Paying your way: 1.Snag a fellowship or assistantship, borrow wisely or let your employer pick up the tab. ...
By Kristin Davis Michelle Jackson's recipe for financing graduate school is the same one used by many grad students--a mixture of equal parts hard work, debt, and frugal living. A first-year Ph.D. candidate in American history at Texas Tech University in Lubbock, Jackson works as a teaching assistant--leading four discussion groups a week--to earn the $1,300 a month that pays her rent and some of her living expenses. Her tuition and fees (about $7,900) are covered by a fellowship she earned on applying to Texas Tech. And a student loan of about $4,000 a semester covers books and other miscellaneous costs. Assistantships and loans also put her through Baylor University in Waco, where she earned her master's degree. The secret to getting by on an academic stipend? "I lived in the ghetto and ate ramen noodles a lot," Jackson says. With perhaps four more years of graduate study to go, her total debt so far is a relatively modest $20,000. With average tuition and living expenses for graduate school topping $26,000 a year, it can be tough to assemble the necessary patchwork of loans, grants, work, and other resources to get the bills paid. For students who can't pay out of pocket or use parental support, here are the top five ways to scramble together the money: 1.Snag a fellowship or assistantship. This is where the money is for many graduate students, especially those seeking Ph.D.'s. While undergraduates generally receive grants based on need, at the graduate level such awards are usually merit based. At wealthy institutions like Cornell and Yale, virtually all Ph.D. candidates are awarded a fellowship or assistantship that covers tuition and fees, pays a stipend, and provides health insurance coverage. (Fellowships usually have no work requirement, while graduate assistants typically work up to 15 hours a week teaching, grading papers, leading discussion groups, supervising lab courses, or assisting faculty with research.) At less well-heeled schools, top students are awarded funding when admitted, but others need to knock on doors to line up an assistantship and may not secure a position until the second semester or second year. That was the case for Justin Hsieh, a third-year Ph.D. student in mathematics at the University of Pittsburgh. He worked two tutoring jobs his first year to cover living expenses and relied on his parents to pay tuition. Through a professor in his department, he found an assistantship his second year that covers tuition and pays $1,550 a month, enough to take care of books, rent, food, utilities, gas, and car insurance. The bonus: The research he conducts in mathematical biology will dovetail with his thesis project. How much fellowship and assistantship aid is available varies widely depending on your field. In engineering, computer science, and math, 82 percent of full-time Ph.D. candidates and 55 percent of master's-degree students are awarded assistantships, many funded with federal and corporate dollars. Fellowships are also more plentiful in engineering and the sciences--and are often more generous than in other fields. Alik Widge, a Ph.D. candidate in robotics at Carnegie Mellon University, earns $29,000 from a federal National Defense Science and Engineering Graduate Fellowship, but stipends of $15,000 are more typical. In the humanities, only 56 percent of full-time Ph.D. students and 41 percent of full-time master's-degree students have assistantships, and stipends are often lower. Comparatively few assistantships and fellowships are available for those studying law, medicine, and business, which explains why so many professional-school students borrow heavily. Master's-degree candidates in education also tend to finance their degrees with savings or loans, because a majority earn their degrees part time while continuing to work full time, which makes assistantships impractical (and also typically disqualifies them for subsidized student loans). The first step toward getting a fellowship or assistantship is to indicate on your admissions application that you want to be considered for all forms of financial aid. The choicest awards are often made by departmental committees on the basis of application materials and sometimes supplemental recommendations. Several government agencies and private organizations also sponsor outside fellowships that students can apply for on their own. Some of the more prestigious (and competitive) programs include National Science Foundation Fellowships in the sciences, mathematics, and engineering; Mellon Fellowships in the humanities; Ford Foundation Fellowships for minorities (blacks, Hispanics, and American Indians); and American Association of University Women Fellowships and grants for women. Two good online resources are Cornell University's free Graduate School Fellowship Database (at cuinfo.cornell.edu/Student/GRFN ) and the listing of grants at Michigan State University's website (www.lib.msu.edu/harris23 2.Borrow wisely. While six-figure debt is more typical of law and medical school students, 54 percent of full-time graduate students and 80 percent of full-time professional students find they need to borrow to cover their expenses, according to the National Center for Education Statistics. Average debt, including undergraduate loans, tops $29,000 for master's-degree students and $80,000 for professional-degree students. Subsidized Stafford loans are generally the cheapest way to go. Rates currently are just below 3.4 percent, and you can borrow up to $8,500 per year ($65,500 overall). The federal government pays the interest on your loan while you're in school and for six months after you graduate or drop below half-time status. Even if interest rates rise significantly, the loans can't exceed 8.25 percent. Students qualify based on financial need, so it's necessary to file federal aid forms (the FAFSA, or Free Application for Federal Student Aid) to get subsidized loans. If your need is high, you may also be offered a subsidized Perkins loan, with an interest rate of 5 percent. You can borrow an additional $10,000 a year in unsubsidized Stafford loans (and up to $138,500 in Stafford loans overall). Rates are the same as for the subsidized Stafford, and you can defer making payments, but interest begins accruing right away. If your school participates in the Federal Direct Loan program, you'll borrow directly from the federal government. Otherwise, you can choose your own lender. Rates are usually the same no matter where you go, but some lenders waive upfront fees and/or offer attractive repayment incentives that make loans even cheaper. Student loan giant Sallie Mae, for instance, shaves a quarter point off your interest rate if you sign up for automatic payments and then rebates 3.3 percent of your loan amount after you make 33 on-time payments. For students who own a home, a home-equity loan or line of credit is another attractive choice. Many banks were recently offering lines of credit at 3.75 percent or less, and the interest you pay is generally tax deductible. (So is up to $2,500 a year in student loan interest if you earn less than $50,000 as a single taxpayer and $100,000 if you file a joint return. A lesser amount is deductible if you earn up to $65,000 or $130,000, respectively.) If those options don't give you enough borrowing power, private lenders typically offer higher loan ceilings, at rates only slightly higher than those on Stafford loans. Sallie Mae, Access Group Inc., and KeyBank, for instance, all offer specialized loans for business, law, and medical students. As for grad students who are seeking ways to avoid piling on too much debt, there's good news for some: Doctors, lawyers, and teachers who go into public-service work may be able to have their debt forgiven (box, Page 10). 3.Let your employer pick up the tab. Don't overlook your employer as a source of tuition funds. About 44 percent of employees at private firms have a benefit that helps finance job-related educational expenses, and 11 percent can tap their employer's pocket for courses that aren't job related. The percentages are significantly higher for professional and technical employees and for employees of large and medium-sized firms. (Forty-three percent of M.B.A. students receive some kind of employer aid.) At FedEx Express, for instance, about 5 percent of employees take advantage of tuition reimbursement of up to $3,000 a year for work-related courses. Such employer-provided tuition reimbursement is tax free up to $5,250 per year. Naturally, colleges and universities tend to offer the most generous tuition benefits for employees--so much so that some prospective grad students seek out university employment to help fund their degrees. Tuition remission attracts many employees to Southern Methodist University in Dallas, says Robert Bobo, a public information officer for SMU, where full-time employees can take up to 18 hours of coursework a year in any field at no cost. Some schools restrict the benefit to job-related courses or career-related degree programs. 4.Don't miss these tax breaks. Students paying out of pocket for tuition and fees can take advantage of the Lifetime Learning tax credit, worth up to $2,000. The credit equals 20 percent of the first $10,000 you spend in tuition and fees each year. (A tax credit reduces your tax bill dollar for dollar.) A temporary tax deduction is also available for higher-ed expenses in 2004 and 2005. Expenditures for tuition and fees up to $4,000 are eligible. Both the credit and the deduction are available whether or not you itemize deductions. But you can't take advantage of both at once, so you'll probably have to do some number crunching to figure out which one is more valuable to you. If you're fully eligible for both and have $2,000 in tuition and fees, for instance, the deduction is worth $500 if you're in the 25 percent tax bracket, while the credit is worth just $400. But if you have $10,000 or more in eligible expenses, the credit is worth $2,000 while the deduction (in the 25 percent bracket) is worth no more than $1,000. Because the tax credit and the deduction are phased out at different income levels, some students will qualify for the deduction and not the credit. If you file a single return, you're eligible for the full tax credit if your income is $43,000 or less, and for a partial credit up to $53,000. The $4,000 deduction is available if you earn no more than $65,000; a $2,000 deduction is available if you earn no more than $80,000. For married couples filing jointly, the tax credit is fully available with income up to $87,000 and partially available up to $107,000. You can earn up to $130,000 and take the full $4,000 deduction and up to $160,000 for the $2,000 deduction. 5.Use a 529 plan for savings. If you're planning ahead, consider state-sponsored 529 plans as a tax-advantaged way to save for your own educational expenses. While they're generally promoted as a way to save for a child's future undergrad career, most 529 plans allow you to name yourself as beneficiary. The advantage to 529s is that your earnings are tax free when withdrawals are used for qualified educational expenses (including tuition, fees, room and board, and books). Plus, residents of 26 states and the District of Columbia get a state tax break for their contributions, too. Most 529 plans offer investments suitable for those who'll need to tap the money soon. Many plans include bond and money market funds, for instance, and some include a "stable value" option that is essentially an interest-bearing account, often with a guaranteed minimum return of around 3 percent--a decent tax-free return in today's low-rate environment.
