Dropping Out Of Grad School: Is That My Last Option?
Dropping Out Of Grad School: Are you thinking of dropping out of grad school? Trust me you are not the only one conflicting in this decision. This might be of the employment opportunities you have been getting, or because of your student loan debt.
They are many other reasons dropping out of grad school might be the solution, namely;
Loss of passion for the field
Worry about increased borrowing
Concern about job prospects
Personal / family issues like moving back home to care for sick family member
Mental health concerns
This is by no means an exhaustive list. If you’re not in debt, leaving your program is still a heavy decision. If you are, then you might feel like you have no choice but to drop out. I will be fully highlighting many other choices for you, instead of dropping out of grad school.
Imagine you flew into Fort Lauderdale Airport for a cruise and saw the giant banner ads promoting Nova Southeastern University. You’ve always wanted to live in a warmer climate, and you discover that Nova has four-year PsyD programs where you can become a professional psychologist. You decide to enroll thinking that it’ll be a great experience.
Now let’s assume that a year in, you’re already having doubts. You’ve taken out $50,000 of student loans and you feel unsure what to do. Quitting isn’t an option, so you take out more debt and keep going to class.
After your second year, you have a panic attack; you decide that you don’t want to practice as a psychologist. You have $110,000 of student loans and another two years to go. Are you trapped? Here are three options.
Option 1: Relying on PSLF than Dropping out of Grad School
One way to avoid having that commitments drain you for decades is to sign up for the Public Service Loan Forgiveness (PSLF) program. To get this benefit, you have to work full time for 10 years at a not for profit or government employer while paying your loans under an income-driven plan.
You could quit your program and get a job as a teacher in South Florida, sign up for the REPAYE plan, and pay $250 a month on your student loans. When your friends graduate from the PsyD program two years later, you would’ve racked up two of the ten years needed for PSLF. You also would’ve earned two years of salary without taking on additional debt.
The balance of your student debt gets forgiven after the 10 years of service tax-free. That means you could effectively eliminate a bad grad school decision with PSLF. 1 of the 4 jobs in America qualify, so you have plenty of choices.
Here’s what the former PsyD would pay on her loans over ten years if she became a teacher instead. You’ll notice the amount forgiven is more than what she borrowed since interest continues to grow when making small payments based on income.
Option 2: Rely on IDR Forgiveness to Quit Your Graduate Program
Pretend you’re two years into a for profit law school and determine that your degree has no worth. You decide to drop out before earning your JD because you have no plans to practice law and don’t want to watch $200,000 of student debt grow into $300,000.
Instead, you decide to start your own small business. You earn $60,000 per year and find out you can pay about $350 a month on your student loan debt. It freaks you out watching it grow so much every year though.
Paying your debt off would require enormous sacrifice. Instead, you could use Income-Driven Repayment loan forgiveness with plans to pay back the loans under the PAYE plan. You’ll owe taxes on the forgiven balance in 20 years.
If you max your retirement accounts, you could pay as little as $61,000 over 20 years with a final tax penalty of $167,000 at the end. That total amount is far lower than the value of $200,000 in today’s dollars because of inflation.
Option 3: Refinance Your Grad School Loans and Get Rid of Them
If you have a good debt to income ratio, many private lenders will look at that alone and give you a better rate than what you’ve currently got. If your debt is federal, know that refinancing takes away a bunch of protections like income-driven repayment and forgiveness.
However, if you only have $40,000 of student debt but are earning $70,000 per year, you won’t benefit from those provisions much anyway. You might as well hustle and get rid of your student loans so you can move onto other financial goals in your life.
Of course, if you think your school committed fraud, then the school might close and you could be eligible for closed school discharge. That might happen if you went to a law school where nobody passed the bar and it could close imminently. It’s not going to happen for most the vast majority of borrowers though.
That means many borrowers who owe less than their income might want to consider refinancing with their undergraduate degree as proof of education.
Lastly, dropping out of grad school should’t be an option unless one or more of the following is true:
You’re only one semester in
You owe less than $50,000
Your job options in a different field right now could pay you more than your expected salary at graduation
You’re comfortable pursuing loan forgiveness as a way to minimize the financial cost of your student loans