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Three Apartments … Need to Choose One

Purpose of this article: to help a graduate school student choose between three apartments.

Overview:

Sienna Nelson is on her way to UT Austin College of Pharmacy this coming Fall where she is pursuing her Pharm.D. degree. As mentioned before, the estimated total cost of attendance is $172,886 of which about $88,000 is budgeted for her cost of living (about $22,000 a year).

With a tight living budget, Sienna is trying to decide between three apartments with different monthly costs, levels of amenities, and distance to school.

Below is a quick cash outflow analysis created to help her decide which apartment to go with. Excel file has been attached below and can be sent upon request.

Apartment 1: $945 monthly rent, no laundry or dryer:

Apartment 1 is a 5-minute walk from the bus stop that Sienna will take into school each day. Since she is very close to the bus stop, her plan is to save on fuel costs by walking to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin is that bus transportation is free for all students with an I.D.

Because her apartment under this scenario is a 5-minute walk from the bus, Sienna will walk to the park and ride each morning and not incur any additional travel cost.

Since her apartment under this scenario doesn’t have a laundry or dryer machine in her unit, she will have to use the shared laundry and dryer machines downstairs. We estimate that it will cost her $30 a month. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

Apartment 1, laundry, and travel to school each day is estimated to cost Sienna $11,752 each year. Over the next four years of school, that equates to $47,008.

Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized.

Apartment 2: $1,033 monthly rent, laundry & dryer:

Apartment 2 is a 1-mile drive from the bus stop that Sienna will take into school each day. Since she is semi-close to the bus stop, her plan is to save on fuel costs by driving a short distance to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin, is that bus transportation is free for all students with an I.D.

Because her apartment under this scenario is 1-mile away from the bus stop, Sienna will need to drive to the park and ride each morning. We estimate that will cost her $6 a month in fuel.

Since her apartment under this scenario does have a laundry and dryer machine in her unit, she will be able to save some. We estimate that it will cost her $8 a month in energy to wash and dry her clothing. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

Apartment 2, laundry, and travel to school each day is estimated to cost Sienna $12,611 each year. Over the next four years of school, that equates to $50,445.

Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized.

Apartment 3: $940 monthly rent, laundry & dryer:

Apartment 3 is a 3-mile drive from the bus stop that Sienna will take into school each day. Since she is semi-close to the bus stop, her plan is to save on fuel costs by driving a short distance to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin, is that bus transportation is free for all students with an I.D.

Because her apartment under this scenario is 3-miles away from the bus stop, Sienna will need to drive to the park and ride each morning. We estimate that will cost her $18 a month in fuel.

Since her apartment under this scenario does have a laundry and dryer machine in her unit, she will be able to save some. We estimate that it will cost her $8 a month in energy to wash and dry her clothing. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

Apartment 3, laundry, and travel to school each day is estimated to cost Sienna $11,639 each year. Over the next four years of school, that equates to $46,557.

Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized

Which Apartment Should She Choose?

Based on our pure financial analysis, we recommend that Sienna choose Apartment 3. It is -1.0% and -7.7% cheaper than Apartment 1 and Apartment 2 respectively. The summary table below shows a side by side comparison of the total cost of each apartment:

An argument could be made that Apartment 1 might be worth it holistically to Sienna because the difference in cost is only $113 a year, but it’s much closer to the bus stop and ultimately school. What we can all agree upon is that Apartment 2 is out of the equation and ultimately Sienna now has the tools necessary to make the best decision for herself!

Everyone’s situation is slightly different but please know that we at Blue Elephant Financial Services are here to help you make the best financial decisions possible.

 

Excel Link:  Sienna Nelson – 3 Apartment Choices

 

 

 

 

 

 

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Graduate School is Worth It… Most of the Time

Purpose of this article: to help you figure out if going back to school for your master’s degree is worth it.

Bullet Point Summary

  • Graduate school is worth it for most people that pursue business, law, or medicine because these professions have a high degree of pay back.
  • In order for graduate school to be worth it for you, you have to know what you plan to pursue after your graduate degree.
  • You must look at your current income and compare that to your potential future income post graduate degree.

Overview

Let me start by saying I have a bias towards graduate school being that I received my master’s degree in business administration. That being said, nowadays it certainly feels as though the bachelor’s degree is no longer enough to get a decent paying job. In 1950, some 34% of adults had completed high school; today, more than 30% have completed a bachelor’s.

To be clear though, the stats absolutely still show that having a college degree of any kind is better monetarily than not having a degree:

But there is definitely a glut of young people entering the work force with bachelor’s degrees. So, with bachelor’s degrees so commonplace is the master’s degree worth your time? The long answer is it depends on your field of expertise. Below I will show you a couple examples of some clients of mine who have had to wrestle with this decision.

Scenario 1: Sienna Nelson, Pharmacy Technician

Sienna Nelson, 23, is currently a Pharmacy Technician at CVS Health in Houston Texas. Her current yearly salary is $40,000. She has been accepted to the UT Austin College of Pharmacy where she is considering pursuing her Pharm.D. degree. Yearly tuition for this program is $21,126, with an additional $15,638 estimated a year for living expenses, and the degree will take her four years to obtain plus two years of paid residency. After doing some research (see here), she has decided to take out $136,760 in loans from the federal government (interest rate of roughly 6% to 7%), which after four years will cost an estimated $172,886 (includes accrued interest during the time she is in school).

As a pharmacist, the profession Sienna plans to pursue after her degree, she stands to make on average $130,000, with a low point of $105,000 and a high point of $150,000. Her plan is to pay off her graduate school loans in 17 years. Is graduate school worth it for Sienna Nelson?

The long and the short answer for her is a resounding YES!

Assuming that Sienna’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $81,312 (started at $40,000). Her 25-year period gross earnings will total $1,458,371 (before taxes and living expenses).

By leaving her current job to pursue her Pharm.D. degree, assuming the same steady 3% growth each year, and a starting salary of $105,000 in year 7 after her residency is completed, Sienna stands to make $2,510,337 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes four years where she makes $0 while in school as well as an average of $49,681 each year over the two-year period when she is in residency.

Put simply, by taking on $172,886 in debt, Sienna has grown her total 25-year earnings by $1,051,966 or +72%. And even though the total amount she will repay in debt is $226,295 because of the interest, she is still in a much better situation than before. The return on her investment in herself is a whopping +365% and her decision to go back to school is a no-brainer!

Scenario 2: Natalia Bessemer, Audit Manager

Natalia Bessemer, 26, is currently an Audit Manager at Ernst & Young in Arlington, Virginia. Her current yearly salary is $75,000. She has been accepted to the University of Virginia, Darden School of Business where she is considering pursuing her MBA. Yearly tuition for this program is $68,350, with an additional $26,674 estimated a year for living expenses, and the degree will take her two years to obtain. After doing some research (see here), she has decided to take out the full $190,048 in loans from the federal government (interest rate of roughly 6% to 7%), which after two years will cost an estimated $216,713 (includes accrued interest during the time she is in school).

As a brand manager, the profession Natalia plans to pursue after her degree, she stands to make on average $115,000, with a low point of $100,000 and a high point of $125,000. Her plan is to pay off her graduate school loans in 19 years. Is graduate school worth it for Natalia Bessemer?

The long and the short answer for her is a PROBABLY.

Assuming that Natalia’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $152,460 (started at $75,000). Her 25-year period gross earnings will total $2,734,445 (before taxes and living expenses).

By leaving her current job to pursue her MBA, assuming the same steady 3% growth each year, and a starting salary of $110,000, Natalia stands to make $3,238,399 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes two years where she makes $0 while in school.

Put another way, by taking on $190,048 in debt, Natalia has grown her total 25-year earnings by $503,954 or +18%. And even though the total amount she will repay in debt is $331,420 because of the interest, she is in a better situation than before. But unlike Sienna, Natalia’s return on investment is only +52%. So, going back to school isn’t the same “no-brainer” that is for Sienna.

Side by Side Comparison of Sienna and Natalia

Closing

Going back to Graduate School is time consuming and a significant financial commitment. As we have shown in the two examples prior, both Sienna’s and Natalia’s decisions to go back to school pay off financially over a 25-year period on paper. But going back to school is bigger than just the financial return. You have to weigh all the pros and cons that often times do not show up in an excel model. Everyone’s situation is slightly different and life happens, but regardless, please know that we at Blue Elephant Financial Services are here to help you decide if graduate school is right for you.

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Best Options to Use to Pay for Graduate School

Purpose of this article: to explain some options you have to come up with the funds to go to your dream graduate school.

Overview:

You have just been accepted to graduate school, and while you already know the return on investment is high, you have some questions on how to pay for this. The article below will give you some of the best tactical strategies to come up with the money for graduate school.

Strategy 1: Contact the financial aid officers at your school and ask about Fellowships or Scholarships

Many business schools offer lucrative merit-based and/or need-based fellowship awards, and similar to scholarships, these awards do not need to be repaid. On top of fellowships, most schools offer a number of merit-based and/or need-based scholarships. Eligibility for these awards is based on a variety of factors like previous educational achievement, GMAT or GRE scores, and other career related factors.

The stats show that one of the best schools for fellowships is the Harvard Business School. According to the school’s website, “HBS Fellowships are gifts that do not need to be paid back, and nearly 50% of the class receives a fellowship award. The average HBS Fellowship is approximately $37,000 per year, or $74,000 total. All students are encouraged to apply for an HBS Fellowship after being admitted to the program.”

So regardless of your background and career interests, your best bet toward obtaining one of these lucrative offers is to talk with the financial aid department of your respective school as soon as you apply/know that you are getting in. These awards a typically limited and are given out pretty quickly.

Strategy 2: Borrow smartly from the Federal Government

In order to be eligible for federal loans, you will need to be a U.S. citizen and file a form called the Free Application for Student Aid (FAFSA). Once filled out, this form will give you access to federal student loans. Your options from a federal loan standpoint are:

• Stafford Loans (Federal Direct Unsubsidized Loans)
• Graduate PLUS Loans

The following details the characteristics of each of these federal loans:

Stafford Loans (Federal Direct Unsubsidized Loans)
• You can borrow $20,500 annually and $138,500 max lifetime for non-health fields like business

• You can borrow $41,167 annually and $224,000 max lifetime for health fields

• The interest rate is fixed at 6.0% as of June 1, 2017. New rates will be determined on June 1, 2018

• There is a 1.066% origination fee that is deducted proportionally from the loan disbursements. This means that you will receive less money that the amount you actually borrowed

• This loan is Unsubsidized which means interest accrues during the entire time you are enrolled in school

• You do not need to demonstrate financial need to qualify and you don’t need good credit to obtain

• Repayment of this loan is delayed for 6-month after your gradation date and is ultimately unavoidable unless you are eligible for loan discharge or forgiveness

Graduate PLUS Loans
• You must borrow the full amount ($20,500) of the Stafford Loan first, before borrowing any of the Graduate PLUS Loan.

• Once you borrow the full amount of the Stafford Loan, you can then borrow up to the remaining cost of attendance.

• The interest rate is fixed at 7.0% as of June 1, 2017. New rates will be determined on June 1, 2018.

• There is a 4.264% origination fee that is deducted proportionally from the loan disbursement similar to the Stafford Loan

• You do need to demonstrate good credit to obtain and the government does reject applicants who have had significant financial trouble

• Repayment of this loan is delayed for 6-month after your gradation date and is ultimately unavoidable unless you are eligible for loan discharge or forgiveness

So, in summary the federal student loan options for graduate students are as follows:

Strategy 3: Carefully consider if a private loan is a viable option for you 

Borrowing funds for graduate school from private sources like banks or Sallie Mae can be an option for you. But my honest advice will be to opt for loans from the federal government because the interest rates and origination fees are typically better. And from a repayment option, the federal government loans give you more flexibility with plans like income driven repayment.

Nevertheless, if you are still interested in pursuing private lenders, here are some options from NerdWallet.

Strategy 4: Follow one of these three alternative options to finance your degree 

If you find yourself unable to secure funds from fellowships, scholarships or student loans, the following three options could serve as a last resort:

1. Graduate Assistantships – under this method, you would work as a graduate assistant for the university while enrolled in your MBA program. Click here to see an example of Michigan State University graduate assistantship program

2. Industry specific scholarships – just like it sounds, based on what you are pursuing, there can be a ton of industry specific type scholarships. Just note that they are usually in small denominations of $1,000 to $5,000 so you will have to collect a lot of different types to fund the full cost of attendance

3. Employer Sponsorship – companies often have tuition assistance programs as well as full on sponsorship programs for high performing individuals. The “catch” though is you usually have to return to that same company for a certain period of time.

Closing 

Financing your graduate degree is more than possible and will more than likely take a combined approach. The best-case scenario would be to get a fellowship or scholarship through your university. But the most likely scenario will be funding our education with a combination of student loans from the federal government. My hope in writing this article is that after reading this, you will feel more confident in finding the funds necessary to finance your graduate degree.

Aside:  If you are an international student, the type of loans your can apply for depends upon whether or not you have a U.S. cosigner. With a U.S. cosigner, you will be eligible to borrow from a number of different lenders. Without one, your options are very limited and usually gravitate towards the private student loan variety.