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Should I Take on Credit Card Debt During My Graduate Program?

Graduate students are in a unique financial situation. Is taking on credit card debt for living expenses during school an appropriate plan?

August 30, 2022

Graduate school typically costs between $30,000 and $40,000 per year for tuition alone. The average cost of a master's degree is $66,340, while a doctoral degree can cost even more. 

These jaw-dropping stats are only for tuition and don’t cover living expenses. For graduate students, finances are often stretched very thin. And with sometimes intense academic workloads, working while in school is often not an option. 

For this reason, student credit card debt is common among graduate students. Many students have little choice but to go into debt in order to fund everyday expenses. 

Since graduate students will often go on to higher-paying careers, it’s reasonable to take on some debt while in school. But are credit cards the right method? 

Should I take on credit card debt? 

Living expenses are often not sufficiently covered by financial aid and student loans, leaving students with a significant financial burden. Credit cards provide an easy, tempting solution — but they can be costly in the long run. 

The average credit card annual percentage rate (APR) is now over 20%. With high interest rates, even a relatively small amount of debt can quickly spiral out of control. 

Plus, keep in mind that you may not even be approved for a credit card, or may be given a low credit limit. If you have little to no income while in school, banks will be hesitant to extend you any significant amount of credit. 

Whenever possible, it’s best to avoid credit card debt. It’s one of the most costly forms of personal debt, and many students will have better options at their disposal. 

Alternatives to credit cards

Fortunately, there are other options at your disposal. The best choice will depend on your specific situation. Here’s what to consider. 

Additional student loans

In many cases, the best solution is to increase your student loan borrowing. 

Many students take out enough loans to cover tuition and books. But you may have the option to borrow substantially more.

It is true that students are limited in how much they can borrow. The maximum amount is typically the college’s estimated cost of attendance (COA), minus any grants and scholarships you receive. However, the COA includes:

  • Tuition and fees

  • Room and board

  • Books and supplies

  • Miscellaneous expenses

  • Childcare or dependent care

The COA, calculated based on student averages, is determined by the school and is meant to capture the total cost of attending the school, excluding optional spending like restaurants and entertainment. 

Because you can borrow up to the COA, you should be able to use student loans to fund the majority of your living expenses. If you find that the school’s COA doesn’t capture your true costs of attendance, you may be able to apply for a COA adjustment. This allows you to ask the school to provide an exemption, allowing you to borrow slightly more than the standard COA. 

In most cases, this is the best option to pay for living expenses during grad school. Student loans are far more affordable than other types of loans. Plus, you can borrow a student loan without verification of income — other loan types will require you to have a certain level of income to qualify. 

Other loan types

You may be able to take out a personal loan or open a line of credit. However, these options require income, which many students do not have. They also tend to be costly forms of debt.

Another option may be to borrow from friends or family. While a viable option for some, this can potentially create tension in relationships and is not typically recommended.

Employer benefits

Some employers offer tuition benefits to their employees. This perk could be a partial tuition credit or could even allow you to attend graduate school for free

If you’re currently working, check with your workplace's human resources department to see if they offer any kind of tuition benefits. 

How to plan for paying down debt

Right now, you’re likely focused on how to pay for grad school without taking on too much debt. But the reality is that you will almost certainly graduate with significant student debt — so it pays to have a plan to pay it off. 

Graduate students have a significant advantage when it comes to paying off debt: higher earnings. On average, those with a master’s degree earn about 18% more than those with a bachelor’s, while those with a doctoral degree earn 43.1% more than bachelor's degree holders. 

But those higher earnings might not come right away, so it’s important to have a debt payoff plan that’s realistic. Here’s what to consider. 

Take advantage of the student loan grace period. In most cases, federal student loan payments don't begin until six months after graduating, leaving school or dropping below half-time enrollment. You can use this time to find employment, get settled into your new life and pay down other forms of debt.

Focus on high-interest debt first. If you do accumulate credit card, personal loan or other high-interest debt during your graduate program, those debt balances should take priority. 

Explore debt relief options. If you’re going into certain occupations with qualifying employers, you may qualify for the Public Service Loan Forgiveness (PSLF) program. This program provides student loan debt forgiveness after 10 years (120 payments) of on-time payments.

Consider refinancing.Refinancing your student loans may be an option to consider if you took out private student loans, have good credit and high enough income to qualify for a loan with a lower interest rate. Refinancing federal student loans into a private loan may result in the loss of potential benefits such as deferment and forbearance plans, income-driven repayment plans and forgiveness programs. 

Federal student loan consolidation. To be able to keep federal student loan benefits, you might consider consolidating your federal student loans through the Direct Consolidation Loan program. Most federal student loans qualify for this program. Consolidating your federal student loans may not save you any interest over time, but it can make your repayment process simpler.

Make a realistic plan. Finally, it’s wise to sit down and make a detailed plan for how you’re going to pay off your debts. This plan should include a list of priorities, as well as an estimated timeline. 

Wrapping up

It’s always best to avoid credit card debt whenever possible. A first-line approach to paying for living expenses in graduate school is to simply take out more student loans. Remember, you can borrow up to the estimated cost of attendance each year, which includes estimates for living expenses. 

If you do accumulate credit card debt during your graduate program, it’s wise to consolidate it once you have reliable income. Tally† is an app that helps qualifying Americans consolidate credit card balances into a lower interest line of credit. Learn how Tally works

†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.