How I paid off $18,000 in student loans while still in graduate school

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.

More about...Debt, Education

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Tiredofbeingbroke
Tiredofbeingbroke
10 years ago

Great job on paying off that much debt and work on your phd at the same time. One thing that stood out was your comment on the promissory note. You are absolutely right. As a 18 year old freshman signing those notes everything seemed so abstract. No where was repayment even on my mind. Schools and parents have to do a better job of educating young people about debt.

Erica
Erica
10 years ago

Great post. I agree 100% that when we are 17 or 18 years old, most people have no way to grasp the scale of what we are signing on for with student loans. When I went to undergraduate school, I was very angry at my dad for backing off my parents’ promise to pay for undergraduate school. Ultimately, it was a blessing in disguise (and I’ve gotten over my youthful feelings of entitlement now!), since that conflict made me choose my #3 school because it gave me a full scholarship for four years including room and board. I went on… Read more »

Lakita (PFJourney)
Lakita (PFJourney)
10 years ago

Congrats in making a huge dent in your student loan debt. You’re right…I don’t think it computes when you are signing the promissary note exactly what impact that will have on your future. I wish I paid more off while I was in college…though my monthly payments aren’t too bad.

Thanks for sharing your story!

Zappa
Zappa
10 years ago

My advice: if you have the opportunity, come and study in Canada, preferably in Montreal (McGill University is rated amongst the world’s best universities). It’s much cheaper than in US.

Kristin
Kristin
10 years ago

Andrea, will you be my new best friend?!?! Haha! Reading your post, I felt like I was reading a story written about my life! My husband and I are also PhD students. Our tuition is covered by our respective programs, and we receive small stipends (totalling $20k) combined. To supplement our incomes, we are both working part-time jobs and teaching courses. Like you, we also utilize Excel spreadsheets each month–so that we know exactly where each dollar will go. There are days in which we are so exhausted and wish that the next few years would be over NOW… However,… Read more »

Jane
Jane
10 years ago

Inspiring story. I also paid off my student loans while getting a Ph.D., but they were MUCH lower ($12,000 total). I didn’t actually start paying on the subsidized ones until I could no longer defer them (I went half-time in the system and didn’t qualify anymore). I don’t really understand why you chose to pay off the subsidized ones first, since the government would be paying the interest while you were full time in school. I certainly understand the concept of the debt snowball, but I’m not sure how it made any sense in this case. They could have just… Read more »

David
David
10 years ago

I have to say, walking away from undergrad and grad with $60K in debt, everything Andrea described was the exact same for me when the student loan bills started arriving. In undergrad, I remember thinking taking out that much debt was necessary so I didn’t think about the repercussions when I signed the MPN. Looking back now, I wish I had been more aggressive in taking out only what was absolutely critical and supplementing the loans with other forms of grants, scholarships, etc. Awesome post, definitely speaks to a large swath of recent graduates and helps others focus their efforts… Read more »

Chris
Chris
10 years ago

Andrea, congrats on all your hard work! I think you’re right on the ball when comes to discussing taking out student loans. Most kids in their teens really don’t grasp what a huge commitment it is to borrow $30,000-$50,000 (or more) for college. I was extremely fortunate to have a parent work at a college and give me the opportunity to attend tuition free. Maybe a small part of me regrets not having the opportunity to more freely choose my career path. But being older and wiser, I look back and realize what a great relief it was to have… Read more »

Meredith
Meredith
10 years ago

My husband and I both racked up student loans – totaling ~$60,000. Wish we had the foresight to hunker down while we were used to living like grad students – or at least to continue to live like grad students when we landed our first jobs out of school. Our default was to spend what we earned – to enjoy being able to finally do that.

Do you think that GRS will still be around in 10 years – I sure want my daughter to benefit from this… 🙂

Lady J
Lady J
10 years ago

I am planning to attend graduate school next year. I wanted to go to an art therapy program out of state but financially and logistically, I can’t justify it. Also there would be few scholarships/grants and I don’t think there are any teaching or research assistantships. So I’ve decided to look closer to home, and am considering a couple different programs at different schools – the degrees are slightly different but all will effectively get me where I want to be. I was trying to narrow down my choices and completely forgot that I can apply to all 3 schools… Read more »

Dotty dot dot
Dotty dot dot
10 years ago

Thanks for sharing your story, Andrea. I have a story that compliments yours, but with a twist. I was fortunate not to acquire any debt in my undergraduate schooling (I’m currently wrapping up my PhD). This was due to generous parental aid. Once I got to the MA program, I was on my own, but had funding from scholarships and bursaries. Up until the second year of my PhD program, I was basically living paycheque to paycheque. I didn’t have any debts, but my bank account was hovering just above zero and I did not like being in that situation.… Read more »

tas
tas
10 years ago

I noticed that some of the loans you paid off were “subsidized,” but later you mention that half the remaining loans are “unsubsidized.” I realize some of this was a moral booster (and I think that’s a great idea), but the difference between the two types of loans is important in terms of how much you will pay over the life of the loan. For subsidized, the government pays your interest while you are in graduate school; for unsubsidized you do. And that interest in the latter case adds up & is then added to the principle after you graduate.… Read more »

elena
elena
10 years ago

I paid off my undergraduate loans during and within two years of graduating. It was one of the better decisons I made in my 20’s. I think if I had been able to make like decisons with my credit cards, I’d be happier today.

Adrian
Adrian
10 years ago

As an undergrad student going on to do his Masters, I want to thank you, Andrea, for this timely post. Not only is it informative but it validates my similar approach: at 24 years of age I’m currently in my final year of undergrad, and have been ruthlessly paying down my previous loans from the first and second year while attending school. (I stopped taking loans after doing the math and realizing the horrific interest that would ensue, as well as after speaking to several unemployed graduate friends in the same field. It’s simply a risk I am unwilling to… Read more »

BibleDebt
BibleDebt
10 years ago

Great encouraging story! Once you get out of school, continue to live like a college student for a couple more years and knock the student loan debt out. A little more sacrifice like this will help you eliminate that $800 payment for the next 20 years! Imagine how that will change your budget in just a few short years. I hope you are able to provide a follow up article in a few years to let us know how things played out. Good Providence!

A.G
A.G
10 years ago

Thanks so much for your post! I have been a long time reader here but never commented before. I am currently gearing up to start my ph.d and this is an excellent reminder that I CAN pay off my debt while in school. Again, thank you for this article!

Funny about Money
Funny about Money
10 years ago

That’s an impressive story. I’m going to share it with my students!

Ryan@TheFinancialStudent
10 years ago

Timely post! I only have another month or so before I have to make a decision on where to attend undergrad. Part of me just wants to say screw it and go to the expensive out of state university. But then my logical side tells me that it’s a mistake and to go to the cheaper in state school. You are 100% correct that it’s almost impossible to understand what paying back hundreds of dollars every month will feel like. Right now, it’s so easy for me to say that I don’t care about paying back 60-80k(price of the out… Read more »

Jan
Jan
10 years ago

Nice job, but it convinced me even more that parents should help a child through their undergrad. You might be able to make huge money after a Phd (and you must be shooting for that since you think $36,000 is a pittance), but most undergrads do not make near that amount. I have no interest in having my grandchild crushed by debt when he graduates from college in 20 years.

Karen
Karen
10 years ago

Great job Andrea! It took a lot of hard work and discipline to accomplish what you did. I’d like to say how proud of myself I was when I went back for my Master’s degree while going through a divorce, I was able to get an Assitantship which paid my tuition plus a stipend, allowing me to graduate owing only $2,000! This was in addition to working a part-time job, and in my last year, completing an internship. What people need to understand is that the “dream job” is not always out there when you graduate, and your ability to… Read more »

Nicole
Nicole
10 years ago

Way to go on your debt payment so far! 70K is a lot, but you can do it! DH and I paid off 10K of his (unsubsidized at 8.5% interest!) loans back the first year of graduate school. My stipend was 18K, his was something like 20K though he got a signing bonus of 2K or so. We lived in Boston so rent ate half of that (we broke a lease on a 100 sq foot apartment when we got into a 300 sq foot subsidized university apartment late in the semester– the penalty was worth it.) I had about… Read more »

Holly
Holly
10 years ago

You are definitely right about not understanding what all these loans will mean once you graduate– 20 years of paying hundreds of dollars a month! I was the first one in my family to go to college and of course believed that the jobs I would get with my college degree would pay waaaaay more than my parent’s jobs. Well it does, but once I factor in those loan payments, it’s really not that much more. It took a few years for me to be making enough to cover all my bills and then actually be able to afford other… Read more »

Alex
Alex
10 years ago

I can’t say AMEN enough to this story. Both my husband and I are graduate school educated and took on significantly more debt than is mentioned in this story. Between the ages of 18 and 25, we were just trying to get by, living on part time jobs, ramen noodles, and spaghetti, but still ended up with significant debt due to the school we atteneded (small private college). When we both got our degrees and we sat down to plan our life out with “normal” jobs, it scared the crap out of us! We are essentially paying for a non-existent… Read more »

Meghan
Meghan
10 years ago

Andrea, your story really resonated with me. I found myself in a similar situation a year and a half ago, but chose to do the opposite of what you have done. I’m also a PhD student and will finish in 2012. I took out 28K in student loans in my undergrad so that I could focus on school and not have to get a part-time job. Hard work paid off and when I started my master’s I got scholarships, and a RA and TAship to cover my tuition and living expenses. I wish I had the foresight to save some… Read more »

David/Yourfinances101
David/Yourfinances101
10 years ago

I love the combination approach.

I disagree with using the straight debt snowball approach, because although it might be better psychologically, it costs more in the end.

Great job

DeL
DeL
10 years ago

This is such a timely post…I’m going to be starting a PhD program in the fall and my husband has two years to go in med school. I was freaking out about being able to afford everything, but seeing this post and the above comments made me realize that it IS possible.

Would other readers be willing to share how they cut back on expenses to make ends meet during grad school? I’ve been reading some great tips above and want all the info I can get!

Yo
Yo
10 years ago

Student debt is one of the biggest scams in this country between financial institutions and government. Do you realize that if we were citizens of Dubai we’d have our entire educations paid for? I went to a state school I could afford but was one of the first generations in college to be heavily marketed to with credit cards. (a practice I’m now told just got banned) I graduated with credit card debt but felt worse for my friends who went to big name schools and owed tons of money they could not just stop paying on. Sometimes I feel… Read more »

ami | 40daystochange
ami | 40daystochange
10 years ago

Congratulations on hitting your financial goals so quickly. You showed tremendous discipline! Your story should provide both a warning and a hopeful note to current and future grad students about managing the cost of education.

Molly On Money
Molly On Money
10 years ago

#27 has a point. I read an article recently (maybe the Washington Post? Argg…my memory is going!) that ran results of a study that was done on people that had college degrees. The income people with college degrees were not based on the type of college they went to! People that went to state schools were making as much or more as people that graduated from an ivy league school. The study went on to find the important factor was how much drive the person had.

Alissa
Alissa
10 years ago

Thanks so much for sharing your story. I too am in grad school for a PhD. I’ve been on track for a few years to get my finances in better shape. I arrived at grad school having paid off all of my credit card debt. And last year I started working on paying off my unsubsidized Stafford loan. Did you know with Sallie Mae you can request that your payments be credited to a certain portion of your loans? While I only send them $90-100 each month, I make sure to request that it get credited to my unsubsidized loan… Read more »

Nicole
Nicole
10 years ago

It’s important not to discount private schools entirely– some of them give much better financial aid than private schools, especially for middle class families. Our (underfunded) flagship state school would have ended up costing both my DH and me more than our respective (highly endowed) private schools did; even with 3x the stated tuition, the scholarships we got more than made up for the difference. Our private graduate schools also offered larger stipends than the public ones (Berkeley made a big mistake sending its financial aid offer in the same envelope as the estimated cost of rent in student housing).

kaitlyn
kaitlyn
10 years ago

I have $60K in student debt without even the benefit of a masters, just my own stupidity in undergrad (Go to the school offering me a free ride? Of course not. I’ll go to the ONE school not offering me a scholarship).

You live, you learn, etc. I’m finally seeing a light at the end of the tunnel for one set of loans. The other set? *sigh*

Erica Douglass
Erica Douglass
10 years ago

Good article. I’m always curious about the reasons people attend grad school. I’m 28 and have watched many of my high school classmates go to school…some of them are still in school at age 28/29! Granted, there are some jobs that require grad school, but overall, I see a lot of people just “default” to grad school. I always wonder why, when there are so many opportunities to start your own business and/or work in a small business, people continue to get degrees instead–and fall farther into debt to do so. I realize this is a bit offtopic, but it’s… Read more »

Dotty dot dot
Dotty dot dot
10 years ago

@26 DeL, Here are a few tips I’ve picked up along the way to save money in grad school. I do many things, but these ones are grad-school specific: 1. Don’t drink. There will be social events, there will be booze. Drink water. It’s free and you won’t wake up with a headache or a dent in your wallet. 2. If public transportation is included in your tuition fees, make the most of it. Alternatively, walk or bike anywhere that you can. 3. Ditch cable. And if you have a cell phone, ditch home phone. Sign up with Skype for… Read more »

Michael Crosby
Michael Crosby
10 years ago

Maturity=Realizing the simplicity that comes with the easy loan, requires steadfastness, discipline and hard work in paying back.

leigh
leigh
10 years ago

how much more quickly would you finish graduate school if you spent your time working on your degree rather than working for extra money? you may be extending your time living on a crappy stipend by trying to tackle your loans that aggressively. US PhDs take long enough already, and stipends are lean. not that a postdoc salary is worlds better, but you have a lot more doors open to you. just something to consider. my PhD took 5 years of 150% time-effort (60+ hour work weeks, and during the last few months i exceeded 100 hours per week.) had… Read more »

Nicole
Nicole
10 years ago

Leigh– I think if you do work for extra money it’s important to do something that furthers your career. Research assisting or TAing (in moderation) for example, can help you get a job later, teach you skills, or could lead into coauthorships and less stress as a first year assistant prof. I also know some people that did relaxing jobs that they could earn money at when their brains were otherwise dead (student advising, for example). I felt that the volunteering I did outside of graduate school helped me stay centered (though I didn’t start until late in my graduate… Read more »

mbelousov
mbelousov
10 years ago

This is exactly why I didn’t even consider going to school after I got a good enough diploma. Completely bypassing the whole debt to your eyeballs and eating noodles. Went straight to work, saved up (and stayed completely out of bad debt), invested and hopefully retire around 30… Without paying out the nose for a shiny piece of paper that says I know stuff. I know that I know what I know, and I don’t need a piece of paper to remind me (if that makes any sense). Good luck to all of you who are going the school route.… Read more »

mimms
mimms
10 years ago

@33 – I went to grad school for a career-related degree after having been out of school for give or take a decade. I was able to turn that ~$25K out-of-pocket investment into a $15K/yr raise plus increased benefits including a defined benefit retirement and lifetime insurance in retirement. The extra money is helpful, but the real benefit comes after I retire.

My spouse will have retirement benefits in one system, I’ll have them in another, so hopefully we’re spreading our risk.

Anyway, that’s why I went to grad school.

Honey
Honey
10 years ago

I could relate to this post as well. I did not have any loans as an undergrad (national merit scholar) but have about $100K in student loans from my MA and PhD. I went straight through (started my MA when I was 22 and my PhD when I was 24) so I really didn’t understand how tough it was going to be when I graduated. I have some credit cards, too, so I’m on the 30-year repayment plan and currently paying interest-only on the student loans (though I will switch to a different payment plan once the credit cards are… Read more »

leigh
leigh
10 years ago

I know that I know what I know, and I don’t need a piece of paper to remind me

i personally view my doctorate as a piece of paper that says i have some glimmer of an idea how much i DON’T know.

and i get to list three extra letters after my name on my CV. woo.

JaM
JaM
10 years ago

Kudos to Andrea the author of the article. But I find the comments equally interesting. JD: It would be interesting to do an educational profile survey of your readers to know the # of PhD, Grad, Undergrad, HS diploma readers you have. Is there a corelation between advanced degrees to personal financial education? To the point of this article & comments – chosing to pursue what you enjoy has an associated cost to it. If it is a PhD or Grad degree in some obscure field that is not going to pay for itself then Uncle Sam, President Obama or… Read more »

JLA
JLA
10 years ago

Congrats on getting such a big part of the student loan out of the way! Those types of loans are like financial cancer because if you (god forbid) go into bankruptcy they can’t be absolved. The loan interest itself could eat you alive. I admire that you set up a budget and really went to the mat to get that stuff done, and I hope that are extremely grateful that you have a husband that is behind you and can support you through this. Honestly though, I don’t think a person could erase a loan like that without outside help… Read more »

Nicole
Nicole
10 years ago

#42 “Is there a corelation between advanced degrees to personal financial education?” In the Health and Retirement Survey, there is a correlation between financial literacy and educational attainment. I’m very confused by the statement at the bottom, “If it is a PhD or Grad degree in some obscure field that is not going to pay for itself then Uncle Sam, President Obama or your fellow neighbours are not/should not be responsible for your debt!!” Nobody is paying for graduate student debt (except possibly the university with the graduate program or other sources of scholarship) except the debtor. You can’t even… Read more »

DeL
DeL
10 years ago

@34 Dotty dot dot- Thanks so much for the tips! I especially like the one about letting professors know that you’re available to do extra research work for $…will also help with the resume-building.

@42 JaM – Most (I’m willing to bet 95%) PhD programs come with a full-tuition scholarship, stipend, and health insurance. I don’t plan on incurring any more debt…@44 Nicole is right – no one bails you out from your student loans.

Honey
Honey
10 years ago

@DeL – not in this economy. I work for a department that has 4 PHD programs and do all the admissions and financial aid…only the top 10% of our incoming class is offered tuition, stipend, and health insurance. The other 90% are on their own dime, and it’s becoming increasingly common.

zud
zud
10 years ago

thank you for sharing your experience. can you be more specific as to how your husband is supporting you? from your 36K earnings what additional expenses would you have to cover if you were not dependent on him?

JLA
JLA
10 years ago

@#27 “Now that I am debt free I have been meeting/dating guys just out of masters/phd programs at great schools (a good catch right?) but they have huge debt so I lose interest in planning a future together. How does this affect how you all date?” Wow. So, in essence, it doesn’t matter what kind of person they are emotionally, intellectually, if you’re both compatible, life goals, if they have a bright future, if they have student debt, drop’em like a hot potato?! Jeez, I hope when you do find someone that they don’t make any kind of debt (business,… Read more »

leigh
leigh
10 years ago

sure, in some fields the programs offer tuition and stipend benefits. the tuition benefits are taxable (in my case, it came to about $45k/year!) health insurance is awful (i took on $11k in student debt to pay off the hospital one year.) and if you’re working as much as you *should* be toward your degree, your effective pay rate is about minimum wage. also, many stipend contracts come with the provision that you cannot seek additional employment. you are expected to devote full effort to completing your program so that you’re not wasting time doing other stuff, delaying your graduation,… Read more »

Nicole
Nicole
10 years ago

#49 If your tuition reimbursement is taxable then your school is doing it the wrong way. It hasn’t been taxable since the 1990s. Has that changed recently (if so I’m surprised I haven’t heard about it)? And student health insurance in MA is amazing– much better than what I’ve got now. ETA: Just checked my graduate school– they still say on their tax page that the tuition scholarship portion is not considered income. #45 Re: stipended graduate programs– this depends a LOT on your field and the institution. In my class of ~30 only one person did not have at… Read more »

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