporting inconsistencies?

Team Effort for Taxes

08:15 Jamie: Yeah, I think a lot of the students kind of banded together to help each other. I remember we had one really proactive student who would post in our year’s Facebook group four times a year saying, “Remember, pay your estimated taxes.” And I was like so grateful to get that reminder because I was so caught up in, you know, rotations and qualifying exams and whatnot. I just couldn’t think about remembering to do this. So, just having somebody send a reminder was amazing. And then we did a lot of talking to each other to try to fill out the forms correctly. I think I was a few years into graduate school when I found your website and some of your tips, and I remember that being just amazing and just feeling like that’s something that was, you know, it’s complicated but once it’s laid out it is relatively simple. It is the type of information that the university could have given us that they never really did because they wanted to stay away from giving tax advice and they’re not a certified public accountant, and that type of thing. So, it felt like the students were on our own to try and figure it out.

09:17 Emily: Yeah, I think that again, while the universities don’t have again this legal requirement to issue tax forms that make sense, or whatever, I do think it’s really helpful when they try to address this as much as they’re able to. And I mean, I hear a lot of pushback when I work with uni–not a lot. Some places I hear pushback like, “Oh we really can’t, you know, give tax advice and so forth.” And I try to kind of make the point like, “Well, you on your own or me, like we could talk about this without it being advice.” Like we can just talk generally about how estimated tax works and what these different reporting things that are going on are. And that’s what I do like with my quarterly estimated tax workshop. Again, we’ll link it in the show notes. And so, a lot of times universities contract with me to provide that because they feel like that shifts some liability off of them and onto me and they’re more comfortable with that.

10:07 Emily: But again, just giving a little bit of education and some reminders and tips and so forth is not, to me, giving advice, because really it is ultimately up to the individual to figure this out. Like I’m not sitting down with anyone filling out their forms, like they’re still doing that on their own. I’m just providing guidance on how to do so. So, I guess this is kind of turning into an ad but like if the listener <laugh>, if you listeners are on fellowship and you want your university to help you, tell them about what I offer, because they may feel more comfortable working with me then doing this, you know, with an internal employee who, you know, might expose them to some liability.

Added Hardship of Inconsistent Tax Reporting

10:41 Emily: Okay. Estimated tax and reporting stuff, all a difficulty of being on fellowship. Anything more you’d like to add about that? Or should we move on to a new talking point?

10:52 Jamie: I just thought it, you know, in addition to kind of the confusion, it can sometimes cause real hardship. Like for me for instance, I didn’t receive a 1099 for my final chunk of teaching that I did in my like final year as a graduate student. And so, in between doing that teaching and like the spring and into summer semester, I got a postdoc. I moved across the country, I had started a whole new tax, you know, qualification as an employee there. And then when it came time to do taxes, I honestly completely forgot about the money I had gotten paid in the previous spring. Because I never received any kind of 1099, any kind of documentation, and I just didn’t pay taxes on it. And I think I like woke up in the middle of the night sometime like three months later and went like, “Oh my god, I made like thousands of dollars <laugh> that I didn’t pay any taxes on.” And then like on my own, I had to then figure out how to adjust my taxes. I had to pay a penalty for the amount that I, you know, had failed to pay previously. And at the time, like I had just spent all of this money to move cross country. I was making a postdoc salary. Like I really didn’t need to be paying any extra penalties on my taxes for that type of thing.

Potential Changes at the University Level

12:04 Emily: Absolutely. I mean, good for you for doing the amended return and everything, because I know some people will just kind of let it go after that point. But you really don’t want to let it go like multiple years and then have the IRS, I mean I know it’s rare, but it can happen that they can come after you, and then it’s an even bigger problem. So, good that you took care of it. But I think kind of what we’re saying here is just like communication, <laugh> communication is helpful around this topic. So, we’ve talked about this problem, various problems related to taxes. What are some things that could change at the university level, state level, federal level, whatever it is, to alleviate these problems?

12:41 Jamie: I mean at the university level, my understanding is that even if you’re not an employee, the university can still give you a 1099 for the money that you’ve made, and that universities, as far as I know, kind of choose whether or not to go through that step and send out those 1099s. So, I think that’s a major thing that just having a very clear document makes filing your taxes easier. You know, that’s something that like TurboTax and similar basic tax filing software knows how to work with. So, I think that would make a huge difference for a lot of students.

13:12 Emily: So, I actually did experience this during graduate school, so I’ve had a couple periods of my life where I was on fellowship. But when I was at Duke, Duke actually did manage to withhold income tax on behalf of at least me. I don’t know if every type of fellowship it was available, but at least for me, about half my years I was on this like non-employee kind of income. So, they were able to withhold on my behalf, and they did issue a 1099-MISC (Miscellaneous) at year’s end. So, that helps with like the problem you just identified of like, you know, a year and a half goes by and you’ve forgotten about some chunk of your income. Yes, that does help with that problem. The issue that it causes <laugh> is that the 1099 is most widely recognized as a self-employment income kind of document.

13:59 Emily: And so, then there’s, I feel like there’s even more burden on the recipient to properly communicate what this is with their tax software or their tax preparer. So, if they know to do that and they know that they’re not supposed to pay self-employment tax on this income, then it can work out. As a reporting document, it’s okay, but I would say, you know, nine times out of 10, people don’t know that it’s not self-employment income or maybe they know that, but they don’t know how to communicate that. And they don’t check that, they don’t understand how it’s going to affect their return. Anyway, so it can cause an even bigger mess. So like, I hesitate to say that that is the best solution. I mean really to me, I would say the 1098-T is the best form that we have as of now.

Reflections on an Adjusted 1098-T and Streamlined Tax Reporting

14:50 Emily: Although I would love it if there was just an adjusted 1098-T or a different kind of form that really could fully reflect the fellowship like situation. Because again, the 1098-T, while it’s used by many universities, they’re not required to issue one if you have more of this box five grant income than you do box one, like the educational expenses and charges. So, if they would just issue it all the time, I think that would be helpful. But even going beyond that, like this is now like a federal level kind of thing. Like if there were a different form or the 1098-T itself were somehow different, that would be even more clear.

15:26 Jamie: Totally. Yeah. Yeah, and I know anecdotally, I eventually switched over from like the TurboTax software to I think FreeTaxUSA that has a great little box to check that said you know, is this income, are you like, are you a graduate student or postoc rather than an undergraduate? Because I think it’s typically with that 1098-T where they’re trying to like not take out taxes on the portion that you’ve used to cover scholarly expenses, which applies to like an undergraduate who’s receiving, you know, tuition reimbursement, but not to a graduate student. So, I could imagine at the federal level, you could create a little box like that on the 1098-T, right? To check here if this is a graduate or postdoctoral level fellowship, right? Or check here if this money is not being used to cover tuition and scholarly expenses. It would be nice.

16:20 Emily: I think this is both like maybe a reporting option at the federal level, but also it comes down to the university level and how, like which department is the one that’s like processing these paychecks. And you are, like saying how you did about your various different incomes from Harvard, that indicates to me that like maybe payroll was issuing some of this, maybe financial aid was issuing some of this. And like having these different siloed departments separated from one another communication-wise means that things are not streamlined and you get different types of forms and maybe for you, maybe you were on different pay schedules for, you know, different sources. Yeah. So, having like a single department that handles like all, you know, income for graduate students and postdocs, whether it is payroll income for employees, whether it is, you know, non-employee income, that might help. I don’t know, maybe that’ll cause other problems too, but like right now, again, the universities are not really set up to handle this in a streamlined, or at least, I don’t want to say broadly. Some universities are not set up to handle this in a streamlined manner. Maybe others have it a little more figured out. I don’t know.

17:23 Jamie: I know actually when I got paid at UC Berkeley, it was more like that. So there, I was eventually on a fellowship as well, but I received one paycheck per month. And it was kind of interesting because, you know, I would receive my lump monthly salary or stipend from the fellowship, but only a little portion of that would get taxed. So, there would be like a little tiny bit of tax taken out, and then the rest of it was untaxed. But it at least came to me on like one single paycheck where it was very clear how much tax had been withheld, and then I could run the numbers when it came time to pay the estimated taxes on the rest.

17:59 Emily: So, it sounds like you were still receiving a pay stub. Even though a portion of this is employee. Yeah, that’s perfect. I mean, I kind of always tell people who are employees like, “Okay, look at your last pay stub, even before you receive your tax forms. Look at your last pay stub.” Maybe you have to access it through your payroll system or whatever, but you can find out how much tax was withheld. But again, those pay stubs are not generated usually if you’re a non-employee. But it sounds like Berkeley has this figured out, so I’m really happy to hear that. I would, yeah, I would love to be able to come up with like, I don’t know best practices, like which universities are using the best practices. So like, Duke has something figured out over here, Berkeley has something figured out over here. Like, I don’t know, maybe there’s a way to again, promulgate these best practices among these different universities and financial whatever, backend stuff.

18:44 Jamie: Yeah, and you know, I think great groups to kind of connect to for that are unions. Within the UC system, we have a strong postdoc union. And I think they had done a lot of pushing, you know, both on how much you get paid, but also a lot of these minute policies about how you get paid. And so I wouldn’t be surprised if the more streamlined system came about because of pressure from the union. And I’d be interested to know what other, you know, grad student unions and postdoc unions are where they’re having successes.

19:13 Emily: Yeah, I’m super glad to hear that. Exactly. Like sort of giving a voice to these, well, you might not know, but the downstream effect of this like decision that you’ve made, the way you’ve set up the system is it’s causing these problems.

Commercial

19:28 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 US 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.

20:43 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.

Advocacy Avenues for Grad Students and Postdocs

21:28 Emily: The last kind of question in this area, and you just mentioned one of the advocacy avenues: unions. Can you think of any other advocacy avenues that graduate students and postdocs might be able to use to make these kinds of changes that we’re talking about?

21:45 Jamie: I mean, even outside of a formal union, I’ve seen a lot of success from graduate students and postdocs just banding together and working together on these things. Whether that is kind of peer-to-peer advice and providing resources, or working together as a group to request something from your department, from your university. You know, I have so many memories of like trying to do my taxes, trying to fill in the forms, and getting like frustrated and upset and not knowing what to do. And I think like you have peers who can help you through some of those things and at least to help you feel supported.

22:25 Emily: Now, I don’t know exactly what avenue this is, but I have noticed over the years that I’ve been studying federal taxes for, you know, as in how they affect graduate students and postdocs, that there have been changes. The 1098-T has gone through actually a big remodel in the last few years. The Kiddie Tax went through a slight change with the Tax Cuts and Jobs Act. So, there have been other changes that have been made that makes me realize that changes possible. Now, I don’t know what the avenue is for letting someone know, <laugh> that you want a change to happen. Maybe it’s contacting your representative or your senator or whatever. We can talk about some of the advocacy around like retirement stuff that happened a few years ago in a moment, but the change can happen. I’m just not clear exactly how you communicate, you know, this advocacy at the federal level.

23:09 Jamie: Yeah, that’s a good question. I mean, I know I’ve been on like the IRS website looking for like from their resources, like what is their advice for people in these situations. And what I found was only a few lines, right? Like not a lot of detail. So, I would love to see, you know, coming directly from the IRS some more clear advice around these types of situations. And I do know that government agencies put out things like RFIs, requests for information, and they do have various sort of feedback channels, so trying to find those for the IRS or for your state tax departments could be one way to go about it.

(No) Access to University Retirement Accounts

23:48 Emily: Okay. Future project for me. Okay, well I just alluded to retirement accounts, so let’s talk about that next. What’s been your experience with being offered or not being offered access to university retirement accounts?

24:01 Jamie: Sure. So, as a graduate student, I didn’t have any option for any kind of retirement account. And my understanding was that from legal sort of tax reporting purposes, I wasn’t able to open an official retirement account. So, in graduate school I was making like just enough money to save up a little bit and I did start buying like some mutual funds with that. And then as a postdoc, I did have a retirement account offered. However, I started out by like not really contributing very much to it at all because I was living in this really high cost-of-living area with not a lot of income. And then I actually found out as I was going through the fellowship application process that I was going to be losing that retirement contribution once I got a fellowship coming in. So then I sort of, at the last minute just before my fellowship came in, I like maxed out all my contributions as best as I could for like the last few months and tried to top it off. But then the fellowship came in and those accounts kind of sat stagnant for the rest of my postdoc. So, that was a frustrating thing to see. And it’s definitely been really nice now for a little more than a year I’ve been in, you know, a real job with very solid you know, federal government retirement accounts. So, that’s been nice to watch those finally like properly growing.

25:26 Emily: Yeah, it’s been my observation that if you’re not an employee, you do not have access to the 403(b) or 457. I actually don’t know why this is the case, but I’ve never seen an exception to it. Like yeah, I guess it has to do with like the rules behind what kinds of money can be contributed to a 401(k) or a 403(b), 457, these kinds of accounts. What I mentioned earlier, and you probably know this is, at the end of 2019 with the SECURE Act, there was a definitional change. So, 2019 and prior, fellowship-type income not reported on a W-2 was not permitted to be contributed to an IRA, an individual retirement arrangement. But that definition of what kind of money is allowed to be contributed to an IRA was changed by the SECURE Act.

26:18 Emily: And so 2020 and forward, you can contribute fellowship income not reported on a W-2, if you’re a graduate student or postdoc, to an individual retirement arrangement. I don’t know why a similar definition change could not occur for 403(b)s, 457s, et cetera. I just know that I’ve never seen it. I’ve never seen a non-employee be offered access to that particular benefit. Furthermore, at the graduate student level, it’s just very, very rare. Not totally unheard of, but rare, that a graduate student employee is offered access to those accounts. It does happen from time to time, but usually not. I’ve had a couple podcast episodes, and we’ll link in the show notes, where people have talked about as a graduate student contributing to those types of accounts. But again, it’s not common.

27:00 Jamie: I didn’t know actually about that change to the SECURE Act. Like I was still a postdoc in 2020 and I had had that IRA that I had opened like just before my fellowship started. But yeah, I definitely wasn’t contributing to it in 2020 and 2021. I had no idea that that was a possibility.

27:17 Emily: Yeah, I don’t think it was, I mean I talked about it a lot, but just like generally speaking, people make that assumption, right? That graduate students and postdocs are usually not able to contribute to a retirement account. So, why would we even have the conversation about whether they’re allowed to or not? Thankfully, someone was having the conversation because there was a change, right? Because I mean I remember that Senator Elizabeth Warren was a sponsor of this bill. There were other co-sponsors. It came up multiple times in the Senate and the House and it just never passed, multiple years, until it was rolled into the SECURE Act. There were a lot of other changes going on with how retirement accounts were being treated. So, it was kind of rolled into that and I’ll link in the show notes a couple of episodes we did right around that. But again, people make these rules. So, if people at the federal level decided that graduate student and postdoc non-employee income was legitimate in whatever, you know, little tax benefit they’re trying to offer, then it could become legitimate and maybe universities also would follow suit and start to offer that benefit. I actually don’t know why graduate students would be excluded from 403(b)s and 457s. Does it cost the university anything? Like a little more administrative burden to extend those benefits? I honestly don’t know why they wouldn’t for those students who can.

28:34 Jamie: Yeah, especially if it’s not a question of matching, if it’s just a question of contributing your own earnings into this account, right?

28:41 Emily: We can dream, Jamie, that there would ever be a match <laugh>. That’s a couple more steps down the road. No, some postdocs do receive matches or actually, I don’t know about you for being a postdoc in the UC system, but the UC system has a defined contribution level for their employees. I don’t know if it applies to postdocs, but in any case you might get that as an employee and then lose it if you, you know, then switch over to fellowship at a non-employee.

29:06 Jamie: Yeah, I believe in the UC system, I never got any kind of match, but I did have access to that 403(b) as well as I think a DCP.

29:15 Emily: Yeah.

“Non-Employee” Fellowship Income Legitimacy

29:16 Jamie: But yeah, I think it’s interesting that you describe it as like the legitimacy of being an employee and the legitimacy of that income. Because I often felt, you know, in addition to like the confusion and the frustration and wondering what to do that, I don’t know, it felt like an emotional hit. I felt unvalued when I’m put into this weird little category where my earnings don’t make sense and I can’t open an account and I can’t figure out how to pay taxes. I remember having like some really sharp juxtapositions between attending a professional conference and like giving a talk and talking to PIs in my field and having people really excited about the work that I was doing and then coming home a week or two later and trying to figure out some of my financial life and it being so confusing and seeing that there was just no support set up for it. And I went on this really kind of roller coaster from feeling like, “Oh, I’m a valued scientist and worker in this field,” down to like, “Oh, nobody really cares about me or the type of work that I’m doing.” So, I think it can have an emotional hit as well.

30:24 Emily: I’m so glad that you shared that. I think this is how we started our conversation at GCC actually, that fellowships and similar kinds of awards are supposed to be so prestigious.

30:35 Jamie: Exactly.

30:36 Emily: It’s supposed to be such an honor. It’s supposed to be based on your merit that you’ve received this. And yet the downstream effects are, well now you’ve been unclassified as an employee and your benefits are reduced. And I don’t know, maybe at some point in the past, the money made up for it. Like maybe you could make more as a fellow, which could make up for some of these issues. But I don’t know that that’s so much the case now. I was actually just seeing on Twitter today that like, you know, fellowship awards on certain grants are set at such a level that they’re below the minimums the universities have to pay their own graduate students and postdocs. So it’s like, well if you’re not even making more and the university has to make up some deficit in the award that you’re receiving, like what is the point of this when it has these negative implications later on?

31:27 Jamie: Yeah, absolutely. I mean I think the point for, well you know, it’s a point for your PI, right? It saves them some money out of their budget, and otherwise it’s a line on your resume. You got this prestigious award, congrats. Here’s some prestige. Right?

Inherent Value of a Fellowship

31:44 Emily: This almost reminds me of like, I don’t know, I’m thinking like crypto, like a currency. Like it only has value because we’ve decided it has value, it doesn’t have inherent value. If it came with more money that would be inherent value, but would it still be actually worth it? How much money would it take to make up for some of these deficits that we’re talking about?

32:04 Jamie: That’s a good question, yeah.

32:05 Emily: Right. So like, not only is it maybe the retirement stuff that we mentioned. Now on the tax front, you’re not necessarily paying more in taxes, it’s just more difficult. But I will say there are certain tax benefits I know at the federal level that you’re not eligible for if you have only this non-employee kind of income. So for example, the earned income tax credit, which is supposed to be for low-income individuals, usually with children, multiple children who are not making enough money, they have to have “earned income.” And under that definition, as of now, 2022, fellowship income is not considered earned income. So, you can’t get the earned income tax credit. You also can’t get the child and dependent care tax credit, which was so valuable in 2021. It was massively increased in 2021. You can’t get it if, let’s say even if you’re married to someone else, let’s say I ran into this situation literally I had a question from this married couple, both postdoc fellows, could not take this tax benefit because they did not have earned income under the definition. Now, graduate students can take it because students have an exception. But postdocs, everybody forgets about the postdocs!

33:08 Jamie: Everybody forgets the postdocs, it’s true!

33:11 Emily: Postdocs don’t have this exception <Laugh>. Everybody forgets that postdocs exist and yet for some, in some career paths, you can spend just as much time as a postdoc as you will as a graduate student, maybe even if not more. It’s a very important life stage. There’s family formation going on, and yet they’re excluded from some of these benefits. And like we were just saying, it comes back to is this fellowship income considered earned income? And that term earned income is used all over the tax code or the way the tax code is interpreted. Now, it used to be used for retirement account contributions, then the term was changed, taxable compensation, then the definition of taxable compensation was changed to include fellowship income. So, why can’t this term earned income be changed to include this type of income? I think this brings up a bigger, even bigger, bigger question though, which is like what is earned income?

Earned Income: Great Expectations

34:04 Emily: What is the responsibility that you have when you receive this non-employee income? What’s the responsibility that your employer has to you or your non-employer has to you? What’s the responsibility you have to your non-employer? So, if you’re an employee, you’re expected to work and produce certain outputs, whether it’s teaching, research, whatever. If you’re receiving a fellowship, it’s much less clear what the outputs are supposed to be. You have to have outputs to continue to be on the fellowship. But what are they exactly? And I think that lack of definition is what’s going into this earned income, not, you know, fellowship income not being considered earned income.

34:39 Jamie: Yeah, no, I think you’re right about that and I think that’s how this ties into kind of bigger labor questions, right? About our graduate students. Should they be classified as employees? Are they workers or are they students? And these are, you know, big things that have big implications across the U.S. and especially for universities on not just tax status but on a lot of things about how academics do their work and how academics get paid.

35:08 Emily: I’m so thankful for this conversation because it’s really like stretching me to think about these like bigger issues exactly as you were just saying. Whether we’re on fellowship or whether we’re employees, is there actually a difference there? Why are these differences encoded at the university level, at the federal level, state level, if they don’t have much meaning to us at the functional day-to-day, month-to-month, year-to-year. I know I mentioned earlier about half my time as a graduate student was spent as an employee, half as a non-employee. Functionally, what is the difference between what I was doing one year versus another year? It felt all pretty much the same to me.

35:45 Jamie: Yeah, and I think I remember it being sold to me as if you receive a fellowship, you have more independence from your PI because you’re bringing in your own money so you can be more independent in, you know, what experiments you do or how you drive your project. But in actual experience of my own or talking to other people, their level of independence was really just dependent on their PI and how that PI ran their lab. And I didn’t know anyone who was able to be more empowered because they had the fellowship or were able to push back on PI demands because of the fellowship.

36:22 Emily: I did see people who received fellowships be able to switch labs when possibly that wouldn’t have been the case otherwise. They were more attractive to that PI like accepting them. And they could, you know, take some time to get up to speed or whatever, again, without some maybe output expectations of being on a different kind of grant or whatnot. But I think you’re right, you know, we’re both kind of speaking coming from like the biological sciences kind of research. There’s so much overhead, there’s so much cost to that. How much money is the student really bringing in versus how much is their research overall costing the PI and the university? And so, if that ratio is not that great in the student’s favor, I don’t think there’s much independence that they can advocate for. Now, if your cost of doing research is like pretty much only your salary if you don’t have those kinds of overhead from doing like wet lab experiments and so forth, then maybe there’s a better argument here about independence from the PI. And I think in the humanities fields, some of them, at any rate, my understanding from talking with people is that like they have a lot more independence anyway in their research questions. And so a fellowship could be even more in that direction. But, yeah, I do think this is very, very field dependent.

37:32 Jamie: Yeah, I think that makes a lot of sense.

Future of Research

37:35 Emily: Well, this conversation has been so invigorating. Is there anything else that you want to share about your experiences or your observations or advocacy avenues that we can encourage listeners to take?

37:46 Jamie: I mean, I always love to tell people to check out the organization Future of Research. I used to serve on their board of directors and it’s a really great non-profit that kind of helps students and postdocs come together and crowdsource information and advocacy plans and push the field of research forward from the point of view of these early-career folks.

38:08 Emily: Excellent. And we will link in the show notes an interview that I did with Dr. Gary McDowell, the former director of Future of Research where we talked about post-doc salaries and post-doc work environments and how to, you know, choose a supportive PI and these kinds of questions. That’s excellent. Well, Jamie, I’m so glad that we got this interview out on the podcast that it didn’t just have to stay in the halls of the GFF conference, but that’s where great ideas are born with these like mixings and so forth and it was great to meet you in person and yeah, to be able to record this for the podcast listeners. So, thank you so much for coming on!

38:44 Jamie: Thanks, it was wonderful talking to you!

Outtro

38:51 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 Fellow Resolved an Expensive Tax Bill in His Favor

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In this episode, Emily interviews Matty Dowd, a sixth-year PhD student in history at Princeton. Matty openly shares with us the tax horror story he lived for most of 2021 and into 2022. In 2018 and 2019, Matty reported his fellowship income as “other income” on his tax returns, which caused the IRS to mistakenly think that he owed self-employment tax. To compound the issue, the IRS’s snail mail communications never reached him. By the time Matty realized what was going on, the IRS thought he owed $16,000 in back taxes, penalties and interest. Matty reached out to multiple sources to help him resolve this, but ultimately used Emily’s workshop, How to Complete Your Grad Student Tax Return (and Understand It, Too!), to explain to the IRS what had gone awry and have the issue resolved in his favor. It’s a harrowing story with a happy ending! You won’t want to miss Matty’s ending thoughts on the most effective way to approach tax and financial education.

Links Mentioned in the Episode

Image for S14E2: How This Grad Student Fellow Resolved an Expensive Tax Bill in His Favor

Teaser

00:00 Matty: I’ll be very honest and upfront to the point where it may be a little bit embarrassing for me, looking back at how I handled this throughout these years.

Introduction

00:14 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 2, and today my guest is Matty Dowd, who at the time of the recording was a fifth-year PhD student in history at Princeton. Matty openly shares with us the tax horror story that he lived for most of 2021 and into 2022. In 2018 and 2019, Matty reported his fellowship income as “other income” on his tax returns, which caused the IRS to mistakenly think that he owed self-employment tax. To compound the issue, the IRS’s snail mail communications never reached him. By the time Matty realized what was going on, the IRS thought he owed $16,000 in back taxes, penalties, and interest. Matty reached out to multiple sources to help him resolve this but ultimately used my workshop, How to Complete Your Grad Student Tax Return (and Understand It, Too!), to explain to the IRS what had gone awry and have the issue resolved in his favor. It’s a harrowing story with a happy ending! You won’t want to miss Matty’s ending thoughts on the most effective way to approach tax and financial education.

01:55 Emily: If you would like to sign up for the tax workshop Matty and I discuss during this interview or one of the sister workshops for postdocs or nonresidents, you can find everything linked from the Tax Center of my website, PFforPhDs.com/tax/. The first live Q&A call for this tax season will take place this Thursday, January 26, 2023. So, if you plan to file your tax return in January, I highly recommend joining the workshop now so you’re prepared with your questions by Thursday. You can find the show notes for this episode at PFforPhDs.com/s14e2/. As ever nothing you hear on this podcast should be considered tax, financial, or legal advice for any individual. Without further ado, here’s my interview with Matty Dowd.

Will You Please Introduce Yourself Further?

02:52 Emily: On today’s episode, we are going to talk about one of my favorite subjects, which is taxes, but we do not have such a cheerful story. My guest today is Matty Dowd. He’s a fifth-year graduate student at Princeton in history. And he’s going to be telling us about a tax debacle <laugh> that he walked into a few years back, and that has taken a few years to unravel. So, it’s going to be a really like involved story. But for those of you who are confused about taxes or worried about taxes, <laugh>, this might be a really great episode to listen to and to share because a lot of people make the same kinds of mistakes that Matty did, and they get amplified and he’ll tell us how to resolve it or at least how he resolved it. So, really, really glad to have you on, Matty. Would you please introduce yourself a little bit further for the listeners?

03:36 Matty: Sure. Thank you for having me on! It’s great to be here. Yeah, so my name’s Matty. I’m a fifth-year PhD student, as was said. I studied at Tufts University for undergraduate and then did a master’s at the University of Paris. So, I went kind of straight through in the academic path, which may or may not be relevant to the later <laugh> discussion. And then I also worked a bit on the side and kind of continued to have over the past several years a mixture of like hobbies and other small jobs, translating, working as a resident assistant as a tour guide, playing piano at churches, tutoring, and that kind of thing. So, sort of supplementing my income with other hobbies slash skills that were somewhat related maybe to my interests.

Funding and Tax Preparation 2018-2019

04:23 Emily: Well, Matty, I’m really pleased that you’ve joined us because you’re going to share a tough story with us, but I know it’s going to be really beneficial to a lot of people. So, just for listeners’ notes, we are recording this in April, 2022. I’m planning to publish this in early 2023, but we are talking about events that started back in 2018, I believe. And so, Matty, tell us like for tax years 2018, and then I think you did the same thing again in 2019: How were you funded during those years? And like how did you prepare your tax return in those years?

04:56 Matty: Sure. So, in 2018 and 2019, I was on a university fellowship, so through my university, through Princeton. And in part of 2019 I was on what was called an assistantship, which was a bit different because I was a teaching assistant or a preceptor as we call them there. So, there was a W-2 tax form generated for this income, the assistantship income, that is. Whereas for the general university fellowship, there was no tax withholding, there was no W-2 form. And I also earned some side income in some of those other hobbies I referenced at the time. So, that was what comprised my income during those years.

05:35 Emily: So, I understand there was no tax withholding on the, what I call this awarded income, this like non-W-2 fellowship/stipend/training grant. There are different words for it, but I call it awarded income if it’s not reported on a W-2. You said that there was not any tax withholding, but did it show up anywhere? Did it show up on a 1098-T? Did it show up on a 1099? Anywhere?

05:54 Matty: Nowhere.

05:55 Emily: Okay. So, no tax reporting whatsoever. This is actually a pretty common approach, and it’s frustrating, but anyway, go on. How did you prepare your tax return?

06:05 Matty: <Laugh>, I should maybe say quickly before I say this kind of in general about this story, I’ll be very honest and upfront to the point where it may be a little bit embarrassing <laugh> for me, looking back at how I handled this throughout these years. But anyway, so here it goes.

06:21 Emily: The listeners are with you, don’t worry. A lot of people are in the same situation. I was, too, when I was early on in grad school.

06:29 Matty: Alright. So, I prepared the tax return myself primarily during these years using online software that was sort of available, like file your taxes, free filing, et cetera. I also didn’t pay estimated quarterly taxes during these years, even though I should have. And so, I essentially treated this, I used the filing software to kind of generate a lump sum number for the awarded income that I would then pay around the time I filed my taxes. So, obviously, this was not the right way to do this for a number of reasons, but it’s what I did for 2018, for 2019, and what I was doing for 2020 until I realized that there was a problem. And the last thing I’ll say about this is that I reported, and this will get into what the bigger problem was, that I reported my fellowship income as other income on the tax return. And so, this is what was going to lead to big problems for me down the road.

07:28 Emily: I have to say, Matty, that I did the exact same thing when I was in my first few years of graduate school. My university, Duke, does things a little bit differently because at that time they did withhold income tax from my awarded income stipend. But they issued a form 1099-miscellaneous [MISC] with Box 3 income. And so, if you look at like the instructions, like you didn’t get instructions right because you didn’t get a form. So, good on you for even like knowing that this was even taxable income. So, actually you did something right from the beginning, which was reporting it <laugh> even though you reported it slightly incorrectly. Like if you look at the instructions for what I was dealing with, it says report it as other income if it’s not self-employment income, which this wasn’t. So, I did that. And it turns out that was wrong. For me, it didn’t get caught in the same way that yours did probably because of how it was reported. So, I didn’t have the same outcome, but I started down the same path that you did. So, you are definitely not alone. I still talk to people to this day who have read my materials and are asking me, do I report this as other income? The answer is no, and we will see why.

IRS Notices During COVID

08:30 Emily: Okay. So, you know, you sort of mentioned that you figured out when you are going to file your 2020 tax returns, so that’s early 2021, right? That, you know, these errors had gone on. But let’s back it up and talk about what was happening from the IRS’s perspective. So, the IRS receives your 2018 year, 2019 returns, they see this other income. What are they thinking, and what are they trying to do to reach out to you?

08:53 Matty: So, the IRS is beginning to send me notices from, I guess it was around actually the summer of 2020, that the IRS began sending notices about my 2018 tax year. And, the thing was, I received none of the notices. This was also going to be a big part of the story. The reason for that, there are really two reasons. The first is that I had moved out of my Princeton graduate apartment abruptly at the start of COVID in March of 2020. And so, I was living in Massachusetts with my family, my sister, and her fiance, just kind of waiting out early COVID, not sure what was going to happen. I didn’t think to change my address on file with the IRS at that time, which in my slight defense I think was a reasonable thing to not think of.

09:45 Matty: The second problem though, which also gets back to another important part of why those tax filing softwares aren’t great if you don’t use them in the right way, is that the IRS didn’t even have my correct apartment number because I had typed it in correctly on the website, which I was able to go back and check, but that website generates a 1040 tax return form, which I didn’t look at before I submitted it and it cut off my apartment number. So, it said I lived at apartment 40 and not 405. So, even though after I left Princeton, I had, you know, set up a mail service through the USPS, who I don’t even know if that worked <laugh> to forward mail at home. And had I been at Princeton, you know, I know the building manager, they may have seen the letter and kept it aside for me, but in any case, not having the right address on my file did no benefits for me as the situation went on.

10:41 Matty: So, basically, yeah, from the IRS perspective, I didn’t respond to months of deficiency notices regarding 2018. And so eventually after not hearing from me, they just assessed a bill on my IRS online account for basically $7,500 in underpayments, penalties, and then fees, interest rather, associated with the non-paid taxes, which I didn’t discover until preparing my 2020 tax return in May of 2021 because it was a bit delayed during that year. Because of COVID, you could do it in May. And I saw this charge on my online account and obviously was very thrown off and surprised by that.

11:23 Emily: Okay, so in a second, I want to get to why this massive charge existed because again, you had paid what you thought was your income tax, you know, or in those earlier years. But first, I just want to take a little sidebar to tell you that I had a very similar experience with the Virginia Department of Taxation. So, state-level taxes. I moved from Virginia to North Carolina when I started graduate school. So, I was like a part-year resident in each state for that year. And for whatever reason in the next year, Virginia decided that I owed them income tax even though I was paying tax in North Carolina. And I had been a part-year resident the year before, which they supposedly should have known, but they could not track me down because I had moved multiple times near graduate school. I did not set up mail forwarding, which you were like, that’s great that you even thought of it.

12:10 Emily: I did not do that. I also got married and I changed my name. So like, they could not find me to like assess me what they thought was their tax bill. So, ultimately, that bill went to collections and I like freaked out when, this was like years later, they finally sent to collections. The collections agency immediately found me because guess what? They use things like your phone number, which the IRS does not do. The IRS will strictly only use mailing addresses. And so, anyway, the collections company found me and I was able to quickly figure out that this was just a completely like fabricated bill. Like I had no responsibility for this, and it was very easy to get it cleared up, but it really freaked me out when it happened because like, I’m supposed to be like this responsible financial person and I’m like sent to collections over something.

Incorrect Characterization of Fellowship Income

12:51 Emily: Like it’s really, anyway, I just think it’s not great that in the, you know, era that we’re in with all these other modes of communication that we have that they still rely on physical mailing addresses, but they do. That’s the policy. So, you know, we have to deal with it. So like, good on you for setting up mail forwarding <laugh>. Too bad that the address was actually wrong and blah, blah, blah, all these other problems. So, that’s my sidebar. What I want to ask you about though is, so why did the IRS think that you owed this massive tax bill?

13:19 Matty: So, this goes back to how I had characterized the fellowship income. So, actually in reality there were a few problems with the tax return for 2018, even apart from the address. But the major one, and the thing that I think raised the attention of the IRS, was the fact that I had reported this as other income, which they thought that I needed to pay self-employment taxes on. And this self-employment tax assessment was not a part of the number, the lump sum number I generated from those filing tax softwares. That was something separate that I was going to have to figure out on my own. And so, this is what led them to send the initial deficiency notice, which again, I didn’t receive, but based on the kind of the timeline, I think I figured out, would’ve come in the summer of 2020 to Princeton, with an underpayment of about $5,500 that they thought that I owed in self-employment and hadn’t paid.

14:17 Matty: And then the penalty, which was in part a function of by how much I’d underpaid, I would think it was an $1,100 penalty because I had underpaid by over $5,000 and then interest on that. So, that’s what they were really after. And if I can just add, so I’ve sort of referenced this already, but I realized I had, you know, this was after I had filed taxes for 2019, a long time before. So I knew I had the same problem for that income that I had done in the same way. And I guess we’ll maybe get into this in the next question, I don’t want to jump ahead, but just to say the low point was that in June of 2021, I started receiving notices about the 2019 tax year for about the same amount. So at one point, the Internal Revenue Service thought that I owed them about $16,000 between taxes, penalties and interest. So, that was kind of the low moment, but yeah, I hope I didn’t anticipate <laugh> your later questions there.

15:23 Emily: No, that’s horrifying for a grad student, that’s what, like 50% ish of your income for the year?

15:30 Matty: Yes.

Did You Know This Was a Mistake?

15:31 Emily: So, was there ever a point that you thought maybe they were right? Or did you know from the beginning that this was a mistake?

15:38 Matty: So, I didn’t know from the beginning that this was a mistake because I didn’t really understand how this works. I didn’t have the vocabulary to understand it. This also maybe gets into a bit where I found your site helpful and maybe I’ll say a bit more about that in a minute, but it was not really understanding it. And so this week in May of 2021, as I’m realizing that I have this charge from 2018, I’m preparing the 2020 tax return, wondering what went wrong and how to do things the right way, that I began to realize about this sort of other income question about really the specific nature of how to manage these sort of awarded income from university fellowships that don’t generate any documentation associated with them. What I will say is that I did very early in the process reach out first to my parents and then to my parents’ accountant who was, I’m sure that she’s very competent, was very nice, but didn’t have experience with this and actually thought that I did owe them that money.

16:44 Matty: And so, I was actually encouraged by a tax professional to pay the money, and then she was going help me draft a letter to try to get the penalties minimized because it was my first mistake. But around the same time I’m reading the IRS site, I’m finding your website, Emily, and even though I feel like am I being too, you know, is this hubristic of me to think that I know more than the tax professional, but I really sensed that no, this really was a mistake in how I characterized the income. I don’t actually owe it. But it was an open question for a few days whether I was right or not. And then obviously a separate question as to whether the IRS was actually going to agree that I was right or not.

17:26 Emily: Absolutely. I think it is so hard for graduate students and postdocs and anybody with this like weird academic income, as you said, to kind of like challenge or like stand up to or like correct someone who you’re paying <laugh> to help you with this process. Like who’s supposed to be an expert, but like, yeah, the fact is that they may not deal with these types of taxes very often. They may like, whatever, like you said, they’re very nice. They’re probably very competent in many areas. Like for example, small business taxes is probably what she’s much more familiar with than fellowship income. And so she was going down a route of like, oh yeah, this was self-employment income and oh yeah, these are correct, you know, charges, but like we can get the penalty blah blah. That’s a fine thing if like, the whole thing was right from the beginning, but it wasn’t. So, I would love to hear more about how you like discovered and then worked with the IRS, like to clarify for them that this was actually fellowship income that you should have never even thought to report as like other income that, you know, we just went off the rails from the start with that reporting like type.

18:28 Matty: Yeah. Yeah. So, what I was able to find out right away once I saw the charge on my account online was I could download the transcripts and records of accounts from 2018. Because remember at this point I still had received no notices about it. This is just me logging on very casually one night in May of 2021 to see if I got a stimulus payment in 2020 that I had missed. So, that 2018 tax record or record of account and transcript, which you can I think normally download from past tax years, helped me to see what was actually at issue and to see why the IRS had labeled what they had as penalties. What I then did, the good piece of advice I got from the accountant was to call the IRS either late in the day or early in the morning to try to get through and talk to someone, which I did.

19:23 Matty: And for anyone who’s called the IRS, and I would do this many times over the succeeding several months, it’s quite an experience. You know, sometimes you get people who are very helpful and knowledgeable, sometimes you don’t. Sometimes it takes a long time. Again, I was still at the stage where I was learning about this and like figuring it out. And so again, it’s difficult sometimes you don’t understand what people are telling back to you. But eventually what happened through a few phone calls in the days after I made the initial discovery was I talked to an IRS agent who basically told me that I could fax, he gave me a fax number, and said I could fax an explanation of my situation to what he called the reconsideration department, which sounded like 1984, kind of scary style instructions. But that was the first time that I talked to someone where there was a kind of glimmer of, okay, maybe there is going to be some potential light at the end of this tunnel.

20:24 Matty: So it was, in talking to those agents, I came to realize a number of the mistakes, which I’ve already communicated to you and began to see a way out of beginning to resolve the 2018 tax issue. I was also though a bit uncertain whether I should also talk to them about 2019, if that would just be confusing. Was that going to be bad for me in some way? I was almost treating it as though, I mean, I don’t have much experience like with lawyers or with like a criminal case or something, but as though I didn’t really know how to best talk to the IRS about some of these issues. And yeah, but I guess that first piece of advice was the beginning of the rest of the story.

Commercial

21:11 Emily: Emily here for a brief interlude! Tax season is about to start heating up, 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 three tax return preparation workshops for tax year 2022, one for grad students who are U.S. citizens or residents, one for postdocs who are U.S. citizens or residents, and one for grad students and postdocs who are non-residents.

22:19 Emily: 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. 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.

Helpful Advice: Finding the PF for PhDs Tax Workshop

23:20 Emily: So, let’s continue then. So, how did you ultimately figure out that, you know, you should have explicitly communicated this as being fellowship income, and that that miscommunication was at the root of all these other issues?

23:34 Matty: So, I think this is really where your website and especially your workshop on the, I forget the specific title, like filing a grad student tax return and understand it too. Something like that.

23:47 Emily: Yeah, it’s How to Complete your Grad Student Tax Return (and Understand It, Too!). If anyone wants to find it, you can go to PFforPhDs.com/taxworkshop. I will have the 2022, presumably, version of that available by the time this comes out. So, yes, go on.

24:03 Matty: Yeah, so I, you know, I think I had maybe found on the IRS website some information about this as I was looking around, but the clearest statement of and the most focused advice for graduate students in the situation that I was facing at least, I mean, not so much, you know, when you’re two years behind the ball and facing what I was facing with the IRS, but with just filing a tax return in general–because I still needed to do the 2020 one at that time–was through your website. And so that’s, I think when it became clearest to me about this other income that this was what sort of my problem had been and finding the steps that I would need to do in order to to do the 2020 return, right?

24:56 Matty: And then also in the communications that I was to have with the IRS, by faxing them info about 2018, how I should sort of write my statement explaining what had happened. So, I think that workshop was, I mean, it was helpful on its face for just filing a sort of a normal tax return and understanding what you’re doing, but it also helped me to find the words to explain to the IRS in writing and then, which I also then backed up with other documentation that I faxed along with it, related to the 2018 issue.

25:32 Emily: So, it is interesting to me that you found the workshop. And as you said, the workshop is great for like preparing your this year’s current year’s tax return. It’s not designed to like ameliorate past issues, as you said, I’m <laugh> I’ll actually link in the show notes. It sounds like you maybe didn’t find this through a Google search, but my old personal finance website, which is evolvingpf.com, I actually published a couple of posts from people who had been in your exact same situation. They had reported their fellowship income as other income, the IRS thought it was self-employment, and I actually published their accounts as well, like we’re doing here on the podcast, of how they fixed the issue. And like even they included the text of the letter that they sent to the IRS. Would you actually be willing to share like an anonymized version of the letter that you sent, or is that too much information?

26:20 Matty: No, no. Yeah, I’d be willing to do that.

26:22 Emily: Okay. So, we’ll set that up in the show notes. So, by the time this is published, we’ll have that all ready to go. So anybody else who finds this podcast episode later and is in the same situation, can at least not have to repeat all this research that you did and like have sort of a model to go off of, as you said, to have even the language to explain to the IRS. It’s funny because when you’re filing a fresh tax return, you can just sort of report your taxable fellowship number on your tax return, and the IRS you know, in whatever, 99.999 cases is not going to come back to you and say, “Wait, was this really fellowship income? Blah, blah, blah.” But once you go down your route of you have misreported in some way and they’re suspicious about it, then you have to back it up with documentation. Like you probably sent in your award letter, I would imagine, that like uses the word fellowship. Yeah, go ahead and talk about that.

27:04 Matty: Yeah, yeah, no, so I did, I mean again, at that stage too, I was just trying to gather as much information that would be potentially helpful or would, you know, show that I was kind of legit in the case that I was making. So, I probably sent way more than they <laugh> needed or cared to look at. But I think I did include the award letter and then even maybe like, not a pay stub, but some kind of like summary of, you know, year-end summary that showed at least that I was receiving income from Princeton University as a PhD student. Yeah.

Patiently Waiting for 2018 Tax Year Resolution

27:47 Emily: Yeah. And so, did all of that like fix the issue? I understand this took several months, played out, but like this ultimately was effective. Yes. So like what was the final outcome?

27:56 Matty: Yeah, so actually maybe first, let me just say, so this was all, that initial fax was all about the 2018 tax year. But meanwhile, I knew I had this 2019 problem. I felt good about the 2020 return that I was doing, because again, I had used your website and your workshop and felt like I knew what I was doing for the first time. But for 2019, in speaking with, I’d also reached out to someone at H&R Block, local to Princeton. And their advice was basically to file an amended return for 2019 to try to anticipate if the IRS is going to probably come after me for that year because they’ll think I made the same mistake, to anticipate that by filing an amended return. That was one advice. The second piece of advice was then for me to figure out if I thought I owed anything to the IRS from those years to pay it as basically right away or as soon as I could.

28:56 Matty: And so, I did both of those things for 2018 and for 2019 and, in fact, I thought I calculated that I did underpay in fact, by a few hundred dollars. And so, paid that, basically. So, by the end of May or maybe early June, I was, from my perspective, totally paid up. I didn’t know what they were going to do in terms of penalties and how that was going to work. And then for 2019, I submitted an amended return, which you can follow online, how it’s being processed and you know, it’s supposed to take, I think six to eight weeks, and it was so delayed because of COVID. So, I never even got word that it was received. I was worrying, I sent it in by sort of USPS. I was worried I didn’t put enough stamps on the package.

29:43 Matty: Like just these kind of silly administrative things that hang over you as you wonder and hear nothing about it. But anyway, so at this point then I had 2018, all the faxed information, and then 2019, the amended return. And it’s pretty amazing. I sent all that in May, and I heard nothing from the IRS about the 2018 fax from May 12th until Valentine’s Day of 2022. So, nine months. I had heard every three months I would get a letter from them saying, “Hi, we’ve received your information, which was reassuring, but we’re very busy, we’ll get to it as soon as we can.” Meanwhile, though, so this is the reconsideration department. The collections department is saying, “Hey, we’re going to file a lien or levy against your assets,” because from their perspective, this was a case open and closed, and I didn’t pay it, I didn’t challenge it, I didn’t respond.

30:35 Matty: So, they are not being as let’s say generous, that’s not the right word. Like the other side, the reconsideration department can take as much time as they need to process it. The collections department is not giving me that option, even as I explained to them what’s going on. But they’re saying, well, how do we know you have a legitimate case? Which from their perspective, it’s understandable why they would take that position. So, as this is playing out and I’m hearing nothing and just waiting, which is really the dominant part of the story, it’s the waiting in between this really frantic week in May until February to begin to hear stuff about anything actually occurring with my cases. It was being in touch with the collections department who actually I mean, they didn’t force me to, but I was highly encouraged to sign a payment agreement with them to agree to pay the 2018 taxes with the understanding that once they got to my case, if it turned out that I had, you know, paid them any more than I needed to, they would refund me the money.

31:44 Matty: And because I was nervous about what might happen, I mean, I don’t have a ton of assets <laugh>, I just didn’t know what was going to happen the longer that I was getting these sort of scary notices, final notices, and that they’re going to go after me. So, that was sort of a long-winded answer. But the major process was again, waiting, hoping the reconsideration department and amended tax return will be processed, and in the meantime, as the clock is ticking, beginning to get more notices about both years and about my needing to pay.

Agreeing to a 180-Day Payment Plan

32:18 Emily: So, ultimately, did you agree to a payment plan? Or did you hold out long enough that the reconsideration department got around to it?

32:25 Matty: So, I agreed to a 180-day, I guess I’ll be honest, I’m not entirely even sure how it was supposed to work. I agreed to, at the start of July of 2021, to a 180-day plan. And then at the end of that, I was then supposed to have made an agreement on how I was going to pay, which would include, you know, either a big lump sum or certain monthly payments. But when I made that agreement in July, I was thinking, okay, six months, like the reconsideration department is going to get it. I was so naive when I sent in that initial tax, I was like waiting the next day to get a phone call as though someone was just going to be there and call me. And so yeah, so July 1st, I do that. Six months, still not processed.

33:13 Matty: So, this is like right around Christmas now. So, I think the day after Christmas, I’m calling the IRS. Again, it’s intervening at all these different points throughout this last year of my life and making an agreement to pay them starting in February, $86 per month, until this thing is processed. Thankfully, the Valentine’s Day letter arrived and then it was in that letter where they made the adjustment to the taxes that I owed. And once they did that, the plan that I had agreed to pay was canceled, was sort of null. And yeah, so I received the February 14th letter, which reduces the tax burden by like $5,500, which is what I thought. It takes away the interest that I owed on that. It keeps, it doesn’t specify this, but it continues to say that I have like about $1,100 related to that tax year, which was the amount of the penalty.

34:11 Matty: So, I was wondering, okay, are they still keeping that penalty? Is that the right amount? Given that I didn’t underpay by as much as they thought. And so, I tried to get in touch with them over the phone, impossible. I’m like, I know how this goes, I’m just going to wait for the next notice. We’ll see. But then the ultimate resolution for 2018 came about a week later, which was I got a letter from the United States Treasury with a check <laugh> for $172 for the 2018 tax year. And then the next day, a notice from the IRS saying, we’ve adjusted totally for 2018. Like basically you’re closed out. We owed you $169 and $3 and 2 cents in interest. So, that was kind of how the 2018 resolution came about.

34:58 Emily: It’s amazing actually how much COVID impacted your story, right? From the move that made you not receive any of the notices, to the IRS being just incredibly backed up. Like I know the IRS gets, like, everybody loves to hate the IRS, but like they’ve had a lot to do <laugh> over the past couple of years, but like delayed deadlines and like the stimulus payments and then the advanced child tax credit payments, like that’s a whole new thing. Wow. Sending out like basic income to some people. They’ve never had to do that before. So like, yeah, it makes sense. They have been incredibly delayed. Maybe in a different year if COVID wasn’t impacting all of this, you would’ve gotten a response within a month or two or three months or whatever. Maybe the timelines would’ve worked out. But it’s good to know that you were patient <laugh>, you tried to get them to be as patient as possible with you. You agreed ultimately to that monthly plan, which is like, I mean, $86 a month is like not, I mean, whatever, it’s something, but compared to the amount that you actually owed, that’s a very small fraction. Or not actually owed, but they thought that you owed. Yeah.

Amended 2019 Tax Return

35:55 Emily: Okay. So, we know the 2018 resolution. For 2019, did the amended tax return work, or how did that play out?

36:02 Matty: No, so the 2019, they started sending me notices about it in June of 2021 before having processed the amended return. Which was obviously what I was trying to avoid, but in discussions then over the phone with the IRS, I was in a better position, I think, in terms of my discussions with them for being able to say, “Oh, I filed an amended return before you sent me this. I paid what I think I underpaid before you sent me this notice, and here’s all of the information.” And basically included, you know, sent a letter back to them, which included everything that I had on the amended return, and then how I came to those numbers. And so actually as we speak now, I’m still in the late stages of that. Yeah, so it was the same tax office dealing with the issue.

36:56 Matty: I think once they got to it, everything just kind of worked faster. So, it’s at the point now where the tax that I owe has been deducted for 2019, and I mean, unless something radical changes in the next few weeks, then I will have received either a check from the treasury for some kind of small amount, or maybe I’ll owe them a little bit more, something like this. But basically the same resolution of you listed the income as other income, you didn’t need to pay self-employment taxes on that. So, that’s where the 2019 stands. And I’ve heard nothing about 2020, which I think means actually, I don’t know, maybe I’ll hear something soon, but I did follow the workshop and I know what I’m doing much more than I did at that time. So, I feel pretty good about that year.

37:46 Emily: Yeah. And by the time we publish this, I mean, you can send me an update, everything went fine, it was resolved, you know, essentially in your favor or, oh, no bigger emergency. Let’s record a follow-up <laugh>. Okay. So hopefully it’ll all go through the way you expect it to.

38:01 Emily: Emily here, breaking in from post-production to give you Matty’s follow-up. Everything turned out exactly as he expected for 2019. The penalty was eliminated, and he actually ended up receiving a small refund.

Key Takeaway Points for Listeners

38:14 Emily: So, let’s kind of summarize a little bit. Key takeaway points for the listener who might be freaked out and facing a huge tax bill. By the way, I just want to say like a rule of thumb, on fellowship income, let’s say if you’re paying to the federal government more than like, I don’t know, much more than like a 10% effective tax rate, something has gone awry in this like process. So like, self-employment tax is going to be 15.3% of your income. So, if you have like 10-ish percent plus 15%, if you’re up at 25% of an effective tax rate, you know that you’ve been hit with self-employment tax. So, that’s my key takeaway of just like a sort of sanity check on how much tax do you actually owe? Don’t pay self-employment tax if you don’t actually owe it. But let’s go to your key takeaways.

39:00 Matty: So, I think my key takeaways, one of them is the “(Understand It, Too!)” parenthetical in your workshop title, because when I think back to why I got into that situation in the first place and how I sort of struggled in those early days to figure out what the problem was, I think really one of the major issues was that my approach to filling out the tax return was I was looking for a formula to just kind of input information, not have to really think about it. And then kind of hoping that everything went well and figuring that, okay, if I don’t hear anything from them, then it’s probably fine. And I didn’t hear anything for two years after starting to handle my tax return this way. So, I guess one major kind of lesson would be to really try to understand what it is that you’re doing.

39:52 Matty: And it is frustrating and I would say that most places, most websites, even the IRS website is not especially well suited to starting at a low level of knowledge of financial issues. This was one of the things that I appreciated about your website, Emily, was because I felt that it was not just how to file the tax return, but it was sort of talking about it in a way for people who aren’t used to doing that. And I think this maybe gets back to my going straight through my not having really had another full-time job apart from being a graduate student, not having a familiarity with this process in another setting that made me want to just not deal with it. I was a busy graduate student, I just figured I would be fine and I wanted the easiest way, which was that tax filing software.

40:40 Matty: So, I think once you get over the fear of not understanding the confusing nature of sort of filing taxes and paying these kinds of taxes, then it became easier to know what the problem was and know how to communicate about it. And then the second one, maybe a smaller takeaway, but again, it was just to be sort of cautious about where you get and how you get tax advice from people who don’t have experience specifically related to the types of issues that graduate students with this awarded income are facing. Because I got advice from, you know, reputable people, reputable websites that led me to the filing software to, you know, almost not that I was close to paying the initial tax penalty as I had been initially recommended to, but I mean, that’s thousands of dollars of difference if I’d just gone along and done that.

41:35 Matty: So again, maybe that returns to the first point of if you sort of know or have a better sense of of what you’re doing with a tax return and treat it that way as opposed to just, again, a chore you don’t want to deal with, or a formula that you’re looking to kind of take a shortcut with. That’s the better way to handle it. And I’ll say, I mean, I’m not an expert. I don’t mean to sound now that I have gone through this as though I know and understand everything about taxes, but at least you kind of know a little bit more and you know where the problems are, you know how to communicate. And I think that was really important for me in reaching the stage that I have at this point with the tax process.

Building Tax Vocabulary and Communication Tools

42:21 Emily: I’m really, really glad to hear you say that, that my material reached you <laugh> in a way that made sense to you that other places weren’t, because that’s really what I have been striving to do with both, you know, what’s available free on my website, pfforphds.com/tax, and also through the tax workshops. I really do want to give you those, like the vocabulary and the communication tools because I’m sort of a fan of people preparing their own tax returns, like completely manually, but I understand that most people don’t do things that way. And so, I’m trying to give you the vocabulary to like translate between what you know about your own income and expenses as a graduate student, for example, and being able to talk to an accountant or being able to interface with tax software or talk to the IRS or whatever is needed to give you that like translation ability. Yes. So, I’m glad to hear that it worked out that way for you. Is there anything else that you’d like to tell us about this story as we’re concluding here?

43:13 Matty: I guess maybe to say, yeah, I hope this didn’t come off as, you know, me trying to sound like a victim of the IRS. I mean, I think there were some issues in terms of the timing, the way that it worked out, the really frustrating bureaucratic aspects of it. But I also, you know, I made some mistakes, too, throughout the process. And so yeah, I guess it was kind of yeah, I just hope it didn’t sound like me whining about the annoying, you know, scary IRS. There were some people that I talked to there who were quite helpful and, you know, I think the most important thing was just, as you said, kind of being able to find that language to communicate with them about the specific issues, and then kind of waiting out the process which you have to do when you’re dealing with something like this.

44:08 Emily: I think what we briefly mentioned earlier, but like we talked about this with respect to the accountant that you went to, but it’s also true for the people you talked to at the IRS. They’re way more familiar with self-employment income and small business income because there are so many small businesses in the United States who have, you know, some kind of trouble and turn to resources for filing their tax returns compared to graduate students and postdocs and other people with awarded income. It’s just such a more common situation. They want to fit you into a box, that’s what they’re familiar with. And so, you as a person receiving awarded income, I think should be kind of forewarned that that’s going to happen and be able to say to them, “No, I am very confident this is not contractor income. This is not self-employment income. I do not have a business. I received fellowship income or grant income or whatever it is.”

44:52 Emily: And so, to be able to firmly say that to them will help hopefully redirect them down the correct line of thinking and away from the most common scenario, which is this other self-employment stuff. So, I’m really glad that you brought that up. I also am glad that you mentioned that there is just a lot of waiting involved with these, you know, filling, you know, figuring out the transcripts and like submitting the amended returns and all of this stuff. Yeah, that’s kind of part and process with this whole process. So, we’re getting the very, very condensed version of the story, but obviously, it took like, well, it took multiple years for this to play out in total.

Best Financial Advice for Another Early-Career PhD

45:23 Emily: Okay, Matty, thank you so much for sharing this story. It’s really amazing. I hope it, you know, prevents people from going down the same, you know, the initial mistake and then the amplification of that mistake that you had to go through. So, I want to leave the listener with the question that I always ask my guests, which is what is your best financial advice for another early-career PhD? And that could be something that we’ve touched on in the course of this conversation, or it could be something completely new.

45:50 Matty: So, I’ll stick with a similar theme. I mean, part of me hardly feels in a position to offer financial advice after the story I told, but what I would say is that, and I think this is especially applicable maybe for PhD students, is that if you are learning about some kind of financial topic, taxes, things like this, that you should ask stupid questions if you don’t understand something. I think PhD students, I certainly am, are on guard against wanting to sound stupid in, you know, seminars around professors, you sort of keep to yourself, you hide the things that you don’t know and try to present yourself in as best a light as possible, which is understandable. I get that, but I don’t think it works well with dealing with some of these topics. And, you know, everyone says, well, there are no stupid questions or you’re probably not the only one with the question, which is probably true, but I would add that even if you are the only one with a question, and even if it is a stupid question, that it’s better to humble yourself at the stage of learning something than to risk kind of misunderstanding and creating a much bigger problem for yourself down the road.

47:00 Matty: So, I guess it’s a sort of maybe I wish that I’d had a little bit more humility to ask questions and rather than just go along and pretend that I understood something at different, you know, workshops about taxes or things that I had been privy to in the past to actually just ask. And, and from there, I would’ve been in a better position. So, that’s what I would say.

47:25 Emily: I really, really love that advice. And I’ll take one final opportunity to plug my workshop, How to Complete your Grad Student Tax Return (and Understand It, Too!), PFforPhDs.com/taxworkshop. What I really like about this format, which it’s now like all these prerecorded videos, that’s probably the version that you went through as well, is that you can watch these videos as many times as you want. You can pause them, you can Google a term if I didn’t define it properly or whatever. You can take your time to really understand what’s going on. And then if you still have a question, show up at one of the many live Q&A calls that I hold for this workshop and just ask it there, because frankly, like asking me what you consider to be like a stupid question, I can probably answer it in like five seconds and it might take you an hour of reading other material to figure out what it is about your, like, misunderstanding at base that made you have that question.

48:14 Emily: So like, it’s just so much more time efficient <laugh> to enroll in something like my workshop and have access to me to ask those kinds of questions or, you know, whatever, work with another professional, that’s fine. But to just as you said, be willing to do it and have a person you can go to to ask those questions. That’s what I’m trying to provide with this tax workshop. So again, Matty, thank you so much for this interview. I think it’s been a harrowing story but really, really illuminating. I know it’s going to help a lot of people, because you are not alone, as you said. I made the same error, like it just didn’t get amplified in the same way yours did, but I made the same error. A lot of people make the same error. So thank you so, so much for sharing this.

48:50 Matty: Yeah, thank you so much for having me and again, for the work that you do with the podcast and the website. It was obviously extremely helpful to me and I’m sure it is to many others. So, thank you.

49:00 Emily: Yeah, thank you for saying that.

Outtro

49:07 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.