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Graduate Degrees & Debt: What to Tackle First

A graduate degree can lead to a rewarding career, but the debt load can be burdensome. How should grad students plan to pay off their student loans?

June 21, 2022

Graduate school is a grueling journey, but it can lead to a long, successful and lucrative career. Due to the length of schooling required, the vast majority of graduate students end up taking out student loans. Some also lean on credit cards to cover everyday expenses in school. 

Whether pursuing a career in medicine, law or any other graduate program, chances are you’ll graduate with some debt. What should your debt payoff strategy be? How long does it take to pay off medical school debt — or debt from any other graduate program, for that matter? 

Graduate school and debt

According to the Association of American Medical Colleges (AAMC), the average medical school student graduates with over $200,000 in student loan debt.  This figure doesn’t include debts accrued during undergraduate programs. 

For law school graduates, the figures are also quite high, at an estimated $160,000 average debt per graduate. 

Plus, many grad students use credit cards to pay for everyday expenses while they’re in school when financial aid falls short. This can increase the debt load, creating a significant debt burden at a young age. 

How to pay down grad school debt fast

Some good news: Grad school can often lead to rewarding, high-paying careers. This is particularly true in fields like medicine and law. 

Entry-level physicians often earn more than $200,000 annually, even fresh out of medical school. 

According to the American Bar Association Journal, first-year associates at a law firm earn a median base salary of $98,750 to $180,000

A high salary could leave graduates with the budget surplus to aggressively pay off their student loans. But how long does it take to pay off medical school debt? It’ll depend on the strategy. Here are some ways to pay off grad school loans fast. 

List out all your debts

Most students will graduate with a variety of loans. You may have one or more loans from grad school and loans left over from undergrad programs. Plus, credit cards or personal loans may also be a factor. 

To get started, list out allof your debts, taking note of:

  • The total balance for each loan

  • The interest rate

  • The minimum payment

Using this data, you can get a complete picture of your debt load and decide where to start focusing your efforts. 

Determine which debt to focus on first

There are several schools of thought on which debt to tackle first. 

  • Avalanche method: The debt avalanche method says you should focus your energy on the loans with the highest interest rates. So you would make minimum payments towards all your loans and then put all your extra funds towards your highest-interest loan. 

  • Snowball method: The debt snowball method first focuses on paying off the smallest balances. This provides a psychological boost, which can help motivate you to keep paying off your debt. 

Mathematically, the avalanche method makes the most financial sense. However, don’t discount the psychological effect of completely paying off a smaller loan with the snowball method. 

Either way, you’ll have to make minimum payments towards all your loans to avoid penalties. 

Consider refinancing

Refinancing student loans may make sense if you have secured a job and have good credit. 

This process involves approaching a lender for a large loan and then using that loan to pay off your student debt. You’ll now have only one combined loan and one monthly payment to make.

The advantage is that well-qualified borrowers may receive lower interest rates on a refinanced loan. Plus, it’s simpler as it only involves one monthly payment and one lender. 

Calculate your take-home pay and expenses

Next, figure out how much money you can actually put towards student loans each month.

Start with calculating your take-home pay or your salary after taxes. Then, subtract your monthly expenses from this figure, leaving you with the extra money you have in your budget each month. 

Finally, decide how much of this you can allocate towards student loans and credit card debt. You may need to balance this with other financial goals, such as retirement savings or a house down payment.

In most cases, it makes sense to focus your financial resources on debt payoff — particularly if you have any high-interest debt. 

Create a timeline toward debt freedom

Finally, it helps to map out your future journey towards debt freedom. You can write it out on paper, use a spreadsheet or a credit card debt payoff calculator if the debt is on a credit card. Calculate how much you’ll pay towards each loan and how long it will take to eliminate each balance. 

From there, you can calculate a target “end date” where you’ll be free from your debt. This can be highly motivating to keep chugging along towards your goals.

Create a reward system

While having a target date for debt freedom is wise, rewarding yourself along the way is helpful. This could mean something small, like a lunch date with your partner, or something more substantial, like a weekend getaway. 

You can determine different milestones worthy of a reward — paying off a particular loan, or reaching each 10% increment, for example. 

Other ways to shorten the debt payoff timeline

Now we know the answer to “how long does it take to pay off medical school debt.” The plan above will help get you on track to paying off your grad school debt. To accelerate things further, try out some of these tips:

Avoid lifestyle creep 

Lifestyle creep is the concept that people tend to spend more as their salary increases. If you graduate and suddenly earn six figures, it can be tempting to splurge. While some luxuries are okay, you can pay off your debt much faster if you continue living below your means. 

Make extra payments when possible

If you come across some extra cash, from a gift or a bonus, it’s helpful to funnel most of this money towards your student loans. In this case, try to make an extra payment towards your highest-interest loan to maximize the benefit. 

... And make those extra payments the right way

Some student loan issuers have a nasty trick: They apply extra payments towards next month’s payment (including interest and principal) instead of your principal. This moves forward the due date of your next payment, but it won’t necessarily help you save on interest. To get around this, contact your loan issuer to ensure that extra payments will be applied to the loan principal. 

If your debt payoff from graduate school includes credit card debt, Tally† may be able to help. Tally is a personal finance app that helps qualifying Americans consolidate credit card balances to save money on interest.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.