If you’re thinking you might drop out of grad school, you’re not alone. I’ve had countless readers send me emails doubting their decision to attend graduate degree programs. In one case, a University of Washington dental student dropped out after his first semester. He decided the employment opportunities at Amazon were more interesting than taking out another $300,000 of student debt.
Of course, the reasons for dropping out of grad school are all over the place. Here’s a few I’ve run into:
- 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 finish. We’ll show you why that’s not true.
How could you drop out halfway through 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 to drop out of grad school
If you owe more than your income in student loan debt, your payments will generally be the same if you owe $100,000 or $1 million. That’s because income-driven plans take a percentage of your income and don’t look at what you owe.
That means the main thing that matters with today’s crazy loan system is the difference in your earnings from going to school. If you’re going to make a ton more money, then taking on a bunch of student loans could be worth it since you’re going to lose 10% of your income to payments under a plan like REPAYE or PAYE.
One way to avoid having that commitment 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.
Pretend you’re that grad student from Nova and you are desperate to drop out and do something else.
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.
|Teacher w 50k Income||Amount|
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
One Student Loan Planner reader needed to refinance some debt, but he was having trouble getting a company to lend to him since he didn’t finish his graduate degree program. What we discovered is by listing only his undergrad degree with his income, we were able to get him a good deal.
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.
Debt is a tax above a certain level
One of the main realizations I hope you have is that above a debt to income ratio of 1.5 to 1, student loan debt acts as a tax more than a debt.
That’s because you can pay 10% of your income to your loans and be in good standing. If your debt to income ratio is low enough though, 10% of your income might be more than you’d pay under a Standard 10 Year plan. That means you’d be forced to pay back the debt in full over time.
Dropping out of grad school is not without consequence. Paying a percentage of your income for as many as 25 years just because of a decision to go to school obviously stinks, especially if you’re left without additional earning capacity.
That said, the downside might be an acceptable cost to bear. It depends on how strong you believe that you should drop out of your grad school program.
Many borrowers use loan forgiveness to recover from grad school decisions
Whether you’re thinking about leaving grad school or you’ve already done it, the federal government’s loan forgiveness options represent an excellent safety valve.
We’ve had several clients complete veterinary, chiropractic, and other degree programs only to decide that they’d prefer to switch fields entirely and become a teacher. They’re on track to have their debt forgiven tax-free under the PSLF program, which does not require you to use your degree.
Others have even moved abroad to utilize the Foreign Earned Income Exclusion to pay $0 a month while making a living in another country.
Don’t feel trapped in grad school (sunk costs are sunk costs)
Graduating or not from your program is your choice. Once you owe a significant debt, you should only look at the future in making your decision on dropping out.
If you hate the idea of being in the profession that your grad degree is for, then life is too short to do something you hate. Pay the 10% of your income penalty for the next couple of decades and do something else as long as you’re sure.
If you don’t necessarily dislike the job but just want to make an economic decision, look at your expected earnings after graduation. For some fields like chiropractic, you will likely earn less than you could with your bachelor’s degree, based on our own internal data.
If you have a huge debt to income ratio, you’ll have to pay a percent of your income regardless in a worst-case scenario. That means completing your last year of vet school to make $80,000 is better than quitting and making $50,000 financially.
In economics, there’s a concept called “sunk costs are sunk costs.” It means that when you’ve already spent money and can’t get it back, you shouldn’t let past expenses dictate future decisions. We humans are not rational of course. That’s why we’ll sit through an awful movie instead of leaving. We hate admitting that we made a mistake.
The rational thing to do is look forward to the next couple years of your life and ask if you’d rather spend them doing something else. Then ask what about the next couple of decades. If you’d like to make a big change, that’s ok.
You might have to make uncomfortable changes in your budget and have annoying conversations with uncles at Thanksgiving, but you should prioritize your own happiness and well-being.
Recall that you can quit your profession even after you’ve entered it, even if you have more than two times your income in student debt. We’ve helped people walk through that analysis and showed them how.
My best advice about sticking through grad school
My generic advice to you would be, do not drop out of grad school unless one or more of the following is true:
- You’re only one semester in (limited costs)a
- 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
Sometimes dropping out of grad school is the right decision. If you wanted custom advice instead of our general tips, learn how we help borrowers who owe more than $50,000 in student loan debt.
Did you ever think about quitting grad school because of the debt you were getting in? Comment below!