Should Joyce Pay Off All Her Debt Before Pursuing a PhD?


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Joyce is a teacher at heart, and she wants to spend her career in a college classroom. She’s 37, earning around $35,000 per year (gross – her net numbers are below), and recently divorced (which was the source of the credit card debt). She’s frugal, but debt is getting in the way of her dream of becoming a college professor. She works at a university, and her employment qualifies her for steeply discounted tuition.

Check out Joyce’s budget, the details of her debt, and help her decide how to arrange her next big financial moves.

Category Budgeted Notes
Home
Rent $380
Electricity $60
Internet $58
Water $35
Trash Pickup $23
Natural Gas $20
Home Total $576
Debt
Student Loans $245 From her bachelor’s and master’s programs.
Credit Cards $225 She has already cut up the cards.
University Loan $50 From an attempt at nursing school.
Personal Loan $25 Owed to Dad.
Debt Total $545
Personal
Tithing $100
Phone $87 Plans to reduce this once out of contract.
Spending Money $50
Running $30 Member of a running club.
Gifts $20
Personal Total $287
Auto
Fuel $100
Car Insurance $67
Auto Total $167
Food
Groceries $100 Would like to increase this, maybe to $150.
Restaurants $50
Food Total $150
Budget Total $1725
Income
Net Paycheck $2020
Rent/Utilities from Roommate $250
Income Total $2,270

You’ll notice she’s working with a $545 surplus right now. She’d like to increase her grocery spending, so we’re going to drop that $545 to $500. Joyce’s first question to me was “What should I do with this surplus? I know I should get out of debt, but I’d like to start my PhD program right away, and the surplus would cover my expenses.”

By the way, Joyce and I estimate her entire PhD program would conservatively take five years and cost around $10,000 (thanks to her steep employee discount). Our research also tells us her earnings could double when she completes her PhD and gets a “tenure-track” position at another university. She can continue her full-time job while pursuing the doctorate.

Pay Off Debt or Jump into School?

Paying $10,000 to qualify for a potential 100% increase in income seems like a no-brainer (even with my suspicions about the ROI on higher education).

My rough calculations tell me Joyce could be totally debt free – including her $34,000 in current student loans – in about five years.

So what should Joyce do? Delay the PhD (and the potential income jump) five years for the sake of debt freedom, or borrow the $10k, add ~$100/mo in loan payments (deferred until she’s done with the program)?

I’m hesitant to advise one way or the other here, given my admitted borderline debt addiction, but here’s what I’m seeing:

Joyce could roll her current snowball while she’s pursuing the PhD. If the doctorate takes five years, her snowball will have eliminated her current debt right around the time she graduates. She’ll have an additional $10,000 (or so) in debt, but she’ll have potentially doubled her earning power.

If she does double her income, she starts a new career with twice as much income and a relatively small student loan payment. If she can’t find a professorship right out of the doctoral program, she’ll maintain her current income but her monthly debt service will be roughly 20% of what it is today.

I lean toward telling her to get into the doctoral program immediately, while using her current budget surplus to eliminate all other debts. But I really do say it in a “hey, here’s one option” kind of way. I’m very curious to hear the community’s input on Joyce’s situation.

What would you tell her to do?