Five Questions to Ask Yourself Before Taking Out a PhD Loan

If you're a grad student considering a PhD, you might be wondering how you will pay for yet another course of study. You've probably been told that getting funding for your PhD is essential. This advice is sound, but sometimes securing enough funding for your project poses challenges. And if you already have loans from your undergraduate or graduate degree, it might seem natural to continue using student loans to pay for your education. So, should you take out a loan? Or give up your doctoral dream?

Before you do anything, ask yourself these five questions:

Is there another way to pay for it?

Before you take out any loan, especially for a doctoral program, do some digging and find out if there are other ways to pay for your degree.

You can look at scholarships and grants. Don't limit yourself to federal or school-based options, either. Do some serious digging. Companies and corporations often offer funding for PhD students in specific areas. The bottom line? You don't know unless you ask.

If you are currently working, consider employer-tuition reimbursement, especially in a high-needs field like social services, healthcare, or teaching. In some cases, your employer might pay for or subsidize your PhD program, which might also allow you to continue working during your studies.

Speaking of working, studentships and teaching assistantships, especially university and externally sponsored ones, are other good options worth pursuing. These tend to be competitive, but usually come with tuition waivers, living expenses, and other benefits in exchange for teaching or research work. If you're a USA citizen, you may qualify for Federal Work-Study, too.

Finally, look for programs that offer fellowships. Like studentships and assistantships, fellowships usually cover the majority of expenses for a PhD student but don't come with the same requirements for teaching or research. Fellowships allow students to focus solely on their research and PhD coursework, but are, unsurprisingly, highly competitive and merit-based.

Exhaust all of your possibilities for paying for that PhD before you take out that loan. You may be surprised at what you come up with!

Is my PhD in demand?

Not every PhD subject is made equal, and not all PhDs will earn six-digit salaries upon graduation, or even find a job. If a PhD in English is less likely to get you a job than a PhD in aerospace engineering, then it is probably not worth going into debt for it.

While graduate school, done right, can give you a tremendous salary boost, it may not be worth it if you are up to your neck in debt when you come out.

Think about the amount of debt you have from undergraduate studies and your master's degree, if you already have one. If you already have a lot of debt before going into your PhD studies, make sure that your post-PhD will give you more than enough to cover your debt and get you off on the right foot.

What's my ROI?

The average student in the USA has just under $30,000 in debt after an undergraduate degree. This number rises to at least $50,000 for those holding a graduate degree. According to the Bureau of Labor and Statistics, the average American earns about $68,000 per year. Additionally, the average starting salary for degree-holders is about $55,000, while those without a degree earn between $35,000 to $40,000 per year. That means that for most people in the USA, undergraduate debt and, possibly, graduate debt can be seen as a sound investment.

But how can you determine whether a PhD has a good ROI? Here's a useful strategy: limit your total student debt to no more than one year of the average salary for someone in your field with a similar degree.

This sounds simple, but it can get a bit complicated depending on your current situation. So, look at it like this:

• If you are currently debt-free, and the average salary of a PhD in your field is $100,000 per year, feel free to borrow up to $100,000 in total to cover your whole PhD program.
• If you already have $50,000 in student loans from your undergraduate and graduate studies, and your average prospective salary is $100,000, you still have $50,000 to work with.
• If you have $50,000 in loans already, and the average salary you can expect is $65,000, you can only borrow $15,000.
• And, if you already have $50,000 in loans and your expected salary is only $45,000 per year, you should definitely consider other ways of paying for your PhD or reconsider your academic plans.

Still confused? This calculator might help you!

What kind of loan is available, and what is the interest rate?

Fineprint matters. Read it. Pay attention to interest rates.

Compare and contrast interest rates, repayment plans, and any incentive plans. While federal loans often have higher rates, they are also often more forgiving and have a wider array of repayment plans that may cancel out any benefit of a lower interest rate on a private loan.

With private loans, watch for adjustable rates, which could outweigh the benefits of low up-front rates.

Am I considering a PhD program abroad?

Completing a PhD abroad might be an excellent academic decision. But taking out a loan for a PhD program in another country might not be.

There are a few things to consider before taking out loans to study abroad. The first is whether it's even necessary. While PhD and doctoral programs in the USA can run to six-digit tuition fees, in other countries, PhD program tuition might be lower, even for international students, and funding or subsidization more accessible. Northern European countries like Germany, Norway, the Netherlands, and Finland are known for low-cost PhD programs. PhDs are free for Brazilian students, and some universities extend this to international students as well. The Czech Republic also offers low-cost PhD programs, but many are taught in Czech. In short, if you're studying abroad, the cost of a PhD might not be as prohibitive as you imagine.

The other major issue to consider is whether you'll already be paying back any existing student loans. In most cases, if you are a US student and you are still studying at a US institution, you don't have to pay back your loans. This means that the expense of a PhD program doesn't include student loan payments, and you usually won't accrue interest on your existing loans.

But if you decide to pursue a PhD abroad, you may find that your student loan payments (and interest accumulation) are no longer suspended. Some schools abroad have agreements that will keep your payments and interest suspended, or you may be able to put them into deferment, but you might still be accruing interest on your existing loans during your PhD studies. Adding more debt to compounding interest may not be a great idea.

Conclusion

Your takeaway? A PhD can have a great impact on your career, your future earning potential, and your personal development. But paying for your PhD is not so straightforward. Before jumping directly to student loans, consider your options. Can you fund your PhD in another way? Research repayment plans, adjustable loan rates, refinancing options, forbearance benefits, and loan forgiveness opportunities. Consider studying abroad in a low-cost program. Make the choice that makes the most financial sense for you!