“I’m In…Now What?” Paying For It

Adjustments

While I believe that an estimated debt-to-income ratio of 22.1% is manageable, I want to explore a few options that may allow me to lower that ratio.

“Sources” Adjustments

Private loans. First off, I am going to look at funding my debt through alumni-backed loans. I am going to go with CommonBond, which offers a fixed rate of 6.24% during school that then drops to 5.99% during repayment with ACH setup (i.e. automatic debit).

Retirement account. Next, I want to try and reduce the overall amount of debt I take on by reconsidering the share of equity I plan to use to finance my MBA. Specifically, it’s time to look at my retirement account (an IRA in my case) as a source of funds. It’s important to consider a couple points with regard to retirement accounts (1):

Withdrawals for “Qualified Higher Education Expenses” are exempt from the 10% early withdrawal penalty.

These withdrawals are still subject to income tax. But since we’re making considerably less money while in school, we’re in a much lower tax bracket, which can significantly lower our tax burden.

In my case, I aggressively contributed to my retirement account to take advantage of company matching policies and the account’s tax-advantaged characteristics. Many people consider raiding a retirement account to pay for school to be a bad move. However, I think it’s a decision that depends on your personal profile. I’ve always considered the money in my retirement account to be a cushion, something nice to have, but not critical.  I hope to be successful enough to not exclusively rely on these funds to support retirement. That being said, I do like to hedge myself and have no plans to gut my retirement account to pay for school. I think there is a reasonable balance here.

“Uses” Adjustments

Once-in-a-Lifetime Trips. There is no category called “YOLO” – although, there should be – so we’ll just call it “Once-in-a-Lifetime Trips.” A trip might be one of the global treks that a lot of programs offer during school breaks. These treks can easily cost over $5,000.

Cushion. Since I like to factor in some cushion into my estimates, I’ve added a “Cushion” category to handle any overflows from other areas.

Now, let’s take a look at my new “Sources and Uses” spreadsheet.

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