The decision to go to graduate school is usually an expensive one, and most students are willing to borrow large sums of money for an advanced degree.
According to Sallie Mae’s inaugural report on “How America Pays for Graduate School,” the majority of grad students say an advanced degree is the new minimum standard education level for any profession. On top of that, the survey found that only 12 percent of graduate students based their enrollment decision on cost – prestige and other factors were more important.
“The vast majority of them are willing to borrow to pay for grad school. They see graduate school as an investment in their future,” says Ellen Roberts, a spokesperson for Sallie Mae, the Delaware-based company that offers private student loans.
Many master’s and doctoral degree programs are costly. For instance, an engineering grad student at Stanford University in California can pay more than $50,000 a year for the 2017-2018 sticker price; multiply that tuition by two years and the full published cost is more than $100,000.
But experts say many graduate students are willing to pay a hefty price tag for a boost in salary. In fact, 53 percent of graduate students in the Sallie Mae survey said they were using student loans – federal or private – to pay for their advanced diplomas.
In assessing whether a grad degree is worth a large loan balance, here are three guidelines prospective students should consider before plunging into debt.
1) Borrow only as much as your entry-level salary. “There’s a standard rule of thumb that you should not be borrowing more than what your expected first-year wages are,” says Mark Schneider, vice president and an institute fellow at American Institutes for Research. He’s also the co-author of the American Enterprise Institute’s January paper “The Master’s as the New Bachelor’s Degree: In Search of the Labor Market Payoff.”
[Find out how to weigh the cost and benefits of graduate school.]
The recent AEI paper analyzed postgraduate earnings data from three states and found that certain master’s degrees were more likely to have higher remunerations. The study found that a master’s degree in business, engineering or real estate often led to higher-paying occupations. The typical pay in Texas for a chemical engineer five years after earning a master’s degree: $130,000.
“If you’re going to make $100,000 a year, then borrowing $80,000 is fine,” Schneider says. “But if you borrow $80,000 with expected earnings of $30,000, then that is not fine – you’re going to be in trouble unless you have some other income.”
[Find out how to calculate the return on investment of a graduate degree.]
2) Consider the labor market payoff. “Most health care graduate degrees are a safe bet,” says Kallen Diggs, a Colorado-based career strategist and author of “Reaching the Finishing Line.” “There will always be sick people, which offers the health care industry stability and the opportunity for growth.”
Experts suggest looking at job outlook data published by the Bureau of Labor Statistics to gauge demand in certain occupations that require a graduate degree. For example, a pharmacist, which requires a four-year doctoral degree, earns around $120,000 as a median salary nationally, according to BLS data. And demand for the profession is expected to grow by 6 percent during 2016 to 2026.
But experts say prospective students should note that compensation and demand may vary regionally and that figures from the BLS Occupational Outlook Handbook are an aggregate of national data.
3) Evaluate whether prestige is important in your field of study. Most graduate students, according to the Sallie Mae report, selected their school choice based on convenience or prestige. That trend is prevalent among nearly all grad students in all fields – engineering, social sciences, law, business and medicine, to name several.
But experts say picking prestige over costs may only pay off in certain fields such as business. “There are going to be some rewards for some high-brand, prestigious programs, but we’re not in a position to measure that,” Schneider from AIR says.
[Find out how to calculate the return on a master’s degree.]
Scott Rostan, founder of Training The Street, a New York-based company that prepares college and b-school grads for finance jobs, says most well-known financial companies only recruit at well-known, top business schools.
Most often, these schools publish a sticker price that exceeds more than $60,000 a year. For example, at the Wharton School at University of Pennsylvania, the annual tuition is $67,516 a year.
But Rostan says an expensive MBA program at a top school can pay off in terms of recruitment opportunities and extensive alumni networks.
When it comes to recruiting b-school students, he says: “Many times the schools are prestigious because they’re known quantities. You’re not going to get in trouble for hiring someone from a top business school.”