From six figures to student loans

For a mid-career change, a graduate degree can help you begin a new chapter. Here's how to afford one.

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By Karen Cheney, Money Magazine contributing writer

Jay Mulki quit his six-figure job in the energy industry to go back to school and eventually pursue his dream job, teaching.
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(Money Magazine) -- After nearly 20 years in the energy industry, Jay Mulki was earning a handsome six-figure salary and managing a department of 50 employees. But Mulki longed to work fewer hours and pursue another dream: to teach marketing at a university.

To do so, however, he'd need a Ph.D., which would mean years of schooling.

"I couldn't even be sure that I would get employment after graduating," he says.

Still, in 2001 he quit his job and began a Ph.D. program at the University of South Florida in Tampa, where the family was living at the time.

Returning to student life was a big change for him - as well as for his wife and daughters. "We cut our spending dramatically," recalls Mulki, now in his late fifties. "I felt guilty for putting my family through this ordeal."

In one crucial way, Mulki was lucky: He received an assistantship that waived tuition and provided a stipend. But even with a hefty financial aid package and Jay's wife Myra working full time, they saw their income drop by nearly half and had to dip heavily into savings. And Mulki was racked with worry.

"I constantly questioned the wisdom of going back to school at a late age and the opportunity cost in terms of lost income," he says.

No question, returning to school in your 40s or 50s is a stressful decision. You almost certainly have a mortgage to pay and may have kids to provide for, as well as retirement looming. Then there's the sticker shock.

Most graduate students face steep costs - averaging $22,000 a year at a public university and $34,100 at a private school, according to the Council of Graduate Schools, and most students finish with heavy debt - an average of $37,000, according to, a financial aid website. Law school and business school grads amass tens of thousands more.

On the other hand, grad school may be the means to breaking into a career you really enjoy, like law, finance or teaching at a university. It may be the key to a higher paycheck too.

In 2006, workers with a graduate or professional degree earned an average of $80,000, according to the U.S. Census Bureau, compared with $55,000 for those with bachelor's degrees only.

Make sure a degree is the ticket you need

And you'll have plenty of company - nearly a fifth of all first-year graduate students are 40 or older, according to the U.S. Department of Education. Whatever your goal, here's how you can be sure grad school will pay off.

The only way to know if a grad degree will help you get a job with better prospects, saner hours or a plumper paycheck is to do research.

Try to keep your day job

Talk to others in the field to figure out how many jobs are available and what you could earn, and peruse job boards and meet with headhunters to find out whether a degree is an essential qualification for your target field. If not, you may be able to eventually nab the opportunity you want by working your way up from a lower-level position.

While the thought of spending your days hanging out in the campus espresso bar might sound appealing, you can trim your costs significantly if you go to school part time.

Most graduate schools offer evening and weekend classes, as well as courses online. And talk to your current employer to find out if there are any programs in place to help you get your degree.

Get some help

Roughly a quarter of all graduate students age 40 and older receive employer aid averaging about $3,000 a year, according to the U.S. Department of Education, though you may have to reimburse the funds if you don't stay with the company for a certain number of years.

The good news is, you're likely to get some form of aid: There is no age limit to apply, and you're eligible even if you attend part time. Federal aid formulas don't factor in your home equity or your retirement accounts, and as an adult, a certain amount of your savings is protected too - typically from $40,000 to $50,000, depending on your age and marital status.

Plus, the awards are more generous for grad students, says Craig Cornell, director of enrollment solutions for Peterson's, which publishes career and education books. You can take out up to $20,500 a year in federal Stafford loans, which generally offer better rates and terms than private loans do.

To apply for aid, you'll need to fill out the Free Application for Federal Student Aid (FAFSA) in early January. If you're leaving your job, you'll also want to request that your school's financial aid office adjust your income to reflect your estimated earnings for the coming year, which will presumably be far lower than your W-2 earnings from the prior year.

Once you get your aid package from the school, extend your search to outside scholarships and grants. "If you are a full-time student in an academic subject, you have a better chance of getting financial support," says Peter Diffley, dean of graduate studies at the University of Hartford and author of "Paying for Graduate School Without Going Broke."

Map out a budget

But even if you're a part-time student, you may still be able to find scholarships by contacting professional organizations in your new field, says Gen Tanabe, author of "501 Ways for Adult Students to Pay for College."

Even if your financial aid award is generous, you're likely to have a significant shortfall. So think about how you and your family can trim expenses for the next few years.

Mulki's family quit dining out and taking vacations, and did away with luxuries like a lawn service.

Take advantage of tax breaks

"I ask my clients, 'If one of you lost a job, what would you cut back on?' " says Larry Botzman, a financial planner in Somerset, Ky. "Then I say, 'Start doing it today and put all the extra savings away.' "

While you're adding up the costs, don't forget that the tax deals available to college students are also there for you.

If your income as a student will fall below $47,000 ($94,000 if you are married and filing jointly), you can qualify for the lifetime learning credit of up to 20 percent of the first $10,000 you spend in grad school bills. And if you made less than $130,000 (or $65,000 for singles) in 2007, you can write off up to $4,000 in tuition and expenses next year.

Use your assets

If you're saving money in advance, don't forget that you can shield your earnings in a tax-favored 529 plan. These savings accounts can be used to fund education costs at any age, and in some states you'll qualify for a deduction on your state income tax return.

As an older student, you may have a bit less hair on your head than a college kid, but chances are you've got something he doesn't: home equity and perhaps a substantial amount of savings in your retirement accounts. But should you tap these assets to pay tuition?

You might be tempted to borrow from your home because the interest on the loan may be tax deductible, but given that rates for home-equity loans are now above 8 percent, compared with 6.8 percent for a Stafford Loan, you're probably best off keeping your equity in your house.

Borrowing from your 401(k) or withdrawing from your IRA, on the other hand, can make sense in some situations, says Michael Chasnoff, a financial planner in Cincinnati: "If going back to school helps you command a higher level of income, there is a return on your investment."

Money from a regular or Roth IRA can be withdrawn penalty-free for qualified education expenses. If you're keeping your job, you may be able to take a loan from your 401(k) plan: Most plans allow you to borrow $50,000 or half the account balance for five years. (If you leave the company, you'll generally need to pay back the loan within 60 days or you'll be hit with a 10 percent penalty and income taxes.)

Bring your family on board

But bear in mind that you are giving up the tax-free compounding of the money you withdraw and you'll be replacing pretax money with after-tax money, so you'll need to save substantially more to make up for the amount you cashed out.

Going back to school isn't just your personal goal. "It's going to be a family effort and everyone will make sacrifices," points out Tanabe. So be explicit with your family about how graduate school will require your time and the family's financial resources.

For Mulki, the sacrifices paid off handsomely: He has a full-time teaching job in marketing at Northeastern University in Boston, which pays nearly as much as his previous corporate job, and far more time to be with his wife and daughters. "I used to travel two weeks out of every month," he says. "Now I am in control of my hours." It's hard to put a value on that.

Three fast fixes
  • Set practical goals Given that the Mulkis are in their fifties, it's time for them to turn their attention to retirement, says Kemple. Jay and Myra think they can live on $75,000 a year after they retire, but they haven't really done the math. Software such as Quicken can help them measure their spending and map out a realistic savings plan.
  • Reduce cash holdings To finance Jay's education, the Mulkis spent $75,000 of $125,000 savings account. Now they want to rebuild that stash. They should put the money in a MONEY 70 balanced fund such as Franklin Income. That way, they'll likely get a better return on their money but not lose big if the market falls.
  • Make wills The Mulkis aren't college students anymore: They have lots of assets and daughters to protect, and they need an estate plan to reflect that. Kemple urges them to hire an attorney to set up wills and a revocable living trust. "That will keep their assets out of probate and provide more confidentiality," she says.
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