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How This Grad Student Shifted Her Student Loan Strategy through the Pandemic

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

Links Mentioned in the Episode

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

Teaser

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

Introduction

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

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

Will You Please Introduce Yourself Further?

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

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

Financial Mindset at the Start of Grad School

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

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

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

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

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

05:19 Lexi: Summer 2019.

Federal Student Loan and Parental Debt

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

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

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

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

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

07:40 Lexi: A combination.

Income-Based Loan Repayment

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

07:57 Lexi: I did, yeah.

07:58 Emily: Okay.

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

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

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

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

08:44 Lexi: No, I was not.

Initial #1 Priority: Unsubsidized Federal Loans

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

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

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

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

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

Administrative Forbearance

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

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

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

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

Shift from Paying Off Loans to Investing in an IRA

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

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

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

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

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

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

Commercial

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

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

IRA Investment and Parental Debt Repayment

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

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

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

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

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

Podcast Recommendations

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

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

25:01 Lexi: Yes.

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

Shifting Student Loan Policy

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

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

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

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

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

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

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

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

Playing the Waiting Game

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

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

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

Saving for Retirement

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

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

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

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

Best Financial Advice for Another Early-Career PhD

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

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

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

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

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

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

36:32 Emily: You’re welcome.

Outtro

36:38 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

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

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

Links Mentioned in the Episode

Eliminate housing expense to pay off student loans

Teaser

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

Introduction

00:16 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts. This is season 10, episode eight, and today my guest is Dr. Erika Moore Taylor, an assistant professor at the University of Florida and the founder of Moore Wealth. When Erika started her PhD at Duke, she had $65,000 of student loan debt, which she committed to paying off before her graduation. One of the strategies she used that made the biggest impact was to serve as a resident advisor, thereby eliminating her housing expense. Erika shares how her money mindset fueled her motivation to achieve her debt repayment goal and how she’s now pursuing financial independence and early retirement. If you want to be inspired to set an audacious financial goal and also plot your path to achieve that goal, I highly recommend joining the Personal Finance for PhDs Community at PFforPhds.community.

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

Will You Please Introduce Yourself Further?

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

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

Financial Mindset at the Start of Grad School

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

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

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

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

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

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

Savings and Stipends

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

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

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

Factoring in Cost of Living

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

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

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

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

Student Loan Goals

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

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

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

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

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

Reducing Housing Expenses and Increasing Income

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

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

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

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

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

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

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

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

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

Commercial

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

Anything Else to Control Expenses?

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

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

Balance Sheet and Loans at the End of Grad School

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

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

20:35 Emily: Okay.

20:36 Erika: So positive net worth.

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

Would You Have Done it Again the Same Way?

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

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

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

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

Finances in Marriage

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

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

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

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

Moore Wealth

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

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

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

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

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

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

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

Best Advice for An Early-Career PhD

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

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

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

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

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

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

Outtro

34:25 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs Podcast. On that page are links to all the episode show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple Podcasts, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media, with an email listserv, or as a link from your website. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in like investing, debt repayment, and effective budgeting. I also license prerecorded workshops on taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps! The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

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

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

Links Mentioned in the Episode

Intro

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

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

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

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

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

What Is Credit?

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

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

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

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

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

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

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

Why Credit Matters

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

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

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

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

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

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

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

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

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

How do I establish credit?

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

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

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

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

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

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

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

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

How do I improve my credit?

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

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

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

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

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

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

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

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

Credit killers

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

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

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

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

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

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

When your credit doesn’t matter

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

Conclusion

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

Outro

Listeners, thank you for joining me for this episode!

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

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

  1. Subscribe to the podcast and rate and review it on Apple Podcasts, Stitcher, or whatever platform you use.
  2. Share an episode you found particularly valuable on social media, with a email list-serv, or as a link from your website.
  3. Recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt repayment, and effective budgeting. I also license pre-recorded workshops on taxes.
  4. Subscribe to my mailing list at PFforPhDs.com/subscribe/. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs.

 See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps!

The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC.

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

How to Handle Your Student Loans During Grad School and Following

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

Link Mentioned in this Episode

student loans grad school

Trailer

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

Introduction

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

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

Will You Please Introduce Yourself Further?

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

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

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

Federal Student Loan Forgiveness Programs vs. Refinancing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Making Payments on Student Loans During Grad School

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

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

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

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

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

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

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

Commercial

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

Taking Out Student Loans During Grad School

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

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

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

The Intricacies of Student Loan Repayment

How Marriage May Affect Your Repayment

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

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

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

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

Choosing a Repayment Program

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

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

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

When to Consult a Professional

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

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

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

The Emotional Aspect of Repayment

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

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

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

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

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

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

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

Where to Find Meagan Online

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

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

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

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

Outtro

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

 

This Postdoc Has a System for Debt Repayment That You Can Follow as Well

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In this episode, Emily interviews Dr. Suba Narasimhan, a postdoctoral fellow at Emory University. Suba and her husband each brought debt into their marriage, and once they both had full incomes, they decided to tackle it together. Suba presents a step-by-step plan for anyone at the start of a debt repayment journey. Emily and Suba discuss in detail how to handle credit card debt, including whether to pay credit cards off with student loans or 0% interest promotional credit cards. Suba doesn’t follow the debt snowball or debt avalanche methods exactly, but rather has mixed the two for a custom solution. Suba emphasizes the importance of being kind to yourself while repaying debt and adopting a nonjudgmental attitude toward your and your partner’s debt.

Links Mentioned in the Episode

Teaser

00:00 Suba: You have to think about this as part of your life. And if you have the ability to preplan and save some money, have a little bit of savings, and also just assume that maybe you’ll have to take on more loan debt. How much could you afford given whatever your loan burden is now?

Introduction

00:26 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season six, episode five, and today my guest is Dr. Suba Narasimhan, a postdoctoral fellow at Emory University. Despite maintaining a debt-free status until midway through her PhD, Suba eventually took on both student loans and credit card debt due to financial emergencies and adverse situations. When she started her postdoc position, Suba and her husband decided to tackle their debt head-on, even though it was very daunting and anxiety-producing. Suba presents a step-by-step plan for anyone who wants to eliminate their debt and shares her own decisions throughout. Listen through the episode to hear her encouraging words on maintaining a positive, nonjudgmental attitude during debt repayment. Without further ado, here’s my interview with Dr. Suba Narasimhan.

Will You Please Introduce Yourself Further?

01:23 Emily: I am delighted to have joining me on the podcast today, Dr. Suba Narasimhan. Suba will be telling us about her debt repayment journey, which I’m so excited to dive into that topic with her. So, Suba, say “Hi” to the audience, please.

01:35 Suba: Hi! Hi, Emily. Thank you for having me.

01:38 Emily: Thanks so much for volunteering to come on. I actually wanted to tell the audience how we met, which was a couple years ago. So, I gave a seminar at UCLA and Suba came up to me afterwards and she said, “I’m so interested in what you do. I kind of want to do what you do. Can we talk further about this?” And we did. We went and we had lunch, and we had this wonderful conversation. In fact, Suba is the one who encouraged me to start this podcast. So, if you’re a fan of the podcast, you can thank Suba for encouraging me at that point when I was really still considering whether it was something I wanted to go for. So, anyway, I just want to say that if you, an audience member, ever see me at your university or at a conference or if you hear that I’m coming, please come up and introduce yourself and identify yourself as a podcast listener or a mailing list subscriber or whatever you are and I would love to talk to you. If I have time in my schedule, I will hang out with you one on one if it’s at all possible. I love to meet people who are in my audience and consuming my content. I want to hear your insights. So, we’re getting Suba’s insights today. I’m really excited about that. So, Suba, will you please tell the audience a little bit more about yourself?

02:48 Suba: Absolutely. And I have to say, Emily’s a great lunch mate, so you all should totally do what she asked you to and come up and chat with her about finance. So, I am currently a postdoctoral fellow at Emory University, and it’s a really enjoyable experience. I am actually originally from the South and wanted to return to the South. And so that’s kind of how I ended up at Emory. I am in the Department of Behavioral Sciences and Health Education. So, that’s a School of Public Health Department. Yeah, it’s a great job.

Where Did You Do Undergrad?

03:31 Emily: Wonderful. And where did you do your undergrad? So, I know PhD at UCLA, and you’re at Emory now for your postdoc. Where was undergrad?

03:37 Suba: So, for my degree, you tend to do a master’s as well before you go on to your PhD. And so I did both my undergrad and my master’s at UNC Chapel Hill. Go Heels! I know, Emily, your rival school.

03:55 Emily: I was going to say, I think we were in the Triangle at the same time for at least a few years. But yes, I will allow that on my podcast. I’m a generous host. Okay. So, let’s talk about your debt repayment journey, which starts with a debt accumulation journey. So, tell us about that phase of your life.

Debt Accumulation Journey

04:12 Suba: So, I was really, honestly, I was very fortunate. I was really good with money for a long time and I was lucky to have had financial help from my parents during college and to have gotten both through my master’s and most of my PhD without accumulating any type of debt, consumer or student loan debt. And it was around the third year of my schooling in LA where I had a ton of unforeseen circumstances happen. So, I had some family illnesses. I had a lot of different difficult experiences happen and it was an emotionally trying time. And then it also became kind of a desperate time in terms of money. And even though I was working quite a bit, I just wasn’t totally making ends meet. And I think that that’s a very common experience for PhDs and can be one way that you really get into using credit cards or using student loans as a way to kind of just live your life. And being a PhD student is also a time in your life where you have to take a break from what might be a better-paying job to finish your degree. And I wasn’t one of these people, but I also think that there are a lot of people out there that probably are also very reliant on just their stipends to make ends meet. So, I think this is a pretty common situation to happen.

Importance of an Emergency Fund

05:44 Emily: We’re going to talk through how you’re remedying that situation. But just for anyone who hasn’t yet come upon that emergency situation in their life, if there’s any way that you can create some margin right now, some cash savings to help you kind of buffer through something like that, please, please take the opportunity to do so. So you don’t have to have this extreme reaction once an emergency does occur. And like you said, the thing about emergencies is that they’re rarely just financial, right? Something else has gone really poorly in some other area of life. Maybe it’s a huge emotional problem or a health problem or something like that. And so not only are you dealing with like logistics and emotions and just your routines being thrown off and your relationships, then you also have this financial component. So, at least what you can try to do for yourself, if at all possible, is to make the financial component of the emergency less of a thing so you can focus your energy on all these other areas of your life that need it at that time as well. So, that’s my soapbox. Okay.

Your PhD is Part of Your Life Journey

06:43 Suba: No, no, that’s a good soap box because one other thing I was going to say is I counsel a lot of students who are trying to enter PhD programs. And one of the pieces of advice I give them is something that I was given before I started my PhD. And that’s to think of your PhD journey or your PhD work as part of your whole life. And so, to also think about your finances at that time. So, one thing that was positive in this was that I had calculated out how much student loans I could take and feel a little bit less burden. So, the consumer debt I took on was unforeseen, but the student loan debt I had already pre-calculated what I thought was the maximum I could do in terms of payments if I got what I would consider just being a postdoc, honestly, in terms of finances is one of the lower-paying jobs that you can take because you’re usually on an NIH salary scale. So, that’s also my soapbox. You have to think about this as part of your life. And if you have the ability to preplan and save some money, have a little bit of savings, and also just assume that maybe you’ll have to take on more loan debt. How much could you afford given whatever your loan burden is now?

08:13 Emily: Yeah. I really appreciate you saying that because I think that if graduate students are not accustomed to taking out student loans, like maybe they haven’t done it since undergrad or they didn’t even do it in undergrad they might not think of turning to student loans in the case of some emergency expenses popping up. But it sounds like you did, like you took on some credit card debt, but then you also were using student loans to get you through this situation. So, can you talk about some of the advantages and also the disadvantages of choosing to use student loans versus just accumulating more credit card debt?

Student Loans vs. Credit Card Debt

08:47 Suba: Absolutely. I mean, one is that your interest rates–it’s always better to ask your university what type of emergency loan protections they have, which all universities do have that. And you can go to the scholarships and financial aid department and ask them about these short-term loan borrowing programs. And they are a lot more straightforward and they’re a lot more willing to work with you than a credit card company, which is a for-profit company, would be. So, I would say, that’s important. And the positive thing about student loans is that there are certain things, if you’re taking out federal loans, that you have access to which is the counseling components and the grace periods. And you can, eventually, if you do have student loans from undergrad or your master’s or some other type, you can roll them together and refinance them, and going through that is relatively painless.

09:54 Suba: And this is not necessarily something you can do with credit card debt. Right? What I would caution people against is if the student loans that you have to take out are private student loans, that then again gets you into this territory of consumer debt. So, I would really think about the terms and conditions of any private student loans that you might have to take out because they are often better than credit cards, but they still come with a lot of stipulations and issues. The problem with taking out a student loan is, unlike credit card debt, if there is something in the future where you have to declare bankruptcy, which could happen–happens to people for all kinds of reasons–you can’t discharge that debt at this point. And you also have to be really cautious if you’re thinking about maybe doing a public student forgiveness program. Sorry, public, what do you call it again?

10:52 Emily: Public service loan forgiveness.

Know the Terms and Conditions

10:54 Suba: Yeah. Which a lot of people in the medical sciences do. You hear a lot about people in medical and nursing programs, and there are a lot of people who are going to go into a nonprofit sector that think about that and it’s still a really viable option. It’s just you have to know the terms and conditions of that program going in so you can’t add to your debt burden without planning for how you might want to pay them off.

11:20 Emily: Yeah, I totally, totally agree with what you’re saying. I mean, when we’re thinking about credit cards versus student loans, federal student loans or private student loans, usually you’re looking at a lower interest rate for the student loans versus the credit cards. So, that’s attractive. But as you said, there’s a real danger point, which is if you ever get to the point where you are thinking about declining bankruptcy, you can’t get rid of those student loans. So, it’s a gamble, either way you go for it. But I really liked your suggestion of trying to access your university’s emergency loan system, which I don’t know about all, but I know that many universities do have that. And it’s certainly spreading, it’s a popular program that’s coming to more and more places.

Emergency Loans on Short Notice

12:00 Suba: And what I was going to say is you can also get those loans in very short periods of time. That’s why they’re considered emergency loans. So, if you know that there’s something that’s really looming on the horizon and even it’s maybe something that might happen to you next week, that could be something you can talk to a counselor about. And I think universities are really trying to be more sensitive about the fact that students, especially PhD students, are going through, you know, life challenges.

12:32 Emily: Yeah. And the thing about student loans is that they do take some time to apply for and acquire. So, it’s not a quick solution, but it might be something that you can set up if you know that you’re going to be holding debt for a longer period of time. I mean, not having to make payments on it, being in deferment while you’re still a graduate student is a really great benefit if it’s just not something that you are able to pay off in the moment. But of course, then you’re not paying it off. Right? So, the interest is accumulating. So, pluses and minuses there. It sounded like you ended up with a combination, then, of student loans and credit card debt.

Life Happens, Cost-of-Living Matters

13:02 Suba: I did, yeah. And one of the issues was, I was going through a lot of stuff and I just didn’t calculate how much I was spending. And I was having to deal with pretty significant emergencies that kind of made me have to travel and things like that. And so, that was how kind of this situation ended up happening. And then I also had some life circumstance changes that were great. Like I moved in with a partner. But you know, even that, any transition, honestly, is tied to money. And I’m living in Los Angeles. Another really big issue that might not be salient for people who live in maybe smaller places or less expensive places, is that the cost of living and especially the cost of rent goes up really quickly and sometimes without a lot of notice.

14:01 Suba: So, I also had to figure out my living situation and move apartments. So, I had a lot of things that really had nothing to do with my school life, which was going fine. And also, I did have a lot of financial help from school and from my fellowships and things like that. I was a fully-funded student. So, these are all, I think in an attempt not to scare anybody, but more to say we’ve got to think about the shocks and the issues that might come up and maybe prepare for them a little bit.

Inflection Point: Debt Talks

14:39 Emily: Totally, totally agree. So, thanks for going through that part of your story. At some point, you were no longer accumulating debt. In fact, you decided to turn it around and start paying that debt down. So, can you talk about the inflection point?

14:52 Suba: Right. And I think that was fairly recent. So, about a year ago, which coincided with me graduating from my PhD program, I also got married, which was great. And then I moved down here to start my postdoctoral fellowship. And my now husband also had a full-time job. And so, we said we think we want to start this next chapter of our lives. And one of the issues that we had sort of minimally talked about during our time together but hadn’t really deeply delved into was putting our finances together. And so, in having that conversation, we sort of said, “Hey, I think it’s time that we start to think really deeply and then have a clear plan about what we’re going to do and get rid of the debt that we are both carrying.”

15:46 Emily: Can you talk about how you went through that and how you tackled it, maybe for one of your peers listening here who is also facing a mountain of debt, a lot of different types of debt and doesn’t quite know how to start?

Tackling Debt Conversations

15:58 Suba: Yeah. I think the first step is to have a conversation and it’s usually one person says something like, “I’m totally scared about this debt, or I have so much debt and I don’t know what we’re going to do.” So, again, we opened up our finances to each other and said, “Hey, you know, we’ve decided to share a life together. What’s the most important thing that you want to do in the next five years? Like, what is the most important thing you feel like you want to spend money on? And why do you think, you know, getting rid of that debt would help?”

16:32 Suba: And so, having that discussion really made it sort of a positive and nonjudgmental environment to start having these conversations about money, which can be really anxiety-producing. And so, for me, making up these spreadsheets and having a plan and stuff was really energizing. I was like, “Okay, I am solving an issue.” For my husband, it was super anxiety-producing. It just created this feeling of like, “I don’t make enough money. I don’t know what to do.” You know? And so, also stopping at certain parts of this process. It may take, you know, more than one conversation to get to this point. And saying, “Okay, you know, the whole goal of this is not to stigmatize either one of us for bringing what we brought into the relationship, right?”

Dreaming, Not Blaming, Together

17:20 Emily: I like that – I just want to jump in and say, I really like that you started that conversation and are framing it around–I’m going to phrase it differently than you did–around dreaming together, right? Because as you just said, it puts this whole thing in a positive light. It’s not, “Oh, you know, sniping at each other, blaming each other for, you know, what’s happened in the past.” It’s, “No, like we’re standing together, we’re looking to the future. What do we want our bright future to look like? Let’s agree on that. And, okay. What are the steps we have to take to get to that point? Now, let’s tackle it.” But as you said, for some people it can feel like such a big thing to be working on. So challenging, like for your husband that it sounds like he wanted to shy away from it. Right? Whereas you wanted to charge toward it.

18:04 Suba: Yeah, it took different conversations to get to a point where–you know, and the honest truth is, he had less debt than I did. And so, the way I was feeling was, you know, a lot of blame and kind of shame. Or like, why, how did I bring this into our home, you know, kind of thing? And I think that that is a pretty common feeling for a lot of people. I don’t know anybody who’s had this conversation that hasn’t felt all kinds of feelings about it, you know? And so, I think from those big picture conversations you can also kind of talk about priorities. So, maybe one of you likes to travel more than the other. And so, setting up this idea of, “Okay, we’re going to decide that we want to take this many vacations a year or maybe we want to go to this many friends’ weddings a year, that’s important to us. We want to go home for Christmas or for New Year’s or things like that.” You know, like these are kinds of things that flow out of those conversations. What’s important to you, what’s your priority?

Allocating Money Toward Retirement

19:15 Suba: And we disagree on lots of things about spending money. It’s just we’ve allotted the parts of the money that we agree on so that we have this freedom, you know. So, one interesting thing about us is actually we don’t have a joint bank account. We still have separate bank accounts, and we’ve discussed maybe, but we have a joint savings account. And so, we’ve discussed how we allot money into our joint savings. And then we’ve also even talked about how we are going to allocate money towards our retirements because we look at those as shared money. And then after we’ve paid the bulk of our bills or whatever, the leftover that we haven’t allocated is our own money to spend the way that we feel. So, I think it’s also a balance between getting yourselves on the same page, making a shared priority list and plan, but then also saying, “Well, I don’t need to know and account for every dime that you’re spending. If you like to spend money on X thing and I don’t understand it, that’s okay. I don’t need to.” So, it’s not about controlling the other person, either.

Commercial

20:34 Emily: Hey, social distancers, Emily here. I hope you’re doing okay. It took a few weeks, but I think I have my bearings about me in my new normal. There is a lot of uncertainty and fear right now about our public and personal health and our economy. I would like to help you feel more secure in your personal finances and plan and prepare for whatever financial future may come. You can schedule a free 15-minute call with me at pfforphds.com/coaching to determine if financial coaching with me is right for you at this time. I hope you will reach out, if only to speak with someone new for a few minutes. Take care. Now, back to our interview.

Cataloging Debts

21:21 Emily: Okay, so first step was, “Let’s look at the picture. Okay. Let’s dig our heads out of the sand and look at what is the debt.” Okay. So, what did you do after that point?

21:30 Suba: Absolutely. We cataloged all the debts and the cataloging of this plan. So, essentially, we did create a full spreadsheet at this point of all of the debts, the interest rates, and what types of debt they were. So, was it student loans or consumer debts? And then when interest rates would either change or when they would kick in. And in terms of the consumer debt, one thing that I did was I called the credit card companies and I tried to get my interest rates lowered and be as nice as possible. And it did work for a few of them, actually, honestly. So, don’t be afraid to ask. The worst that can happen is that they say no and you can ask to be kicked up to people who have a little bit more power than maybe the receptionist that you talked to on the phone. And if you do it in a kind way, it works out. And then I also looked at the balance transfer offers that some of my credit cards had. And I would not say, like, open another credit card to do this. I would say, if you already have existing cards, many of them have balance transfer offers and they do charge a fee. So, weigh that fee against the amount that you save in interest by paying it off in the 0% period.

Strategically Using 0% Financing

22:54 Emily: I’m going to ask you a little bit further about this because I’ve never gone through this process myself. So, I want to know a little bit better. So, what you’re talking about is, you have an existing account open, and that account, you know, you see that they’re offering a 0% financing deal, 0% period. And so, what you’re doing then is you’re using that financing to pay off a different credit card balance, right? So, you’re sort of transferring the balance over to the other card that you had open that had that 0% offer. And then the offer is, “Okay, we’re not going to charge you interest for a given period of time.” Usually, it’s like 12 months or 18 months or something like that. What was it in your case?

23:28 Suba: It was 18 months. I only did the ones that were 18 or 22 months. So, the longest period. But you have to do this very strategically. What you don’t ever want to do is to be using these as another crutch so that you can kind of just not pay things off. So, I would then strategically plan to pay per month this amount off a few months before the end of the period. And so, that also gets to my next point. Part of after cataloging your debts, you have to catalog also the salaries that are coming in and the expenses. So, you have to see what your margin of expenses to your income is so that you can make a reasonable plan for your debt payoff.

Making the Minimum Credit Card Payments

24:23 Suba: You shouldn’t use any of these strategies in terms of your credit cards until you figure out, “Can I at least make the minimum payments on my credit cards? And then now I want to make more of a payment on either my credit card or my student loan.” If you’re having trouble making the minimum payments, I would absolutely say call your credit card companies and tell them, “Hey, I’m having a lot of trouble making my minimum payments.” Credit card companies want your money, and it’s better off that you don’t miss your payments because that can affect your entire credit history really negatively. So, these are, these are kind of things you have to do in tandem with one another. You have to catalog your debts and the times in which your debts need to be paid off. But then you also will have to catalog your expenses versus your income to see what’s a comfortable and reasonable amount for you to put towards paying off your debt every month. So, just to say, you had asked me before if I used a debt snowball versus debt avalanche. I think we are a little bit of a combination.

Debt Snowball vs. Debt Avalanche

25:35 Emily: Let’s pause and define that for the listeners who don’t know. I’ll just say, so in the debt snowball and the debt avalanche methods, which are these two very popular methods for repaying debt, repaying multiple debts, you usually pay the minimums on everything and then you make a list of your top priority to your lowest priority debts. And with all the remaining money you have to throw towards debt, you throw it at your top priority. This is in both systems. In the debt snowball method, the top priority is the debt with the lowest balance. And in the debt avalanche method, the top priority is the debt with the highest interest rate.

26:11 Emily: So, debt snowball, you move from smallest balance to largest balance, paying each one off in full. And then moving on to the next one. Debt avalanche method, paying the highest interest rate first. And then once you pay that one-off, completely moving on to the one with the next highest interest rate. The debt snowball method, the sort of reasoning behind it is that it’s very psychologically motivating to be able to cross that small debt, that first small debt off your list and you know, feel like you’re making a lot of progress and move on to the next one. Versus the debt avalanche method is mathematically the most optimal way to go about things. If you were to throw the exact same amount of money into both methods, the debt avalanche method would get you out of debt the fastest. So, go ahead and explain, between those two extreme models, what you actually did.

26:53 Suba: So, I’m still in the process of this. So, I also don’t want to say, “Look at me, I’m debt-free, and I could give you all this advice.” No, we’re still in the process of this and it’s been really fruitful for us. But we started off with the debt avalanche method. So, we wanted to pay off these highest interest debts first and within the reason of the amount of debt pay off that we could do per month. Right? And then when we would get to a certain threshold, so maybe it was a thousand dollars or $500, we would pay off that card or that debt in full. And that gave us, on some months, that would give you just like an extra boost. You know, it just makes you feel good to see that zero balance. And when you pay off a piece of a student loan, they send you a congratulations email. So, that doesn’t hurt too badly, either.

Prioritizing Interest Rates

27:46 Emily: So, I want to clarify because some listeners may have this question. So, if you have at least one, maybe multiple credit cards where you’re currently in a zero interest rate promotional period, does that become a low priority for you or is that still a high priority because the eventual interest rate is going to most likely be quite high? Can you talk a little bit about that?

28:09 Suba: So, I prioritize by the time that the interest rate would change and turn into the higher debt rates. So, say it was January 1st, I would make a plan where I would subtract two months from that, so November, and then I would calculate how much per month I would need to pay on that card to pay it off in full by that November. So, it doesn’t necessarily become a low priority or a higher priority. For some debts, you can’t change the interest rate, right? So, any of those debts would be the debts I would pay off the soonest if I can, or pay off the largest amount. I also thought a lot about how much debt I was carrying per card.

28:57 Suba: So, in one situation, I essentially didn’t have that many credit cards, right? So, one of my cards was more than 30% utilized, which is a lot, and that’s not very good for your credit score, either. So, my goal was to get that less, like lower than 30%. So, I prioritize basically based on the highest debt, and then when the interest rate would change from 0% to whatever it was. And it’s also really important, I don’t want any of your listeners to like go willy nilly and start moving their money around to 0% interest credit cards. That’s a strategy to be used when you need extra time and you have to really make a very clear plan that’s very reasonable to get that done and see what the fee is versus how much benefit you get. So, the fees always range from either 2% to like a minimum of a certain amount of dollars. So, you have to see what that is for each of your, you know, things. And I would definitely call credit card companies first and see if you can lower the interest rate before you change anything.

Automating Debt Payments

30:21 Emily: Okay. What’s your next thing that you did, or your tip for someone else facing this challenge?

30:27 Suba: So, I think, you know, I talked about how you should catalog your expenses towards your income and then figure out what’s a percentage of your paycheck per month that you’re going to put to your debt. And then you want to automate that. So, you basically want to be making a specific payment. And you can either do that, if it’s on your credit card, you can put the payment to a specific date or if it’s to your student loan servicer you can make sure that the check for your student loan comes out of your bank account at the same time.

31:02 Suba: So, you want your income to come in and then that money to go out almost immediately. So, you almost don’t see it, right? So, the reason I say, you know, and this isn’t like news, you know. Automating your finances helps so much because it lowers the stress of you having to keep track of it. But it also tricks you a little bit, psychologically. You never see that money after your paycheck comes in. So, you don’t feel like you have it, right? It’s already gone. It’s already been pledged to something. So, I think that helps.

31:39 Emily: I totally, totally agree. I’m a huge fan of automating, paying yourself first. Absolutely. Go ahead.

Paying Yourself First

31:42 Suba: Yeah. And, you know, there’s been a little bit of discussion sometimes too towards this idea of paying yourself first, right? And I think a lot about that. When you’re starting your first jobs after your PhD and even, you know, some postdocs and fellowships allow you to pay into their retirement system. If there’s a way you can think about putting some level of money per month into retirement, even if it’s just $50 a month or something like that. And that’s something that doesn’t seem astronomical. That’s also an important part of this calculation. And I think there’s a lot of debate on whether you should go whole hog and pay off your debt first and then think about your retirement. And people have all kinds of philosophies. I’m, you know, a moderate. And so, I think you have to live your life. So, you want to try to take advantage of the systems, the positive systems, that you have at the same time. So, my husband and I also looked at our retirement plans and factored in how much money we could put pretax and then put post-tax, if that was possible, into Roth IRAs. So, we thought about that in this whole system as well.

32:58 Emily: Absolutely. We are focusing on talking about debt right now, but once you get certain interest rates of debt eliminated, once those rates, you know, anything you have remaining is sort of in, as you were kind of just saying, a more moderate range, maybe six, seven, 8% or less. That’s the kind of time where you can start saying, “Okay, maybe we should do some retirement savings, not just the debt repayment.” But, to emphasize, if we’re talking about credit card debt, get rid of that credit card debt. Okay, go for that first.

Plan for the Future

33:25 Suba: That should be number one. Absolutely. And I think the next thing that we did then is to think about possible future changes and issues that could come up. So, you know, changes could be things like, “Well we have to prepare for making sure we go visit our family during the holidays or that we have to buy Christmas presents or things like that.” So, kind of trying to figure out what are the issues that we have had in the past that we didn’t prepare for? How can we prepare for them now? So that, you know, that’s an ongoing conversation that’s part of this.

34:08 Emily: I think that’s a really important thing to bring up, especially again for grad students and postdocs who don’t have large amounts of cash flow going through their bank accounts. Because there are going to be months where you have some larger expenses. So, to be able to save up that cash, to handle that at that time, that’s going to prevent you from, again, turning back to the credit card. So, it’s still kind of about debt repayment or debt avoidance to have that cash saved up, again for people who couldn’t easily absorb one of those large expenses in your monthly cash flow.

Small Changes, Big Differences

34:40 Suba: Absolutely. And even if it’s just, you know, a small amount that you put away every month. Again, we’re not having to think about these things in huge dollar amounts. I think sometimes what gets people a little bit down or can be very frustrating is this idea that these have to be very large amounts to make a difference. They don’t. Even if you have a buffer of a hundred dollars and you don’t put that hundred dollars on a high-interest credit card, that’s better. That’s why people have emergency funds. And so, it’s going to take a little bit of preplanning and it’s going to take some time, too. And even if you don’t have much of a buffer and that’s not something you’re able to do, that’s about the situation as well. So, that’s okay as well. It’s just you plan, you say, “Okay, when these credit cards are paid off or when the student loan is paid off, then that money that I’ve allocated towards the credit cards and student loans will now go to another priority.”

35:50 Emily: Exactly. And this goes back to the earlier part of our conversation where we were talking about looking forward into the future. You know, “What does my life, what do I want my life to look like this year, in the next five years, whatever it is?” Part of that is planning, “Okay, I’m going to be doing this type of traveling.” Guess what? Holiday gift-giving season comes up every single year at the same time. We know it’s there. So, yeah, just looking even ahead a few months or a year and just figuring out, “Okay, what are these life things that are going to happen?” They have to be part of the plan as well.

Positive Rewards (Treat Yo’ Self)

36:19 Suba: And part of this too is, just as you prepare for these issues that might come up, you’ve also got to give yourself positive small rewards. And so, what my husband and I did was we thought about things that we could give ourselves as a reward that didn’t involve us spending money. So, maybe once we got to a certain place, we went to like a new park in a city. And you can also prepare in your budget if there are things that cost money, like you want to buy a coffee every morning, you know, you put that into your budget. That’s your small reward for living life as a human being. I think my whole debt payoff philosophy is that you’ve still got to live your life, you know, in the most enjoyable way that you can.

37:12 Suba: Yeah. And another thing is, you can have a potluck with people without telling them the reason why. You know, like that’s another thing. Sometimes you can create a celebration and you don’t necessarily have to tell them, “Well, it’s because I paid 5% of my consumer debt off.” Right? Like that’s still a way to mark something positive and create a positive memory. And you know, things like that, they don’t cost a lot. And so, that also helped keep us motivated. So, we would say, “Okay, well we will save this treat until we get to this point.” And we tried to vary the different kinds of things that we would do.

Business Meeting Times

37:59 Suba: And one of the last things is we created kind of a business meeting time. So, I think one of the issues that happens when you start to get into this mindset of paying off debt or tracking things is that you think about it a lot. And especially if you’re somebody like me who really likes spreadsheets, you’ll be looking at it on your computer all the time and thinking about ways you could optimize. That’s not the best, I think, way to go about it because it can also become negative. You can start to look at the numbers and feel like things are not really moving that much. So, we would create a business meeting time when we would talk about these money-related issues or debt payoff issues. And then the rest of the time we would try not to bring it up. So, having that protected time to talk about it also meant that your entire relationship isn’t really consumed by it. And then also your own thinking throughout the day when you’re working and things are happening, you’re not thinking about it all the time.

39:10 Emily: Yeah, I totally agree with that. I’ve heard the strategy of having a business meeting with your spouse or whatever. And I’ve also definitely heard the strategy of compartmentalizing difficult subjects into, as you said, a time on the calendar. Like you know it’s designated that you’re going to think about it or you’re going to talk about it at that time. It helps it from bleeding into all the rest of your life. So, I really like your combination of those two ideas.

Make it a Positive Environment

39:31 Suba: Yeah. I think when it can kind of create anxiety and worry, and if anyone is prone to anxiety or worry, it could just like snowball into a lot. And you want to treat that time to be a time when other things are not as stressful. So, if you know, maybe like it’s after your kids have gone to bed or it’s on a Sunday because you know like on Sundays you don’t have as much to do, and you want to make that situation as positive as possible. So, sometimes we would like open a beer and sit down or something like that. Just like, make it a positive environment and start off the discussion in a positive way as best you can because these topics are difficult. And every month you may not see progress, right? So, there are things that happen. That’s the other thing. You may have all of these great plans in place and then one month you have to cut down a little bit on paying debt because you have another expense, you know? And so, those are kind of the times when you can have these conversations.

40:43 Emily: Definitely. Again, I love that you’re bringing up any way you can to put kind of a more positive spin on what is fundamentally a really hard situation to be in.

Be Kind to Yourself and Others

40:53 Suba: I guess in the last tip I would say, and I think I’ve said this throughout, is you have to be extremely kind to yourself. I think debt is incredibly stigmatizing. And I feel like I’m somebody who follows a lot of financial blogs and a lot of financial people online. And I think one of the things is we cannot be mean to ourselves or other people about their choices around money. Everybody’s choices are really, really different, and it’s very normal. Especially in this day and age when when people’s jobs are changing so much and maybe they’ve had different circumstances that the only real way to be empowered is to first normalize the fact that this is something that is part of your life. It’s something that happened to you because of a certain set of circumstances, but it’s not something that you can’t control. It’s not something that you eventually can’t get over, you know? And the only real way to be like, I think, empowered is to let go of some of the stigma, especially towards ourselves. We can be really unkind towards ourselves when we make, you know, choices that we don’t think are the best. We should be able to talk about these things a little bit more. And get advice from one another about how to tackle some of these things, even though our situations aren’t the same.

Best Advice for Early-Career PhDs

42:16 Emily: Yeah. And that’s exactly what we’ve done with this interview. And so, Suba, thank you so much for putting yourself out there. So, I like to end with this one question for all of my guests, which is what is your best financial advice for another early-career PhD? It could be related to the conversation we’ve had today, it could be something totally else.

42:34 Suba: I think my best advice is probably two things. One is try to plan, preplan, for changes in your life as much as you can, as best you can. And then the other is it’s never too late to start improving your finances. It doesn’t matter if you are $10,000 in debt, $200 in debt or a hundred thousand dollars in debt. You know, just figure out what your priorities are and see if you can align your priorities with what you want your financial life to look like in the future.

43:08 Emily: Yeah. I don’t want anyone to feel discouraged about debt numbers. I mean even you can look back through the archives, this podcast and I’ve had several interviews with people who are paying off six figures worth of debt successfully. So, it can be done. It does take work, it takes a positive attitude, Suba as you were just saying, it takes organization. But you know what, grad students and PhDs, we have some of those qualities in spades. So, this is definitely something that is tackleable for our community. And again, thank you so much for talking about this topic today on the podcast.

43:40 Suba: Yeah, thank you. Thank you for having me.

Outtro

43:43 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind the scenes commentary about each episode. Register at pfforphds.com/subscribe. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

 

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

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

Links Mentioned in the Episode

PhD debt and underemployment

Teaser

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

Introduction

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

Will You Please Introduce Yourself Further?

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

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

Evolution of Career Plans in Grad School

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

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

When Does Your Graduate Student Position End?

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

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

Plan for Income Until Graduation

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

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

Are You Considered an Employee at Georgetown?

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

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

What is the State of Your Finances at this Point?

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

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

History of Chad’s Student Loans

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

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

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

Accumulation of Credit Card Debt

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

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

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

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

Any Other Debt Besides Credit Cards and Student Loans?

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

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

14:43 Chad: Yeah.

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

Why Credit Cards Over Additional Student Loans?

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

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

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

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

The Balanced Money Formula

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

Commercial

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

Anything Else You Would Like to Share?

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

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

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

Supporting Family Members During Graduate School

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

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

How Does Your Situation Compare to That of Your Peers?

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

Universities Do Not See All of Our Financial Struggles

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

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

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

Solutions for Universities and Individuals

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

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

Are Students Primarily Producers or Consumers?

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

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

Quality Work Requires Quality Pay

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

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

Best Financial Advice for Your Peers

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

Consider Long-Term Financial Goals and Changing Needs

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

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

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

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

Outtro

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