Reader Story: How I Paid Off $18,000 in Student Loans While Still in Graduate School
Published on - March 7th, 2010 (by J.D. Roth) This guest post from Andrea is part of the new “reader stories” feature here at Get Rich Slowly. Some reader stories contain general “how I did X” advice, and others will be examples of how a GRS reader achieved financial success — or failure.
I am a graduate student, working towards a PhD, and I hope to graduate in 2012. Prior to starting my PhD program I acquired a significant amount of student loan debt while working on a Master’s degree. I also had a small amount of debt left over from my undergraduate degree. In total I had accumulated around $70,000 in student loans.
Some people might say that isn’t too bad considering that I already had completed my Master’s degree, and would not be acquiring any new loans while pursuing my PhD. But I had lived paycheck to paycheck for the two years I worked between college and graduate school, and I didn’t want to live that way anymore. I didn’t want that much debt hanging over me, potentially impacting my future career decisions, so I decided to start paying back the loans while still in school.
A rude awakening
While I wouldn’t say that I regret taking out so much in loans for a Master’s degree, and I’m not sure that I would do anything differently if I had the chance, it is different looking at that dollar amount from the other side. I think this is a potential trap that all students can fall into, both undergraduate and graduate, when deciding where to go to school: The financial implications of having to pay back those loans are so far outside your perspective when you sign a promissory note; it’s not until you graduate and have to figure out how you’re going to pay hundreds of dollars every month for the next decade or two that the weight of your decision finally hits you!
It was with the realization that I’d be paying $800 a month for 20 years according to the “standard repayment plan,” and would end up paying as much in interest as the original loan amount, that I decided to embark on a much more aggressive repayment plan. I am very lucky because I have a husband who works full time and is able to help support me while I am in school. I also was lucky to obtain a training grant that is paying both my tuition and a stipend for my PhD program. Not all graduate students are so lucky.
However, I also work very hard to find other sources of income, and for the past year or so I have budgeted my income very carefully to start paying back some of my debt. While my stipend is enough to live on, it would not provide much extra for paying off loans. So to earn extra money I work part time doing research for a professor in my department.
At times it has been difficult balancing work and school, but in addition to providing extra money it also teaches me time management, and gives me extra experience to put on my resume, which will hopefully help me get a better job when I graduate.
I also take advantage of opportunities to be a Teaching Assistant, which pays $1500 (pre-tax) for each 8-week course. Through the combination of my stipend, working part time, and being a teaching assistant, I was able to take home around $36,000 in 2009.
While this isn’t a huge amount of money, it is a pretty decent income for a graduate student. However, what was more important for me wasn’t how much I was making each month, but how I was budgeting that money. I used an Excel spreadsheet to carefully budget my money each month, allocating money for utilities, groceries, car insurance, my Roth IRA (which I max out each year, since it is the only retirement account I can have as a graduate student), and discretionary spending.
Destroying debt
I set a goal of allotting at least $1000 every month to go towards student loans. My budget was not super strict — my husband and I are careful with our spending, but we do go out to eat and to the movies, and we buy things when we really want them. We pay off our credit cards in full each
month, own just one car, and pack lunches.
By following this reasonable budget I was able to pay off $18,246.45 between May 2008 and September 2009. Here’s the break down of how I did it:
| Payment Date | Payment Amount | Loan type |
|---|---|---|
| 5/27/08 | $2,500.00 | Grad, private |
| 12/10/08 | $1,078.77 | Undergrad, subsidized |
| 2/9/09 | $3,000.00 | Grad, private |
| 4/1/09 | $1,500.00 | Grad, private |
| 4/17/09 | $2,253.85 | Grad, private |
| 6/2/09 | $2,000.00 | Undergrad, subsidized |
| 7/3/09 | $2,000.00 | Undergrad, subsidized |
| 8/18/09 | $3,000.00 | Undergrad, subsidized |
| 9/30/09 | $913.83 | Undergrad, subsidized |
| $18,246.45 |
I used a combination of the debt snowball approach and paying off the highest interest loan first. I also chose to make payments in large chunks rather than a set amount on the same day each month. I knew I wanted to pay off the private loan early because it was accruing interest, but I also tackled one of my undergrad loans early on, because I could pay it off in one payment (the December 2008 payment). My final payment in September 2009 paid off the last of my undergraduate loans, just in time for my five-year reunion.
Back on track
For the last few months, I’ve taken a break from this aggressive loan paying, in part because the point I’m at in my degree program didn’t allow me to work as much recently. But I’m ready to tighten my budget again, and plan to devote at least $500 a month to my graduate student loans, comprised mostly of a Federal Direct loan now totaling just over $50,000 because about half of the amount is not subsidized and is accruing interest at 6.8% (a fixed rate — thanks a lot Uncle Sam!). In addition to putting money towards this loan I plan to save money in different “buckets” in my ING account for things like future travels and home improvements.
I wanted to share my story because I am an avid reader of Get Rich Slowly, and I hope I can inspire other young people out there struggling with student loan debt. You don’t have to stick to the “standard repayment plan” — most student loans have no prepayment penalties. Even if you don’t make a lot of money, it is possible to find extra money in your budget to pay down student loans early.
Reminder: This is a story from one of your fellow readers. Please be nice. After nearly a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are.
This article is about Debt, Education, Reader Stories
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Destroy that debt!!!!!!!!
Sorry. I’m just passionate of destroying loan debt.
My student loans were costing more in interest than I could have earned in almost any investment so I found that doing a monthly sweep to the curtailment of my debt was helpful.
Keep up the good work.
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@Leigh
Tuition benefits shouldn’t be taxable. I know that graduate stipends are taxable, but I’ve never heard of anyone paying tax on tuition. That’s outrageous, so much so that I don’t believe it.
@Honey and DeL
It probably depends on the type of school you go to. I am about to get a Ph.D. in history, and way back when I applied at many universities all over the country, all of them offered those they accepted full rides (free tuition, stipend, and insurance). I think in the humanities, it’s downright irresponsible of a school to not do so, considering your earning potential is questionable. This is especially the case now, since the academic job market is essentially in a state of collapse. I was told not to accept admission anywhere that didn’t give me full funding.
I wouldn’t advise anyone to go in debt for a graduate degree, EXCEPT in law, medicine, business, or the sciences. You just don’t make enough when you get out to justify the expense. I guess if you truly don’t care about being in debt forever for a degree that doesn’t translate into higher earnings, more power to you! I just know that I’m bitter enough coming out of a 10 year program (had some personal hiccups along the way, but history takes an average of 8 yrs), that if I had extreme debt, I would be unbelievably upset. In a market in which landing a tenure track job is like winning the lottery, the only real consolation I have at the moment is that I have no debt.
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@ Jane (#52), I wouldn’t even recommend going into that much debt for a law degree because there are simply too many law school grads competing for too few jobs and even fewer high-paying ones. I went to a top 10 law school and some of my classmates graduated with over $100,000 of total student loan debt without a job that could support paying it back in any reasonable amount of time. Some of them will be paying for 25 years and hope to get the rest of the loan forgiven. I took a different route and went to undergrad at a place that gave me a full ride (not my first choice, or even second choice, school, but oh well). I still graduated with $63K of debt from law school but lucked out with a high-paying job. I hated the job so much that I did everything I could to pay off the student loan. I paid it off in 5 years. The people I worked with didn’t understand why I drove my old car and lived like a grad student (I even had a roommate for a while) when I was making decent money, but now, 15 years later, I’m so glad I did because those frugal habits have allowed me to plan for a career downshift before age 45 while my colleagues continue to work themselves into poor health to pay for their fancy lifestyles.
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fwiw, my tuition was added to my stipend income, taxed, then paid back to the university. i was eligible to claim the lifetime learning credit, but as you might imagine it was insufficient to recover my losses.
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#52 I wouldn’t recommend going into much debt for graduate school in the sciences either– there’s waaaay too many bio phds out there getting middling 5 figure salaries.
Masters degrees are often worthwhile investments without full fellowships and professional degrees are also generally worthwhile, but you should really do the cost-benefit calculation on those degrees with realistic ideas of the benefits. Especially consider how much you WANT to be a doctor or lawyer or veterinarian or what have you. (I don’t think anybody becomes a vet for the money! And if you’re getting an advanced degree in social work, obviously money is not your main concern.)
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“Honey Says:
I did not have any loans as an undergrad (national merit scholar) but have about $100K in student loans from my MA and PhD…my MA is in creative writing and my PhD is in rhetoric and composition. I make $40K/year”.
It astounds me that someone who has a PhD (and $100k in student debt!) is making only $40k a year! With zero expenses, zero taxes taken off, zero money to live on, it will take 2 1/2 years to pay off the $100k…how long when will it really take because there are costs associated to living? I’m hopeful for Honey’s sake that the PhD in “rhetoric and composition” (I’m not even sure what that is!) will earn her a much higher salary in the near future so she can begin to make a dent in her HUGE debtload. I didn’t go to university or college, make $67k (Cdn..almost the same in USD with today’s exchange rate!) doing something I love, no fear at all of layoff, excellent benefits and excellent pension plan…adding up the value of benfits/pension/etc with salary, it’s equilavent to earning almost $82k a year. I love what I do, the fact that it comes with a decent salary and great benefits is a bonus.
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I’m not currently working in the area of my degree, my boyfriend is an attorney so I couldn’t do a nationwide job search. But I’m able to handle my debtload comfortably, actually – though I am on the extended repayment plan for sure!
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Wow, that’s quite the story.
In the past five years, tuition and fees at public universities have risen by 40 percent, adjusted for inflation.
Over the same time period, consumer prices in general rose less than 9 percent. Comparisons to tuition costs over the last 30 years are even more dramatic: adjusted for inflation, college tuition is roughly triple what it was in the ’70s.
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Thank you to everyone for all of your comments. I really enjoyed reading other people’s stories about student loan debt. I also realize that while my methods work for me, they may not work well for other people.
@#6 Jane: I chose to pay off undergrad loans first for psychological reasons. It was great to visit my college for my 5 year reunion and not owe them anything! Plus I got a nice letter from them saying that because I paid off my loan, that funding became available to other students. I am not putting money in to high yield savings accounts right now because the interest rates are so low. I may switch to this method if the interest rates go back up.
@#27 Yo: I once read somewhere that you shouldn’t take on more in student loans than you can expect to make in annual salary when you graduate. For my career field (public health) I think I am comfortably within this range.
@#33 Erica: I decided to go to grad school because I knew that in my field of public health the best jobs go to people with MDs and PhDs. I want to be able to get higher level positions where I can be my own boss, and for that I need a graduate level degree.
@#36 Leigh: Working part time has not slowed me down very much. It is stressful sometimes, but it actually helps me with time management, and I tend to be more productive when I am busy. Plus it adds valuable experience to my resume, which will hopefully help me get a job when I do finish. I still expect to complete my PhD in 4-5 years total, which is standard for my program.
@#43 JLA: I am lucky to have a very supportive husband, both emotionally and financially. I realize that not everyone is in a position where someone can help support them as they focus on school and paying off loans.
@#45 DeL: Funding is not guaranteed in my program, and many students struggle to piece together different types of funding. I consider myself lucky to have my tuition and a stipend guaranteed for 5 years.
@#47 zud: My husband pays the entire rent on our apartment, most of the groceries, cell phones, dining out, and health insurance (although I could get basic health insurance through my funding). If I had to support myself completely without his help I don’t think I would be able to put very much money towards my loans. I am very grateful for his support, but it is a financial decision we made together. We both realize that me paying off loans aggressively now will give us more freedom in our financial decisions in the future.
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I like the idea of paying back some amount, $1000 in your case, every month. Following this strategy I used to pay back “atleast” $1000 every month to my car loan accound and I paid $25000 off completely in 9 months ….
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@Andrea (#58) I’m also in graduate school in public health , with a somewhat similar debt load (although I am graduating next month with a master’s). I know having (currently) $77,000 in student loans is a horrible weight on my shoulders, but $18,000 was from undergrad and $40,000 alone was tuition. The other things I covered with my loans I consider worthy investments (I paid my rent and got braces, which came off last week after a year and a half!) I did save $6500 to pay off the variable rate portion of my undergrad loans, effectively consolidating a private loan from Sallie Mae.
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I’m working on a Master’s right now – I work full time and go to school part time. I saved up 1/3 of the cost before I started, will earn 1/3 as I work through the program, and get reimbursed about 1/3 through my employer. I chose to continue to work full time so that when I graduate (debt free) I will have the freedom to take any opportunity I want without having to consider how to pay my loans. It’s not easy, but I would recommend it for those who can manage the demands on their time.
Also, I really agree with Andrea’s comment that the debt doesn’t seem real to students until they graduate. To me, I think that earning the money each month and then paying it towards tuition, plus working 40 hour weeks and then spending time in class or studying, really gives me an appreciation of 1) the amount of money I’m spending on tuition, and thus, 2) a desire to get the best value out of my classes.
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Yeah, and according to today’s Chronicle of Higher Education online, over 1/3 of faculty saw a decrease in their pay last year and an additional 20% saw incomes stay the same. Part of it is the economy, of course, but since tuition is going to be the next economic “bubble,” academia is a VERY dangerous place to be working these days.
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(Long-time reader, first-time post!)
Congrats on paying down so much of that student loan debt so early!
I am in a similar position as the author, with about $80,000 of Master’s degree debt when I graduated nearly 4 years ago. Since then, I have taken a modest paying position with the federal government, and I have been extremely lucky to receive Student Loan Repayment Benefits from my agency. That has taken about $12,000 of principal off in the past 2 years.
Beyond that, I have struggled with the question of where to put my “disposable income” each month. I figure I have three main options: 401k-type plan, emergency/savings, and student loan debt. I have decided to basically halve my “extra money”, one half toward 401k and one-half toward savings/emergency. My student loan interest rates are around 3.5% (variable) at the moment. I figure that I can 1) get a better return than that in my 401k over the long-term and 2) can take money saved up and pay a large chunk of student loan debt should interest rates rise.
Does anyone else have the loan debt, savings, retirement “triad” to contend with? How did you guys figure out where to put “extra money”. No complaints, though…I ENJOY being able to have such a decision to have to make!!
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Didn’t have time to read through all the comments, just wanted to congratulate you. Also, I wanted to thank you. I have amassed quite a lot of debt between undergrad and my master’s ($130,000!), and sadly I am a humanities student. I am taking a year off and looking at having to make payments starting next month. At my current income, I will barely be able to make standard payments ($1500 a month). Luckily I am going back to school, and hopefully I can use your tips to help cut down some of the debt before I finish up the PhD. I really wish someone had sat 18 year old me down and forced me to go to that local public school and not that expensive school out on the east coast. Mer.
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Reading these comments makes me glad I did it my way – I attended grad school on the back of my employer. After a few years working at my job, I was eligible for tuition reimbursement, with a few strings attached, like a commitment to stay at the job for a few years after grad school. I was on the hook for books, parking, and other fees, but tuition was fully paid. Three years later, I graduated from my masters program, paid about $2000 out of pocket, and couldn’t be happier.
I’ve known several people to go straight through the bachelors-masters-PhD route without any real career experience in between. Always made me wonder… why the rush? Especially when so many employers offer tuition support as a benefit of employment.
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#66 Why the rush: Wanting to be a tenured professor, being married, and wanting to have two kids spaced out. It’s horrible, but these days women in my career are only “allowed” (it’s implicit, not explicit) one baby before tenure while still being taken seriously as researchers. And that’s still a lot better than the previous generation. Going to graduate school right away seemed to be the best way to achieve those goals without being a trend-setter.
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I have $20K in subsidized loans from Undergrad, and I have continued to defer them as I’m in undergrad.
Unsubsidized means they don’t collect interest if they are in deferment. As inflation grows slowly each year, that $20,000 seems smaller and smaller.
Eventually I’ll be paying my loans full time, but for now, I continue to defer while in grad school.
Basically, if you have ‘subsidized’ loans (unpenalized for deferment), and considering grad school is a guaranteed deferment eligibility, why in the world do you pay now as opposed to later?
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@Nicole
Well, I must have really not done things right, considering I will have had two children in graduate school (one on the way this summer)! After so many years in graduate school, I basically realized that as a female academic, there’s really no good time to have a child. I figured that people might be more forgiving about taking longer to get your Ph.D. on account of children than they would be having a child on the tenure clock. In my case, it’s all a moot point, since I’ve decided not to pursue a career in academia at all – too many personal sacrifices and a terrible job market turned me off – but timing things right is a real challenge.
I’m intrigued by those who responded to my last comment about not going into debt for grad. school even if it’s in law or the sciences. Since I was in the humanities, I didn’t want to conclude that debt wasn’t wise in other areas for which I have no experience. But I think it’s interesting how many people regret the debt and that their employment prospects don’t improve enough to justify the expense. I’m starting to think graduate education en masse the way our country does it is not a good idea….
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@Jane that’s exactly what I’m talking about. It’s a pass the buck system we inherited, inflate and pass on to the next generation. No wonder those kids outside of berkeley are so mad right now. I seriously think were going to start seeing more protests there and another generation of people disillusioned by the system like we did in the 60s. No jobs and two wars going on right now folks…sound like a replay?
@JLA
wow I really hit a nerve with you.
I’m happy you are a man (still making more than the average woman earns for the same work) who helped support women in school but that is not my choice. I’ve heard too many horror stories from women who supported men like this and the outcome was not good. Also, I’m almost 40 and yes I don’t want to start a relationship at this point in my life with a man or woman with a lot of debt. I’ve seen how the stress affects relationships and I’m not in a position to financially support them. If I were, I’d be happy to. In fact I think they would be better off with someone who could. So drop the gold digging b sterotype towards me. If you want to fly in like superman and save some womans day go ahead. If women earned equal work for equal pay in this country maybe I could too.
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Andrea, you are a very lucky lady with your stipend! Grad school funding in many areas is not as “lucrative” as it once way. I did my MA at a very highly respected school – no one in our program got full funding – and a majority got no funding at all. I had a 1/3 tuition waiver and still had $33k in debt from just that year (2/3 tuition + $1k/month for living expenses). Luckily I still qualified for my parents’ health insurance. Based on discussions with my classmates, only about 50% of them (we were all social science/humanities folks) received full funding – and stipends were more like $10-$15k. Enough to pay your rent & keep you fed, but not much more than that. Then you finish up and take a first year teaching job at a university making $40k/year
You don’t do it to make money – you do it because you love it. I decided not to pursue my PhD after my masters b/c I decided I justMrks didn’t love it enough to make it worth being broke the next two decades.
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Jane– it depends a lot on your field. I’m in a heavily male-dominated field with a shorter graduate school time-frame (economics). I’ve got female friends in other fields doing just fine with kids from graduate school (and others who have dropped out after having kids). I agree that there is no good time to have a child in academia, but I wanted one around age 27 (give or take), and it was better career-wise to do that after graduate school than while on the job market, especially with the potential for infertility etc. I didn’t shift my child-bearing plans, but I did shift when I started school… the earlier I started the more likely I would be finished by the time I wanted to have children. I may even be ready for #2 by the time I’m up for tenure, though we’ll see.
Econ also has a very different job market than the humanities.
You’re not doing it wrong, you’re in a different situation.
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It is so hard to do this, but so worth it. You have to have a master’s degree to be a licensed social worker, so after escaping undergrad with no loans (between scholarships and working part and full time), I took on almost $40k in loans for grad school.
Even though I don’t make much as a social worker (lower $30s is pretty normal to start, and it doesn’t go up much from there) I just remind myself that I’d be making a lot LESS in the same field with no MA, and so I put a lot of that “extra” toward paying my loans early.
I also worked as a research assistant 2 days per week in addition to my 3 days of internship and 9 hours of classes. And I started my own business selling things I sewed and knitted in my “free time.” This is why I came out of school with $40k less loans than my classmates (and no private loans). I do think working outside of my internships helped me manage my time and it was good to have something else to think about occasionally. Plus it was so overwhelming and exhausting, it made me really appreciate graduating
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I personally have $80k in current student loan debt from undergrad, and another $100k from grad school. My wife has $80k in student loans after grad school. Thus, $260k total between the two of us. Mixture of public and private loans. Interest rates are below 5% for all of them. We pay roughly $2k per month in loan payments.
We live in the Bay Area and pay $2500 each month in rent. Anyone out there have more student loan debt than us?
This is not intended as a complaint or “besting”. We’re focused on working harder and making more money, not just scrimping. We plan to accumulate an equivalent amount of $260k in investments rather than pay down the loans. Until the variable loan rates rise above our expected rates of return on our investments, we’ll take our merry time in paying them down. I’d much rather have higher-yielding assets as a security cushion..
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Federal training grants DO NOT ALLOW graduate students to take outside employment. The stipend is meant to support the student in the PhD program, not pay back loans previously taken out.
Be aware of the terms of your own training grant.
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Wow-excellent story. My son is headed off to college in the fall. He earned a ROTC scholarship that he can use at a private university but he still will have to pay for housing. I love you perspective looking back at the debt and your aggressive nature to get out of it.
Jana
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Mike B, yes, I started off with $185K and my husband had the exact same, from medical school, the final year is at 6.75%. Graduated 3 years ago and I’ve got it down to about $175K for myself, but my husband has not paid anything but the interest.
“besting” on loan debt is not very satisfying
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Congratulations! I did something similar–as an undergraduate who, very fortunately, qualified for financial aid, I took out only subsidized loans and grants. Throughout college, I always had a job and minimized my expenses as much as possible. I also used the “basket technique” (although I didn’t know the term for it at the time) to set aside aid money that I did not utilize. While my peers saw aid money as supplemental, I saw it as emergency money. When I graduated, I was able to pay off my student loan in full after letting it sit an collect interest for upwards of three years. It was a lot of work, but it was worth it! Congratulations again!
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@44 &45: In the comments I get a feeling that people with a PhD expect higher wages or someone to bail them out!
Now if you had done a PhD out of the love of learning or the love of the subject, I think wage should not be a consideration, but you should live will the millstone of the debt if your degree cannot fetch you a worthy wage.
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@#75 BB: I made sure when I first received the training grant that I would still be allowed to work part time. I was told that it was fine as long as I was not claiming work hours for time spent working on my thesis – so I wasn’t getting double paid basically. I think the rules vary at different schools or funding sources. I agree that you should absolutely be aware of the rules of your funding source regarding outside employment – I’m lucky that mine allows it.
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Does anybody know details for educators? I’ve read that their loans will be forgiven after 10 consecutive years of working in public schools. Does this include private educational loans? I’ve read stuff on Fastweb but would like to know if any of you know more…thanks in advance!
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That is so inspiring. It looks like you also living a smart lifestyle too- no credit card debt and only one car. I am trying to pay off my credit cards and then will using the debt snowball to pay off my student loans.
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