Graduate school is not cheap. It’s a decision that will cost you both time and money, so you want to make sure it’s the right call before signing on for student loans, taking time out of the workforce, and living on a diet of ramen noodles for at least two years.
For many degrees, you’ll likely have to take on some debt — unless you have substantial savings or win a scholarship (bravo!) — and those loans can take years to pay off.
The upside, however, is that you’ll likely be earning a higher salary for the rest of your life if you stick to your new career path.
According to data from Earnest, here’s the median debt and earnings for some of the major graduate degree types.
Median income (three years after graduation)
Do a Cost-Benefit Analysis
While salaries vary depending on degree and specialization, there are many other factors you’ll want to consider as you determine whether grad school is the right choice for you.
For starters, is your undergraduate degree sufficient for the field in which you work? If you have a degree in computer science, for example, it may be a better option to learn additional skills on the job. However, if your undergraduate degree is in biology, you’ll likely need to do some specialization to get a job in the sciences. If you have a liberal arts background, you may also need to specialize if you hope to advance to a six-figure salary.
Another consideration: What’s most important to you when it comes to lifestyle? Living in a big city where you can earn megabucks? Or taking a slightly more laid-back approach in a smaller city — and also earning a little less? Are there enough jobs in your area of specialty where you want to live?
As you continue your decision-making process, here are some steps to help you determine your return on investment from a purely financial point of view.
1. Learn the job prospects in your field. Research your field’s job market and location. Browse relevant job listings in the area where you want to live and read job market reports on the projected growth of your future profession. Use this information to estimate your salary with a graduate degree.
2. Consider the cost of grad school. In addition to tuition, don’t forget to include living expenses, fees, books, and academic trips. Every school is required to provide an estimated cost of attendance (COA), which includes its own all-in cost estimate.
If you plan to take out student loans, determine your monthly estimated payments based on the loan terms. For example, if you take out a total of $45,000 in student loans to pay for a master’s degree, at an interest rate of 6.8 percent, you’ll have a monthly payment of $518 for the next 10 years.
3. Estimate your future earnings. Compare your current salary to your anticipated salary to see what your annual income growth would look like for each scenario. Then, subtract your estimated annual student loan payments from the graduate degree salary to determine how much extra income you could take home each year.
How do these numbers compare to your current income projections? Of course, neither scenario incorporates promotions or periods of unemployment, but they do give you an idea of the general trajectory your income could take on either path.
A B-School Case Study
Another way to consider whether grad school will earn you more money is to run the numbers. Let’s consider a case study.
Kim, 28, earned her undergraduate degree in history and is working as a market analyst in Boston, earning an annual salary of $60,000. She is considering going to back to school to boost her earning potential to six figures — and, importantly, she really enjoys working in her field.
She was recently accepted into the prestigious University of Chicago Booth School of Business, which is ranked fourth in the nation.
With the full cost of attendance adding up to nearly $98,000 per year, she anticipates paying for business school by borrowing $56,000 after receiving $80,000 in scholarship and fellowship money and using $60,000 of her own savings. By graduation, Kim will have spent more than $131,000 out of pocket for her education (not including the two years of missed income while she is in school).
Assuming Kim gets a post-graduation job with a salary of $103,000 (the median salary for new Booth graduates entering marketing) and a $20,000 sign-on bonus upon graduation, will the result justify the amount of savings spent and new debt accumulated?
Let’s do some back-of-the-napkin number crunching:
- Total cost of attendance at Booth (two years): $196,000
- Scholarship/fellowship money: $80,000
- Cash spent: $60,000
- Debt: $56,000
- Average interest rate on loans: 7.21 percent
- Interest accrued over seven-year repayment: $15,480
- Monthly payment: $851
- Kim’s total out-of-pocket cost: $131,480
First, with her new degree and income, Kim should consider refinancing her loans. By refinancing her $56,000 debt into a lower APR immediately after graduating — and lowering her interest rate from 7.21 percent to 4.99 percent — Kim’s new monthly payment will be $791, with a savings of $5,000 in interest over the life of the loan. (She could also refinance into a shorter term, which would increase her monthly payments — or a longer term, which would lower them even further.)
If she maintains the same cost of living from before grad school — and that’s a very important part of the plan — she can pay back more than half her out-of-pocket cost in her first two years out of graduate school.
She immediately replaces one-third of her cash savings with her signing bonus ($20,000), and then, by living well below her means, she can replace the remainder of her cash savings over the next two years ($40,000), in addition to making progress on her loans.
Let’s look at the numbers again after refinancing:
- Kim’s post-MBA income: $103,000
- Her signing bonus: $20,000
- New fixed rate interest rate after refinancing: 4.99 percent
- Annual student loan debt payments: $9,500
- Interest accrued over seven-year repayment: $10,500
- Kim’s new total out-of-pocket cost: $126,500
Even more striking is the difference a graduate degree makes to Kim’s two potential salaries at retirement age. Assuming a three percent annual salary increase, by age 65, Kim would earn just $179,144 annually sticking with her current income path, compared to a whopping $289,828 with her MBA. In other words, the return on her salary hike due to her graduate degree continues over the life of her career.
While this is an ideal scenario — and means Kim will finish paying off her loans when she is 37 — it still creates a very compelling case for pursuing her MBA.
In addition, there are many intangible benefits to graduate school that don’t have a dollar amount attached. The personal satisfaction of mastering new knowledge and creating lifelong social and professional networks are just a few ways grad school can pay off in the long run.
So as you ask yourself, “Will I make more money if I go to grad school?” remember there are a number of factors you’ll have to consider with your decision. Professional goals, personal interests, and timing in life all play important roles. Good luck!
Catherine New is a member of the DailyWorth Connect program. Read more about the program here.