Is going back to school the correct financial decision?

By Heather Hoffman, Marketing and Communications Specialist

08/2024

As a working professional, you’ve probably wondered if it’s a good financial decision to go back to school. Whether you’ve been finished for 3 years or 30, it’s a big decision to make. One of the main factors in this decision is the financial aspect. Here are 11 questions to ask yourself before deciding if it’s the right financial decision for you.

1. Will the ROI be worth it?

The ROI, or Return on Investment, is the driving factor behind any financial decision. When considering a graduate degree, the ROI can determine if it would be a profitable decision. When calculating, you need to know all of the expenses required, and the expected gains. You can use an annualized ROI to factor years into the equation. Another relevant calculation is the break-even point, which determines how long it will take until your expenses are equal to your profits. In order to determine your expected increase in earnings, you will need to do research on your industry. You can search for the average salary increase for professionals in your field with a master’s degree. Or, you can use Glassdoor for your current company to see positions that require a graduate degree. You can use that estimated salary to compare against your own. There are many different ways to go about it, but the important thing to know is you can’t just assume that a graduate degree will be profitable. There are many factors to evaluate.

2. How long will it take you to complete, and is it worth that amount of time?

The average time to complete a master’s degree is around two years. Depending on what obligations you have in your life, this can go longer. When deciding, think about how you currently balance your extra time. If you’re always up to date on the latest TV series, you know that your time isn’t making you extra income. But if you use your free time for a small business, or side hustle, it’s important to calculate how much you’d be losing out on. There’s no one factor that makes your decision a “yes” or “no,” but this is a large contributor.

3. Does your employer offer tuition assistance?

If you’re not sure if your employer offers tuition assistance, just ask! Without asking, you could be missing out on savings. Once you know how much they contribute, you can use that to calculate your new tuition cost.

4. Would you need a student loan?

About 60% of those who have completed graduate school have federal student loan debt, and 54% of those have debt due to their graduate studies. Depending on the type of degree you go for, the average student loan debt ranges from $65,000 to over $200,000. If you don’t have the cash on hand to pay for your degree, calculating student loans with the time and interest required is necessary. Student loans can either be a tool to increase your long-term income, or detrimental to your financial plan.

5. Are there other upcoming expenses you need to account for?

If you plan to pay out of pocket, make sure your anticipated expenses within the next few years are still covered. For example, a home purchase, new car, wedding, child’s education, healthcare, etc. are all things that could throw off your finances. Not all of these can be planned for, which is where your emergency fund comes into play.

6. Is your emergency fund built?

Your emergency fund should consist of 3-6 months of your living expenses. If you establish this safety net before starting your tuition bill, it can help give you peace of mind. Even if you decide not to go back to school, having an emergency fund is an integral part of any financial plan.

7. Are you eligible for any tax credits or deductions?

There may be some tax credits or deductions available to you for education expenses. The Lifetime Learning credit can provide 20% of up to $10,000, for a maximum of $2,000. Qualified expenses for this credit includes tuition and mandatory enrollment fees. There are phase-out rules for this credit, so check with your accountant before counting this into your plan. If you end up using a student loan, look for certain deductions you can get with the payments.

8. Do you need to plan a separate savings first?

A tax-advantaged account for education expenses, like a 529 plan, can be used for graduate expenses. It must be used for qualified expenses, or it’s subject to a 10% tax. 529 plans do come with market volatility risk, which might not be preferred if your enrollment date is soon. Those who might benefit from using a 529 plan are those who are higher earners wanting tax advantages, if you have leftover money in an old plan after your undergraduate degree, or if you want to start saving for graduate school well before you plan to attend.

9. Would other, more cost-friendly options benefit you the same?

Getting a graduate degree is not the only way to further your education and add value to yourself as a professional. Depending on your field, you could choose to do professional certificates, attend or speak at conferences, or complete online courses. These additional steps can show you’re dedicated to your field, and it can help you keep current on the latest learning. Depending on your career, it could be just as valuable to an employer as a graduate degree.

10. Will you need to move to complete the degree?

There are tons of online graduate degree programs to choose from. But, some people don’t learn from online work. Or, some people don’t have reliable internet access from their homes. If this applies to you, you might have to relocate in order to get a graduate degree. This can come with a longer commute, higher mortgage payment, moving costs, etc. These costs should be included in your ROI calculation.

11. Will you have to pause retirement contributions?

If you don’t have the extra cash on hand, you might look for outgoing sources that you can redirect. Stopping your retirement contributions is an option, but it’s not a choice to make rashly. It’s important to understand your current contributions, and how a change would impact your long-term financial goals. Since you can’t predict market performance, it might be best to get with your financial advisor to determine what changes your financial plan would require.

To decide if it’s a smart financial decision to attend graduate school is clearly not a simple quest. For help seeing if it fits into your financial picture, connect with an advisor.

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.