To print article, click Print on your browser's File menu. Go back   Get market news by e-mail See if refinancing works Personal finance bookshelf Letters from MSN Money readers Find It! Article Index Fast Answers Tools Index Site map Recent articles by MP Dunleavey: • 7 ways to fight off bankruptcy, 11/26/2005 • The 13 worst holiday spending blunders, 11/21/2005 • 15 worst holiday gift ideas, 11/18/2005 More...		Uncommon Sense The true cost of changing careers Just getting the education your dream job requires can cost a bundle. Consider all the trade-offs before taking out your student loans.  By MP Dunleavey Editor's note: Columnist MP Dunleavey and eight other women have come together online to strip away the myths surrounding money, lay bare their assets and liberate themselves from debt. Follow the quest for financial fabulousness of these "Women in Red" every second Monday in Dunleavey's column on MSN Money. When my husband recently decided to go back to school and get an advanced degree, I was relieved, happy and proud. Even though his new career path would require some temporary financial sacrifices, I knew it would be worth it so he could move ahead. Typically of me, I kept those sacrifices swathed in fluffy white clouds of denial -- until Women in Red member Beth announced that she would be going back to school as well. She was a nervous wreck. Don't let retirement sneak up on you. Create a perfect plan. It takes a village to wake you up Not one for fluff or denial, Beth dissected the fiscal realities of what her career shift would mean for her family, their cash flow, their retirement savings, their debt, the cat and so on. This inspired me to pick several gorgeous fights with my husband, and to cry a lot. I simply hadn't wanted to face the fact that, while changing careers may yield a better salary and lifestyle down the line, the upfront costs of that additional degree are daunting. Related news and commentary on MSN Money • Pick a job that wont go overseas • 5 steps to starting over at midlife • 8 smart ways to invest in yourself • 7 women get naked, financially • Meet the 'Women in Red' In addition to digging up thousands of dollars to pay for tuition, books and fees, you also have to factor into your grad-school equation: how to replace the loss of income how it will change your lifestyle how much it might cost to relocate how much student loans would cost over the long term how to resist the temptation to go deep into credit-card debt how you'll handle years and years of eating beans. Studying on borrowed money According to a 2002 survey by student-loan lender Nellie Mae, 72% of graduate students said student loans were very or extremely important in allowing them to pursue their studies. Thats not surprising. Not only do about 60% of all grad students have to borrow money, the average amount of student-loan debt they incur is about $46,000, according to Nellie Mae. This varies greatly according to your career: The average medical student borrows a cumulative $113,000, according to FinAid.org a financial-aid Web site. On top of that, many graduate students increasingly turn to credit cards to help with bills and living costs. While Nellie Mae didn't find that the number of grad students with credit cards had increased, the amount of debt they'd accrued had shot up to $7,831 in 2003, the latest figures available, compared to $4,925 five years earlier. Good debt vs. bad debt The standard personal-finance line is that education is "good" debt. In theory, the amount you borrow should be viewed as an investment in yourself and your career, which will eventually yield a better job, income and quality of life. But that assumes that what you pay to get the degree will come back to you in the form of those professional gains -- which isn't always the case. Beth, for example, plans to attend a one-year program to become a licensed massage therapist. After being out of work since her layoff in June, she decided it was time to make a career change. But it's unclear whether Beth's new career will ever be as lucrative as her previous post with the government. Likewise, my husband plans to get a master of fine arts degree in fiction, which will allow him to teach, in addition to continuing his love of writing. But the starting salary for a teacher, particularly at the college level, is much less than he earns now between tending bar and freelancing. Calculating all the costs While the cost of Beth's training program is only about $6,000 for tuition, books and materials, she and her husband have to find a way to pay for that and make up the loss of income while she trains. Although it's been rough being unemployed, suddenly there's a silver living. Thanks to the forced cutbacks these last months, she and her husband are used to living on less. They only need to replace about $20,000 to cover their expenses while she's studying, compared to $50,000 if she'd segued directly from her full-time job. To cover expenses, they plan to take out a $15,000 student loan and borrow some money from family. Her husband will also take on some extra work. Mark Kantrowitz, publisher of FinAid.org, says that a good rule of thumb is to make sure your total graduate debt is no more than your first year's salary, a rough formula that keeps monthly loan payments affordable. (You can use this calculator.) A 2002 Nellie Mae survey found that borrowers who pay less than 7% of their monthly gross income toward student loans can do so fairly comfortably. As your debt-to-income ratio climbs, so does your stress. That's a significant factor for my husband and I to weigh. Most MFA programs cost between $20,000 and $40,000 for two years. The starting teaching salaries we've heard about range from about $15,000 to $35,000 a year. How to offset costs That said, earning power is not the only reason to switch careers. In fact, for some the downshift to a lower-paying but more satisfying career -- which is what Beth and my husband are aiming for -- is the whole point. Either way, it's important to remember that massive debt is not inevitable and should be avoided at all costs. Thankfully, there are a number of Web sites geared to help would-be students find grants, aid and scholarships, from the free scholarship search at FastWeb.com and the College Board sites, to MyRichUncle.com, a non-traditional loan program, and the many resources compiled by student Karen Kelly on her StarvingStudentScholarships.com Web site. (See more links to the left.) In addition, graduate students can get several tax breaks, if they qualify. Depending on your income and other factors, these may include: The Lifetime Learning Credit, which allows you to reduce your total taxes by an amount equal to 20% of up to $10,000 in tuition and fees. A deduction for qualified higher education expenses of up to $4,000 per year (you can take either the LLC or the deduction, not both). A deduction for tuition, books and fees if your graduate work does not train you for a new field but advances you in your current one. A Student-loan interest deduction of up to $2,500 a year. According to the Employee Benefits Research Institute, a growing number of employers offer tuition benefits, too, so make sure to ask if your company might fund part of your education. God bless the blog When I put the question of how to afford higher education to the gals on my blog, they added the following brilliant suggestions: Getting even a lowly job at the college where you want to study can get you great tuition credits. Kris reports that she was able to take two classes per semester, and "it cost me less than $200 per semester plus books." Get MPs free newsletter by e-mail Sign up to be notified whenever MP publishes a new article. Your e-mail address:   Learn more about newsletters   In the same vein, go all out for teaching fellowships, research assistantships and the like. K2 says she saved a bundle by getting a job as a live-in resident advisor in a dorm at a nearby boarding school during her first year as a grad student. "This gave me three meals a day, a place to sleep and a $20 monthly stipend I saved to pay for gas." Don't assume that in-state tuition will be cheaper for you. Some private colleges have more aid to give. Have frank conversations with the financial aid officers at the schools you're investigating. Consider an online program; they're often cheaper (although if the program is not accredited, you may not qualify for tax breaks). One last thing: According to Kantrowitz at FinAid.org, it's especially important for future students to be cost-savvy now. As of July 2006, the reauthorization of the Higher Education Act will take effect, effectively raising student-loan interest rates and making it harder for students to consolidate their loans after they graduate.
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