Graduate degrees are becoming like tattoos: you should think hard before getting one.
Tuition at graduate schools has been skyrocketing—for professional programs, it has jumped 60% in the last decade. In 2009, a year of grad school was $21,900 at a public school and $34,100 at a private one. These are serious numbers, especially considering that you’ll also pay living expenses and most grad school programs are two years long.
At the same time, traditional grad school funding options are vanishing. Cash-strapped companies are dropping tuition reimbursement and universities are cutting graduate fellowships. To cap it all off, a job afterwards is not guaranteed in this economy, while grad school debt is very, very real.
Deciding whether to spend the cash (and time) on a degree depends on the return on your investment. No single equation will determine this, but the following factors can help you make a smart decision.
Why Do You Want to Go?
Obviously, some career paths like psychology, medicine and law require an advanced degree to practice without getting arrested. And if you're switching fields and don't have relevant experience, then graduate school can make sense as well.
However, nowadays the more traditional appeal of graduate school—that it's a safe bet to further your career and earning potential—should be questioned in light of rising costs. For instance, the University of California system will raise tuition 31% this year, and Stanford Law School’s planned tuition increase this fall—5.75%—is higher than inflation.
It's true that on average, holders of postgraduate degrees earn 23% to 55% more than those with bachelor's degrees. But when you drill down into individual professions and financial situations, it's unclear whether that increased earning potential will outweigh the real costs.
How Will You Pay for It?
Determine the sticker price. It pays to comparison shop. The average public-private tuition difference is $12,000 a year, while, in most cases, private school graduates earn the same as those from similarly ranked public schools. Compare programs and costs at USNews.com and PrincetonReview.com. (Avoid for-profit schools, which are one giant hustle—many aren't even accredited.)
Search for a free ride. Look into traditional grad school funding options: company reimbursement, university fellowships or teaching assistantships. (Search for opportunities on Fastweb.com and FinAid.org.) And since those offerings are starting to disappear, investigate other options, such as tuition discounts to alumni offered by your alma mater or degree programs that take one year instead of two. Many universities also offer tuition reimbursement for employees, so consider working for a school.
Count your cash. Can your savings cover tuition and living expenses? Even then, if you look into hidden costs, it may not be worth it. Also consider your college or credit card debt. If you're $50,000 in the hole, don’t tack on another $50,000 unless your shiny new diploma will definitely earn big returns. Also check out LV's checklist on paying for grad school.
What Are the Hidden Costs?
Interest. If you can't pay for your degree up front, do the math. What will you shell out in principal and interest? A $50,000 loan at 5%, for example, requires monthly payments of $530 for ten years. Total amount paid? More than $63,000. Calculate your potential interest payments at FinAid.org.
Retirement savings. If you’re a full-time student, you won't be contributing to retirement. Say you typically max out your Roth IRA. For every year of grad school you’ll miss out on the $5,000 contribution and all the interest it would earn. Throw in whatever you’ve been stashing in your 401(k)—up to $16,500—and you could be out hundreds of thousands of dollars by age 65.
(To figure out how much you need to retire, try this calculator.)
Opportunity cost. If you're pursuing an advanced degree in a field that doesn't require one, think about what your competition will be up to while you're hunkered down in the library. Two things we can think of: gaining experience and building a salary history.
What's Your Earning Potential?
Check job prospects. Choosing a profession without knowing whether there are jobs is a recipe for unemployment. This applies even for more traditional careers like law, where recent layoffs have left newly minted attorneys with hundreds of thousands in debt and no jobs in sight. Looking for a growing field? Try biomedical engineer, network systems and data communications analyst, or even home health aide, jobs which all topped the 2009 Bureau of Labor Statistics' list of professions projected to grow the most until 2018.
(You also want to keep your eyes open for how companies treat women employees. Read this eye opening account of what it's like for women on Wall Street.)
Investigate salaries. Do some sleuthing on Salary.com. If grad school will cost $80,000 and starting salaries are $40,000, you’ll be digging yourself out of that hole for a while.
Consider the intangibles. If networking is a crucial part of your field, then graduate school could connect you to future employers, business partners, colleagues or clients. However, if you work in a field where work history matters more, you may not need to pay for another degree to open doors.
Will You Get a Worthwhile Return on Your Investment?
Take all of these questions into account and tally up your answers. Even if your parents will pay your tuition and living expenses, your grad school ROI will still be negative if you're in a field that pays master's and bachelor's holders the same. Conversely, if you've done the salary research and know that you'll recoup your investment within five years even if you're paying full tuition, grad school could upgrade your earnings and lifestyle in the long run.
Grad school can be the smartest investment you ever make or a pricey mistake – ultimately, you need to crunch the numbers to decide.