Showing posts with label grad school. Show all posts
Showing posts with label grad school. Show all posts

Friday, June 3, 2011

The graduate student lifestyle

There's a stereotype about how graduate students live.  Eating nothing but ramen, riding their bikes everywhere, and generally being as cheap as possible.  I've certainly heard stories of my own parents' graduate school days of living on as little as possible featuring cold apartments in the winter, junky old cars, and buying everything they owned from thrift stores or getting it for free.  As I've mentioned before, I'll probably be adhering way more closely to this sort of lifestyle than the stereotype of an MBA grad while I'm in school (and let's be honest, probably well beyond that too).

But it seems to me that this fabled grad student lifestyle might be going the way of the dodo.  I have a lot of friends in graduate schools that live really comfortably with regular trips to bars and restaurants, a fair amount of travel, nice weddings, newer cars, and more.  This is a lot more expensive than the stereotypical budget, but I'm fairly certain that stipends for PhD's have barely kept up with inflation and I know that the cost of a professional degree has grown faster than inflation.  So what's going on here?  Are parents bankrolling a professional lifestyle for their pre-professional children? Are students bankrolling their current consumption levels with student loans?  I think that for professional school students it's mostly the latter and for other graduate school students it's more the former.

But business school students are sort of a special case here.  An MBA is one of the few degrees where it is nearly requisite to have held a full time job before attending.  So business school students have acclimated to having a certain amount of income and liberty to spend for their lifestyles.  It's also possible that they will have substantial savings to bankroll their way through school or that an employer will bankroll the experience for them.  In 2007-2008 about 40% of MBA students received employer tuition assistance, with an average benefit of $6,271.10 according to FinAid.  So in most cases employers only bankroll a small portion of the cost of an MBA, not enough to allow the student to support a six-figure lifestyle. So putting savings aside, MBA students are largely using student loans to finance their lifestyles in anticipation of a job after graduation that will easily cover their loan payments, lifestyle and more.

What happened to the idea that you could work your way through school? Heck, what happened to living cheap while you were a student?  I can't help looking at Pepsi's Indra Nooyi's description of working nights for grocery money and thinking that would a pretty uncommon sight on campuses these days.  Maybe it was uncommon in her day too, I don't know.  All I'm realizing is that I was raised in a family of scientists expecting a graduate school experience very similar to my parents' and an MBA is so not the same. 

What do you think?  Are graduate students less able to work their way through school since costs have risen faster than wages so they just finance it all?  Is the stereotypical graduate student lifestyle a thing of the past?

Wednesday, May 11, 2011

I'm glad I'm not headed to law school

Today I'm happy that I'm headed to business school and not law school.  Stereotypes about business school students and lawyers aside, I found two interesting articles at the New York Times which discuss the financial implications of law school.

The first of these articles is Is Law School a Losing Game? and although it's a few months old by now I doubt the score has changed much.  The article profiles several law school graduates with six-figure debts and makes the case that the only one profiting from these degrees are the granting institutions and Sallie Mae.

The article also has an interesting discussion about how law schools finesse and pad their employment figures.  A student can be considered employed after graduation no matter what job they're in and if they are using their degree- janitor or law firm partner, you're employed.  It also mentions that some law schools hire back their students around survey time to boost their numbers, if lagging.  All of this to hid a flagging job market for law degree recipients.

Although an MBA is not as specific in determining a career or job title as a law degree I have to wonder if the same trend is taking place on business school campuses in the wake of the 2008 market crash and recession.  It seems probable though employment numbers certainly did dip.   This article did make me a bit nervous - it hit on my core fear about entering an MBA program.  What I fear most is that I will take two years of my life and nearly six-figures of my money and up with the same or worse job prospects I have now.  However, I'd also worry if I had no doubts because it would mean that I had certainly over looked something.  There is no guaranteed path to riches.

The second article, How Law Students Lose the Grant Game, and How Schools Win via My Money Blog, adds further faults to current law school practices.  The article describes how law schools hand out numerous merit scholarships but then place requirements on them that are impossible for all recipients to meet such as being in the top 25% of the class when 30% receive the grant guaranteeing that some students will definitely lose their grant in the first year. The schools pull in better qualified students but don't have to pay up on the full incentive.  What's worse is that administrators at these schools speak really poorly about their students saying they haven't read the course catalog or would tell a different tale if given truth serum.

Combined, these two articles paint a really nasty picture of law schools today and place the blame squarely on the schools, somewhat on the students, but fundamentally on the rankings system and US News for driving the obsession with numbers and thus the overall tactics and trends affecting law schools today.  I know that similar games are played at business schools all over the country but what's comforting to me is that neither article mentions the very top tier of schools.  There is no mention of Harvard Law or Yale.  Perhaps these schools don't have to stoop to that level of game playing and that thought is comforting to me.  Hopefully at the very top you are closer to a what you see is what you get picture of the graduates' prospects.  Of course any information coming from the school will likely be processed through rose-colored glasses but I can hope at least that I am not being wholesale duped.  Yet another reason to not place much stock in absolute rankings.

What do you think of the US News system and the tactics employed by professional schools?

Saturday, April 30, 2011

How can family contribute to grad school costs?

If you're one of those fortunate people that has family that wants to help pay for the back breaking cost of professional school or other graduate degree, congrats!  Not everyone is so lucky! Having them help is easy.  They can cut you a check, start a 529 for you, or contribute directly to your school. However, if your family is really generous, to the tune of more than $13,000 you'll want to beware the gift tax.

The Gift Tax
If someone gives you more than $13,000 in cash, stocks or whatever in a year, then they are liable to report the gift to the IRS and pay a gift tax on the excess over the $13,000 annual exclusion.  You don't want to pay gift tax or have your family pay the gift tax, trust me.  The current gift tax rate is 35%.

Now let's say your family really wants to contribute $25,000 per year to your education.  There are two ways around the gift tax.  The first is to have your parents make gifts of $12,500 each to you.  Each gift is under the $13,000 limit so no gift tax.  But the better way would be to have your parents send a check directly to your school.  Money sent directly to the school for qualified educational expenses is not eligible for the gift tax.  This is an important distinction to make.  $25,000 check to you from one person - gift tax.  $25,000 check to your school for qualified educational expenses from one person - no gift tax.  Got it?

Effect on Financial Aid
But wait, you're saying, won't the check from my parents reduce my financial aid?  Depending on the amount and the school it definitely could.  In fact, if the contribution is high enough that you're concerned about the gift tax it's very likely that the gift will reduce your financial aid.  One way of looking at this is that it's unlikely that the school will reduce your aid dollar for dollar.  Your parents may contribute $25,000, but the school may only reduce your grants by $20,000.  You still come out ahead - less debt for you by $5,000.  Schools typically have these policies to encourage students to find outside scholarships and reduce the school's financial aid burden.  Their treatment of family money may vary.  

So let's say you want to have your cake and eat it too - get money from your family AND keep your existing aid package.  Well this is a tall order.  Many schools will require you to disclose all sources of aid during your financial aid application and a big ol' check from your parents would definitely qualify in their eyes.  But some schools don't ask and some only ask above a certain threshold, like $10,000.  This is a gray area. Perhaps your school doesn't ask and you've decided it's okay and ethical not to tell.  Maybe you want to keep it on the down low anyway.  Your parents could give money directly to you or pay your rent but remember to keep the gift tax in mind.

The safest way to have your parents contribute would be have them help pay down your student loans after you graduate.  At that point you've received any aid you're going to get and you no longer have an obligation to report outside aid. You can also still deduct the interest paid on your student loans even if your parents pay for it.  The one downside here is that you're back to being concerned about the gift tax.

Count yourself lucky if you have family or friends who want to help with your education.  Regardless of how they contribute and how much you're still better off than you were without their help.  Watch out for the gift tax and properly report any financial help you get.  Most of all make sure to thank them!