Suze Orman Says To Be Careful in Choosing One Popular Life Path That Could Leave You Poor
Written by
Nicole Spector
Edited by
Cory Dudak
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In spite of a strong economy with record-low unemployment, persistent inflation and recent tech layoffs leave many workers concerned about the future. Some recent college grads may be wondering if they should enter the workforce immediately or continue on with their education by applying for grad school.
There’s no one-size-fits-all answer and, ultimately, everyone’s situation differs. But there are several factors everyone should consider when weighing this decision, especially if a masters degree means taking out student loans.
According to a recent article on finance expert Suze Orman’s blog, graduate students made up 1 in 5 student loan borrowers for the 2021 – 2022 school year. But graduate students collectively borrowed $40 billion — nearly as much as the vast pool of undergraduates, who borrowed $44 billion.
Consider the ROI
“Before making the decision to go to grad school, it is important to consider the potential return on investment (ROI),” said Cordearo Dadson, founder of Pocketcows and co-president of the Private Directors Association of the South Florida Chapter. “This will help you determine if the investment of time and money in grad school will actually result in a financial gain in the long run.”
But how do you calculate the ROI of grad school? You need to factor in a few different things.
Consider Long-Term Earning Potential Minus Education Costs
Your ROI calculation should take into account the long-term earnings you can make from your degree minus the costs of grad school and student loans, if applicable.
“While a graduate degree may result in higher earnings over the course of a lifetime, it is important to consider the financial implications of going to grad school, such as tuition costs, opportunity costs (e.g., lost wages while attending school), debt and the potential for unemployment after graduation,” Dadson said. “Additionally, if you are taking out student loans for a graduate degree, keep in mind that payments begin approximately six months after graduation, so it’s essential to have a job lined up before or shortly after graduating or else you risk defaulting on your loans.”
Make Sure You Are Clear About Your New Career Path
Where you are in your career also should help determine whether you decide to take a break from the workforce to go back to school. Of course, some jobs in education, law, or the medical professional, require a graduate degree.
But would you be better off, financially, pursuing a field that doesn’t require an advanced degree?
“You should ask yourself if you have found the passion for continuing in your current career field,” said Annette Harris, SPHR, FFC, owner at Harris Financial Coaching. If you haven’t, you should continue working until you can determine what graduate school program will help determine your future career goals.”
If a graduate degree is optional in your field, it may not be worth the cost. According to statistics from the National Center for Education Statistics, people with a master’s degree across all fields earned an estimated annual salary of $80,200. Those with a bachelor’s degree earned $66,600. That’s roughly a 20% difference. However, according to Orman’s blog post, students who obtained a graduate degree in a professional field were also left with student loans equal to at least 20% of their discretionary income. So, that graduate degree may not pay for itself as quickly as you imagine.
The Debt May Not Be Worth It
The decision to attend grad school can render tremendous returns. That said, you need to have an ironclad plan in place to pay off any debt that is incurred by earning your degree.
If going to grad school is not the right choice for your finances, but you’re not happy with your current career path, you may want to consider entrepreneurship. But, experts warn, you’ll also need some appetite for risk with this path.
“Entrepreneurship may offer an alternative to grad school that has the potential for high financial returns,” Dadson said. “However, it also comes with risks and requires a lot of hard work and dedication.
“Before deciding to pursue entrepreneurship, it is important to consider factors such as market demand for your product or service, personal interests and skills, and the potential for failure. Entrepreneurs must understand what it will take to run a business successfully and stay on top of changing technologies and trends. Researching other successful entrepreneurs in your industry, reaching out to potential mentors, and utilizing resources such as legal advice and accounting services can prove beneficial for long-term success.”
Nicole Spector contributed to a previous version of this article.
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