Suze Orman: Considering Grad School? You Could Be Making a $138K Mistake
Written by
Laura Bogart
Edited by
Kristen Mae
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Time is a flat circle. These words, spoken by Matthew McConaughey’s iconic character Rust Cohle in season one of “True Detective,” aren’t only applicable to Lovecraftian conspiracies — they also reflect the pattern of every cohort graduating into tough economic times.
Many current or soon-to-be graduates are staring down the barrel of a diminished job market, potentially shaped by a looming recession reminiscent of 2008. Like many grads in that previous generation, they might be thinking they should go to grad school to insulate themselves from the rockiest of the rocky times while gaining additional training and education, to boost their chances once the market improves.
While that may seem like a smart move, Suze Orman suggests it might not be. She warns that helping the graduate in your life go to grad school could lead to a financial mistake — one that could cost you, and them, hundreds of thousands of dollars.
Paying for Grad School Could Wreck Your Retirement
Orman acknowledges that when the job market is rough, going to graduate school seems all the more appealing. However, she wants everyone to just sloooooooow down and think. If you’re a parent, grandparent, or favorite aunt or uncle who wants to help their favorite graduate go to graduate school, you could be putting your own financial future in jeopardy.
In a post on LinkedIn, Orman issued a clear warning to well-meaning supporters:
“If you are a parent or grandparent (or aunt/uncle) reading this, I need you to stand in the truth: being able to support yourselves throughout your retirement must be your priority. Please don’t put that at risk by helping to pay for grad school.”
It’s heartfelt, painfully practical advice. Taking on debt or depleting savings to support someone else’s education might derail your own ability to retire the way you’ve planned.
It’s Easy To Borrow Too Much
Orman also wants new graduates to think very carefully before borrowing money for graduate school, especially since federal student loan programs for graduate school set a dangerously high borrowing limit. How high exactly?
“The Direct Loan program allows grad students to borrow up to $138,500 combined for their undergrad and grad studies,” she wrote. “The graduate version of the PLUS loan program allows students to borrow up to the full cost of attendance.”
To be clear, the $138,500 cap applies only to federal Direct Loans. Graduate PLUS Loans have no borrowing limit. Students can borrow up to the full cost of attendance, including tuition, fees and living expenses, minus any other financial aid. That kind of open-ended borrowing can put young people — many of whom have limited financial experience — in the position of taking on massive debt without fully grasping the long-term consequences.
As if the potential borrowing amounts weren’t perilous enough, these programs don’t require much, if any, analysis of your ability to repay. That puts the graduate in your life at risk of borrowing more than they’ll be able to pay back — making it harder to save for retirement, buy a home, or fund their own children’s education someday.
Smarter Ways To Afford School
Orman isn’t against grad school — far from it. She just wants students and their families to make informed, financially sound decisions.
Encourage the graduate in your life to look for programs that offer fellowships, assistantships, or work-study opportunities. There are also grants and scholarships available, depending on their background, area of study, and professional goals. And if borrowing is unavoidable, Orman recommends following the advice of college financing expert Mark Kantrowitz:
“His rule of thumb is that all borrowing (undergrad and grad school combined) should not total more than you are likely to make in your first year of work. Limit yourself to that amount, and you will be in good shape to have your school loans paid off within 10 years. (It is easy to research salaries online; just be sure to look for starting salaries, not what someone with 5 or 10 years of experience might earn.)” As Orman puts it, even a solid starting salary of $80,000 to $100,000 doesn’t make $138,500 in loans worth it.
To put it another way: If your grad takes on so much debt that they can’t support themselves financially, your “empty nest” might not stay empty for long — and you could find yourself covering some of their daily expenses.
Bottom Line
The graduate in your life is probably scared to leap into the job market. But borrowing in excess, or helping them do so, could backfire, leading to financial struggles that persist for decades. As Orman reminds us: prioritizing your own financial security doesn’t make you selfish — it makes you smart.
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Source:
- Suze Orman, “What You Need to Know Before You Borrow for Grad School”
