Is Grad School a Financial Mistake?

Going to graduate school was a no-brainer for Amanda Browne. Working as an office manager at a large corporation, the then 37-year-old had been told a master's degree in electronic publishing could help her move up. She could continue working while taking late-evening classes at New York University. Her grandmother offered to pay tuition.

But barely into her second semester, her grandmother lost her pension, and Browne had to take on $28,000 in student loans. Shortly after, she was laid off.

Rather than improving her job prospects, the master's degree left Browne in job-hunting limbo. She lacked the experience for management-level jobs, but was overqualified for entry-level ones. "I went to two interviews where the lady just looked at me and said, 'Sweetheart, if you had come in without the master's, we would have thought about it.'"

With the job she finally landed last year — a $30,000-a-year temp position at the Department of Education with no health or retirement benefits — Browne has yet to make a dent in her student-loan debt. She hopes her job position will soon become permanent; the increase in pay and benefits will certainly help. Ironically, she believes, she could have avoided that debt altogether. She could have easily landed her current job without the master's degree.

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Many college graduates and working adults believe in the money-making powers of advanced degrees. And generally speaking, the statistics clearly support that: In 2005 the median earnings of a person with a graduate or professional degree topped $57,600, according to the U.S. Census, compared with a median $44,000 for people with bachelor's degrees.

But what these statistics won't tell you — and graduate schools certainly won't bring up in their admissions brochures — are the stories of countless graduates whose advanced-degree diplomas have left them worse off financially than when they started.

"I have some clients who are nearing retirement age and are still paying off student loans," says June Walbert, a certified financial planner (CFP) with USAA, a financial-services company that caters to military personnel. "In many cases, these people are sorry they took on that debt because it's lasted their whole lives."

Graduate school, after all, comes at a cost. The average graduate student borrows $37,000 in student loans, according to FinAid.org, a financial aid resource; $42,000 if you count undergraduate debt. (For a break-down of the average grad school debt by type of degree, see our table below.) Now throw in an average $7,800 in credit-card debt, according to the latest study from education lender Nellie Mae. The result: Many graduate students enter the work force owing $50,000 or more.

To be fair, fifty grand probably isn't too onerous for those who pursue degrees in high-paying professions from top-notch institutions. The average law student may graduate with more than $81,000 in debt, according to FinAid.org, but once out of law school, she'll go on to earn an average $101,000 (according to the Census). Medical students graduate with nearly $126,000 in debt, but earn an average $113,000 a year as doctors. Business-school grads leave school owing $42,000, but get jobs that start at $92,000 a year, according to the Graduate Management Admissions Council, or GMAC.

Questions to Ask Before Enrolling Here are three questions that may help you determine if it makes sense for you. 1. Is the degree required for the job of your dreams? If so, borrowing makes sense, says Rob Bennet, author of "Passion Saving." 2. Are you going back to school for a career change? Make sure your new career is something you'll love, says human resources expert Roberta Chinsky Matuson. Otherwise, you may find yourself paying for an extremely expensive detour. If you're not sure, try working in the field — even in an unpaid internship — to make sure you're committed to it. 3. How will you pay for it? Unless you have a generous relative to pay up, be sure to ask your employer if they can cover at least part of your tuition expenses. 4. How much will you borrow? The general rule is that your total student-loan debt (including undergraduate loans) shouldn't exceed the starting salary you expect to earn after you graduate, according to Mark Kantrowitz, founder of FinAid.org.

Grad-school loans may also be worth it for folks determined to change careers later in life, says Roberta Chinsky Matuson, principal of Human Resource Solutions, a consultancy. "The danger is you go back to school, take on all that debt, and then go into your new career and discover you don't love it," she says. (For more scenarios that justify a grad-school loan, see our sidebar.)

But for graduate degrees in low-paying fields, the price may not be worth paying — particularly if you're after a job you could get by simply remaining in the work force.

Just ask James Maddox, a 26-year-old graduate of the Sports Management program at University of Massachusetts, one of the top programs in that field. Maddox had landed an internship in a company he loved — a management agency for an NBA team — right out of college. But since no full-time positions were available when his internship ended, Maddox — whose name we've changed for privacy concerns — decided to enroll in the UMass program with the hope of learning more about sports management and, ultimately, getting a job higher up in the field.

A year later and $10,000 in debt, Maddox finds himself working for the same company, doing the exact same work, only with a "staff accountant" title. It's a job he says he would have gotten if he had simply stayed on as an intern for another year.

To boot, he is now thinking about changing fields entirely. "If five years from now I'm doing something totally different and my degree is not serving its purpose, then I just tossed away a year of my life and $10,000," he says.

Maddox's situation is common among young people who, fresh out of college, aren't sure what career path to take, says Rob Bennet, an investment advisor and author of the book "Passion Saving: The Path to Plentiful Free Time and Soul Satisfying Work."

"They go to grad school to find themselves," Bennet says. Ultimately, they find themselves thousands of dollars in debt. "Worse than that," he adds, "is you're out of the work force for a couple of years, not only giving up income, but giving up the raises you would have gotten."

Average Annual Earnings by Field of Training
	Bachelor's degree	Master's degree	Professional degree	Doctorate degree
Business	$57,800	$81,000
Computers	$60,600	$72,600
Engineering	$63,600	$77,700
Liberal Arts	$41,300	$60,500
Social Science, Law	$43,900	$52,700	$101,000	$82,300
Science, medicine	$44,300	$53,400	$112,900	$75,100
Education	$41,200	$49,500

Source: U.S. Census report, "What It's Worth: Field of Training and Economic Status in 2001," issued September 2005. (Note: earnings statistics are from 2001, the latest released by the U.S. Census. For simplicity, all numbers have been rounded off.)

For Cindy Reilly, 36, graduate school was exactly that: an expensive mistake. Back in 1994, she was 24, working as a nanny and, in her words, wasn't sure what she wanted to be when she grew up. It was the woman she worked for — a psychologist — that influenced Reilly, whose name we've changed, to enroll in the master's program in child development at Tufts University. After graduation, she was going to pursue a Ph.D. in psychology.

But by the time Reilly completed the master's a year-and-a-half later, she decided she didn't want a career in child development. Instead, upon graduation, she took on a job in advertising. Thirteen years later, she is still paying back her loans, now down to $13,000 from the $30,000 she borrowed.

"Initially, [grad school] gave me confidence," she says. "It was a reputable school and I felt good about being able to accomplish a master's degree. But as the years went on, I felt more embarrassed by it because I never did anything with it. And I'm still paying for it."

Student Loan Debt Incurred, by Graduate and Professional Degree
	Graduate Degree Debt	Combined Graduate and Undergraduate Education Debt
Master's Degree	$26,900	$32,900
Master of Social Work	$27,100	$37,000
MBA	$35,500	$41,700
Ph.D.	$36,900	$41,500
Law (LLB or JD)	$71,100	$80,800
Medicine	$113,700	$125,800

Source: 2003-04 National Postsecondary Student Aid Study (NPSAS). Data compiled by Mark Kantrowitz, FinAid.org. Numbers are rounded off.