Money in grad school: budgeting, taxes, and the privilege of extras

Money is perhaps the first thing that comes to mind when most people consider pursuing a graduate degree, and for good reason – this is a life built on financial uncertainty that is, for many people, prohibitively expensive to even enter. 

I’ve experienced quite a range of financial situations as a grad student and the spouse of a grad student, and I’ve come to the conclusion that people are right to be concerned about money in grad school. There’s a lot to consider – paying for the program itself, living expenses during the program, taxes and unanticipated expenses, your potential to make money after graduating, how much it costs to even apply, and then, God forbid, money that you spend on yourself. An extended family member was once making conversation and asked me, delightedly, what I would be doing with my life if money were not an obstacle. I looked at her blankly and said “this. No one becomes an academic for the money.” And this has become an even more pressing issue, not just as my family grows, but as I engage more readily in debates about how grad students are paid, our financial obligations, and the tax codes that affect us. When the Republican tax plan was moving through Congress, the most pressing fear for grad students was the change in it that would suddenly make us responsible for taxes on our tuition remission – PhD students do not pay tuition, yet universities bill and then pay themselves tuition on our behalf, and this would suddenly have been considered a taxable expense that PhD students would be responsible for. This scenario was terrifying in particular because it relies on the insane particulars of this industry and can sound reasonable to those not involved. So I want to talk a bit about how I approach money as a grad student and what I would like to see structurally change in this industry.

Budgeting

I’ll start with very basic personal accountability – if you are an adult student, by which I mean in school past the typical college age, you must adhere to some kind of budget or you will be deeply in debt. My husband and I have different definitions of budgeting – I think of it as (money coming in) – (necessary expenses) = (money left over to save or spend) and he thinks of it loosely as (necessary expenses) + (discretionary spending that can reasonably be justified according to its value) = (total expenses). And to be fair, I don’t think either one of us is wrong – while his perspective clearly reflects money habits that were established when cash flow was not an issue, he makes a good point that there is some amount of gratification necessary to stick to a budget, and my deprivation budget often led to feelings of anxiety that made me itch to be able to buy myself a nice dress at the start of a semester. As a grad student, there is always a tension between the limited money you have, what you need to spend it on, and what you want to spend it on. On the especially limited income of a PhD student at most universities, even getting coffee or a beer is cause for reflection.

Why is the budget of a grad student so tight? Unlike an undergrad, who at a private 4-year university is typically well-taken care of and just feels the strain around extra expenses (I’ll get into the situation of people who don’t have any family wealth to lean on at the end), a grad student is, as I said, an adult, by which I mean they are largely financially independent. So not only are grad students more fully responsible for mundane personal finances, but they are also responsible for their income – to be a grad student, you typically have to have a job at the same time (even as a full time student) or have recently left a job that paid well enough for you not to work for a while. I’ll get into this more in the section on paying for grad school, but the basic truth that makes money as a grad student difficult is that unless you are in a funded PhD program, not only do you pay tuition and fees, but there are essentially no opportunities for financial aid or scholarships that pay any significant amount of those costs. This is because Master’s-level programs (which include terminal MAs, MBAs, JDs, and even MDs) are the cash cows of the university. This is where the university really makes its money, because these programs are typically shorter in time to degree and require less support in the form of administrative personnel and professors than undergraduate programs or PhDs. Again, the people who attend these programs are adults – they are expected to be largely self-sufficient as both students and customers of the university.

But just because that’s the expectation doesn’t mean it’s a financial reality for most people – even grad students from wealthy families take out massive loans to attend these programs. This has two major implications: 1) you must leave the program with a job offer in hand that will plausibly enable you to pay back that loan and 2) while you are in the program, you want to spend as little beyond tuition as possible because anything that the loan covers that is not directly school related (tuition, necessary fees, and books and required course materials) is taxable. Implication 1 is where programs that are not explicitly designed to prepare you for a specific job get really tight financially – MAs in general, as well as MFAs, largely do not provide job training or networking, and the jobs they qualify you for tend to be fairly low-earning. Compare this to MBAs and other business degrees – yes, people who attend them tend to be independently wealthy to start, yes, it is two years of networking disguised as partying, and yes, they live like Saudi princes, but at the end nearly the entire class has a job lined up with a six-figure salary, and those who don’t have the tools and qualifications required to get one. Implication 2 is where budgeting comes into play. If you have money already in the bank and you can expect a high-paying job at the end of your degree program, it makes sense to live as you expect to after you graduate, because you have the extra cash to cover the taxes on your loans and the experiences you are spending that money on – trips abroad, nice networking dinners, a professional wardrobe – are, in a twisted way, part of the training. What small talk do people rely on at parties attended by business people? Where you just traveled to and where you want to go next. If you haven’t traveled recently or if you don’t think that’s part of your budget, it will actually hurt your ability to make connections in certain industries – when in Rome, after all. But if you are a PhD student, the budget changes dramatically. Traveling is for research and conferences, and you are lucky if you see anything outside of the hotel. Networking is still important for your job prospects, but the topic of the small talk is now what you read recently or that new exhibition. Your degree-adjacent discretionary expenses are not “life experiences” that will make you seem more interesting, they are knowledge and culture that will make you seem more thoughtful. And while looking presentable is at least somewhat relevant as a professional academic, it’s still of minimal importance. So, an academically-oriented degree program budget is dominated by necessary living expenses (of which rent might constitute 50% despite advice against it), with a little left over for books, museum visits (but of course every grad student knows how to get into museums for free), travel budget for conferences (because the university will only reimburse you for an amount that is equivalent to half the cost of the airfare), the occasional social outing (but only during half-priced apps night), and maybe a little something nice for yourself once in a while that you will hide in your closet in shame.

That’s the basic thought process behind beginning to plan a budget as a grad student. But before you can actually apportion out what little money you have, there are a few other major considerations that really change the numbers.

Taxes

As I’ve already mentioned, taxes as a grad student can be a quicksand pit of debt. My most centrist argument in favor of grad student unionization is the fact that no funded grad student actually knows how to file their taxes, because there is no category that covers a stipend, which is both a scholarship and income (and which some universities, mine included, feel they have no obligation to report). This leads to some hairy situations, like entire classes at one university being audited at the same time, or PhD students simply not reporting their stipends – which is fraud. Grad students typically pay taxes on some combination of three sources of income: loans, stipends, and part-time employment (or full-time employment if they are part-time students, but that’s an easier financial situation). As I’ve already mentioned, loans are only taxable when they pay for costs that are not directly charged by the university for explicit academic purposes. This is irritating, but straightforward, and you have to keep this in mind and set aside money to pay taxes on expenses that will already cost you double in the long run because you are covering them with a loan. Stipends are, as I’ve said, trickier. There isn’t really a tax category that covers them, because technically they are part of a financial aid package, and often some portion of them goes to expenses that are not taxed, like books or university fees. Where it really gets tricky is that, in an effort to deter grad students from unionizing, universities do not consider stipends to be income, even though the government might, and so they will often not report a stipend on any tax form, collect social security on it, or allow for tax withholding (when I was in my MA program, my university split the difference and withheld taxes but didn’t contribute to social security). Some universities will also mess with how they disburse stipends, paying part of it as a scholarship at the beginning of every semester and part as bi-weekly income, which would then suggest that these two different kinds of payments should be reported differently. Finally, it is unclear whether money spent on attending conferences should be considered a necessary expense for the degree, especially in situations where the university is willing to reimburse those amounts in part. The end result is that reporting your income as a funded grad student can be extremely confusing and depends entirely on how your university chooses to provide it and the documentation surrounding it. The one constant here is that you will likely still have to set aside some portion of your income to pay taxes, even though it is difficult to know what amount that should be – for instance, if you report your stipend as self-employment (even though it is not), you are taxed at a much higher rate than if you report it as regular income, but that may not be an option if your university has not provided you with the requisite tax forms. The last category of income, part-time income, is the simplest to deal with. Unless you are being paid in cash (in which case you should reconsider taking that job), your employer will likely give you real tax forms, withhold taxes on your income, and otherwise make it easy for you to just use the money you’re earning on whatever you’d like. The only hard part will be finding the time to take a job on the side.

Paying for grad school and applying

Funding not only grad school itself but also the application process is a complicated issue all its own. I would say that applying to grad school is prohibitively expensive for many people, and unlike for college there is no common app or fee waiver to mitigate the cost. Costs involved in applying for grad school usually include taking a specialized standardized test, sending those scores to universities, ordering transcripts, and application fees. Extra expenses might include prep courses or books to study for the standardized test, visiting the universities, and of course the time spent on writing the applications themselves, which can be dozens of hours spread across a few weeks or months. I once heard a professor recommend to a roomful of hopeful PhD applicants that they should start hitting up their relatives for application money or even consider taking out a loan to cover these costs. Application fees can be $50-100 per school, sending scores is often in the $20-40 range per recipient, registration for the tests can be $75-150, and transcripts can be $10 per copy (even if they are digital). Universities make it as hard as possible to apply – every university asks for exactly the same information, but they all use different systems and portals, so just filling out your name and address can take 20 minutes for every program. Some universities require hard copies of the whole application, or only specific parts, while others will only accept digital copies but with very specific requirements – some programs, for instance, want unofficial digital transcripts, which often means ordering a digital copy of your transcript, printing it out, and then scanning it. Just the application process can be in the low thousands of dollars, on top of all the time and energy required.

Once you get in, actually paying for the program can be its own ordeal. A funded PhD program is great, provided that the stipend actually covers living expenses where the university is – the University of California programs cut it close to the point that many students there will still opt to take out loans to cover other expenses. PhD programs often do not fund costs that are still necessary, like university fees or required health insurance, and so even if tuition is covered, students still have to pay the university back from the money it is paying them before they can apply any of it to their other necessities. Master’s programs are a different story altogether. It is extremely rare for Master’s programs to offer any kind of significant financial aid, by which I mean enough money to cover the cost of tuition or even half of it. I know of two instances that broke this trend. When I was an MA student, I was lucky enough to get a teaching fellowship – essentially the same funding package as the PhD students got because they had a shortage of TAs and needed to hire a few extras. This largely does not happen, and was only in effect for 3 years. I also had the option to apply for a few work-study fellowships elsewhere in the university, which provided 50% tuition remission and about half the stipend that I received through my TA position, which was already very small. These were great options, but had I taken one of them I still would have needed to take out a loan or ask for help from my parents. The other instance was a friend of mine who received a full ride scholarship to business school on an extremely competitive fellowship, but of course this only paid for tuition and not the extremely high cost of living in business school. The fact that he received this also heavily swayed his preference – although he never said as much, it seemed like he would have greatly preferred his other top choice, which gave him almost no money, because the program was more suited to his interests and the school itself was located in a center of the industry he wanted to go into. The reason he was able to get this money in the first place and why he felt so beholden to it was because he is not American, and as an international student, he was not eligible for Federal or even most private loans. So, while the other main option for funding your graduate education is absurd lifetime debt, even this is not an option for many people. Furthermore, if you are an international student attending an American graduate program, it is still extremely difficult to advance your citizenship application during that time and immigration policies will encourage you to simply take that nice expensive education and return to your country of origin.

Financial aid, grants, and fellowships

I’ve covered most of the ins and outs of financial aid already, but there is one lingering point, which is the difference between these different sources of funding and how they can and can’t be used. As I have recently discovered, fellowships designated for research cannot be applied to any other necessary expenses in your life, including, for instance, healthcare (unless it is travel health insurance), childcare or any expenses related to your dependents, repaying loans, or taxes. This makes sense in a way, since the express purpose of these fellowships is research. And yet, it does not make sense, because you are not just a research machine, you are also a human and you still have financial obligations during the year that you are doing research – and, it’s not like these fellowships don’t cover the cost of food or housing. This is where funding a graduate education gets especially dicey – because “student” is a temporary designation, universities and the organizations that fund graduate educations do not consider you a functioning adult while you attend these programs, even though you are one and you continue to have adult-like concerns and financial responsibilities. This means that these sources of funding largely don’t expect you to be able to live solely on them, or it simply doesn’t occur to them to cover other necessary costs. Financial aid, for instance, typically only covers tuition, but not costs of living. Grants are small and specialized to individual projects, although they can sometimes be stretched to cover other necessary financial obligations during the period they cover. And fellowships are huge and wide-ranging in what they will cover. I nearly applied to do research at a library in Switzerland because they provided housing and childcare on top of their stipend (and maybe they had some relevant documents, or maybe not).

Side hustles and part-time employment

So how do you offset all these expenses, and maybe cover some of the things that hard-won money isn’t supposed to cover? You get a part-time job. This is a tricky situation, because being a full-time student means that you are not expected to have time to also work a part-time job. If you are a PhD student, you already have a full-time job in addition to being a student, which is either as a teaching or research assistant. And yet, I know many PhD students who take on extra work as tutors, running public history tours, working in museums, or doing your typical coffee shop gig – I myself worked as a bartender one summer. These jobs can be time-consuming and difficult to come by, they can require inconvenient and long hours or commutes, they can impose a great deal of verbal abuse from managers or customers as well as physical strain, and at the end of the day they can interfere with your first job, which is getting your degree. Part-time jobs never pay well enough to really offset the cost of a graduate education – they can really only help pay for small things like discretionary expenses or, sadly, healthcare. If you have children, getting a part-time job is typically more hassle than it’s worth, because if you are earning that money to pay for childcare while you are in class, you typically also need childcare while you are at that job. Many grad students opt for a side-hustle or self-employed free time work instead – I knew a woman who started selling homemade tea blends, and a couple who run backpacking tours, and the benefit of this is at least it also provides a creative outlet. If you are in a career-oriented program, getting a part-time job is both easier and more beneficial. My husband turned his summer internship during business school into a part-time job that almost certainly helped him land his current gig for the wealth of experience it gave him. Even though it didn’t pay well, it was, in a way, part of the training he was in business school to get, and having a little extra money was a nice boost.

Saving and future financial goals

Let’s say you manage to budget extremely effectively in grad school – can you think ahead to the future and not just worry about your current shortcomings and eventual debt? I say definitely yes, but it’s difficult. Only you know your personal finances and only you can decide what you’re willing to sacrifice or balance. Saving anything at all will be a huge help in the long run – if you can invest what you save, even better. If for no other reason than to have a rainy day fund, saving is extremely important. But you have to find what works for you. Certainly you could switch from buying coffee to making it at home, but maybe you need that one purchased coffee to feel relaxed enough to make it through your otherwise stressful life, and if you don’t have it, you might end up accidentally spending they money you saved on something else, whether frivolous (like a gaming console) or necessary (like therapy). Maybe you can make yourself transfer $10 every month to your savings account, or maybe your only hope is a change jar or automatic change rollover program. What you’re saving for is also up to you. If you are in a career-focused graduate program, you probably need to worry less about setting yourself up for a healthy financial future and you can focus on starting to save a little for retirement or going in the other direction and save for extras in your life like travel. But if you’re a PhD student, you save tiny bits of cash so that you can one day own a home or pay off your undergrad loans.

Health insurance and benefits

The sad thing is that even once you’ve made sense of your finances as a grad student, there are a few major expenses that can linger, or benefits that people in other industries can expect that you will hardly ever hope for. Healthcare is one of these major concerns, as it is for most people these days. Universities will often require grad students to purchase health insurance as well as access to their health system, but this coverage is often not sufficient or is not covered by funding sources. Other expenses or lacking benefits can be more insidious, like a lack of access to childcare resources because of your status within the university. Or, as my husband loves to point out, the absurd hoops I have to jump through to be reimbursed for attending a major conference in my field at which I received an award and presented a paper, which still was capped at less than the cost of airfare – meanwhile, when he used to go on recruiting trips to colleges for his company, they paid for the full cost of travel, including the car rental and a nice hotel, as well as a generous per diem. These are the different expectations and priorities of different industries, and there is no way around the fact that grad students are not considered to be doing much of anything important. The last straw is that currently, despite being in a city that runs on public transit, my university does not offer even a discount on metro passes.

Personal privilege and luck

There is an enormous elephant in the room when it comes to finances and grad school, and this is family background. It’s not just your own personal wealth upon entering a program that can set you up for financial success, it’s what your parents can offer you in the way of support, whether financial or educational. My first year of grad school was a post-baccalaureate program – I essentially paid to attend a year of classes at the Master’s level that would not result in a degree but would give me more training and put me in contact with people who could potentially further my career (things didn’t work out the way I expected, but it still gave me some training and the time to apply to MA programs). I was able to do this only because my parents paid both my tuition and living expenses during this year – they constantly encouraged me to get a job and meaningful financial aid, but nevertheless, they had the means and inclination to give me substantial support. In a similar vein, my husband’s parents extended him a loan to cover part of his business school tuition – we still took out a loan to cover most of it and paid for an equal amount from our own savings, but again this was a huge help that will only continue to benefit us as it saved us cash that we can now put toward a house and minimized our debt for the coming years. We also received help from my mom, who gave us a place to live so that we had less to worry about during that time. My husband also received a lot of help from me and his colleagues in writing his business school applications – I had at the time 5 years of experience as a writing teacher, and my own experience in applying to grad school encouraged him to seek out certain kinds of help. When I applied to grad school, I could ask for advice from my husband’s parents, who are both college professors, as well as my oldest brother who has a PhD. These things matter greatly. Having the financial safety net or resources to attend one of these programs, having the family experience to think that it’s possible to apply and to know what’s involved, these make a huge difference in your success both getting into and completing a graduate program.

What can we do differently?

I think there are a few major aspects of the financial reality of graduate school that need to change across the board, both to level the playing field so that these career paths are more accessible, and to ease the personal burden so that more people are able to become teachers and doctors and lawyers and, yes, even business people.

  1. Universities, the tax code, and society at large need to treat grad students as adults and graduate school as a job. The underlying problem with how graduate taxes, income, and benefits work is the expectation that this life is temporary and that student=child. But most grad students are past their mid 20s and these programs take a while, and so such expectations consign grad students to a limbo that ultimately benefits no one – levying taxes and tuition on someone who can’t pay them doesn’t help the economy or force people to finish their degree any faster, it just prevents people from being able to spend money or focus on their work. We should establish grad student as a category between student and independent employee, with its own tax requirements and its own financial expectations – this will help things flow more smoothly for everyone.
  2. Graduate programs should develop a common application and fee waiver incentives to make programs more accessible. More accessibility means that more people will apply, so instead of having to wring the current number of applicants dry, universities can still get a lot of money through applications, plus decrease their acceptance rate. In the same vein, the companies that administer standardized tests should make it easy and cheap to both prepare for and take the exams.
  3. Universities should offer the same benefits to grad students that they do to employees, and they should pay for them or put them into the necessary expenses that a private loan or fellowship can cover. I know this is full-on socialism (except that it’s not because it’s a private employer not the government), but right now universities pay PhD students money that the students just give back to the university to cover necessary services. It’s like parents charging an 8-year-old rent and expecting her to pay out of her allowance – what’s the point except as an exercise in budgeting? Grad students should never have to drop out of a program because of anxiety over not being able to afford basic necessities, and yet this is a real problem. At the very least, students in unfunded programs should expect that if they are a full time students their loans should cover more than just tuition, since you are still a human, not just a student, when you attend school. Benefits should include healthcare, childcare, and, *gasp* financial planning, which would actually help grad students pay back their loans or go on to be more successful in the long run.

That’s it. If we approach students as people who are growing and developing and even providing a benefit to the community rather than leeches that need to be salted off as soon as possible, grad school can be a real benefit to society, universities, and individuals who attend those programs. It’s a brave new world.

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