No Debt MBA

So I have some good news.  I recently received the official bill for my first semester at business school and assuming that the spring bill is the same I will be paying for the entirety of my first year bill in CASH! I sort of knew this was coming but didn't want to announce it until my aid was on my bill and credited.  Forgive me if I'm a little cautious when someone's offering me $34,500.

So the official bill came and I can just write a check for it which is pretty awesome.  Plus I'll have enough to cover living expenses for the year and, if I stick to a budget, as of my bank balances right now I'll have $6,000 left over for next year plus I won't have touched my 529 or retirement accounts.  I'm also expecting to have a few more paychecks coming in from my job before I quit to start school (don't worry my boss is in on it).

Though my ability to pay in cash wasn't decided by this, I got very lucky recently when my parents discovered that the 529 they'd started for me to pay for undergrad wasn't empty.  There was left over money in it because of the scholarships I received while in school, but for years we all thought it was on the order of a few hundred dollars.  Well I asked them to call and check the balance and billing method so I could apply what little there was to my tuition bill and my mom got a surprise.  There's actually $4,000 left in my undergrad 529.  This money will pay for a portion of my tuition this fall and will give me a boost in how much I have saved for living expenses and my second year of business school.

I am so lucky to have parents who saved for my college education and I was so fortunate to receive scholarships and work opportunities to defray the costs for them.  It's a very pleasant surprise to find these efforts are still paying dividends!  I'm also lucky to have a boss and workplace that is supportive of my plans for graduate school and have accommodated my requests for an end date close to when school starts.  This arrangement allows me great lead time to hand off all the projects I'm currently working on and allows me to put away as much cash as possible for the coming lean income period ;)

So I'm incredibly happy that in the next week or so I'll be writing the check that will put me a good chunk of the way towards meeting my goal of graduating debt free.   I was wondering if it would be fun to have a progress bar on the blog?  I like seeing them on other blogs and I could update mine by knocking off living expenses from the student budget each month and making big progress when I pay a bill from school.  However, it might be a bit deceptive since I plan to live on less than the student budget and I'm receiving a good chunk of aid. Thoughts?

Also, YAY!

So the title of the blog is "No Debt MBA" and I've set myself a goal of graduating from a top rated business school with an MBA and without any debt, student loans or otherwise, while knowing that the program's total student budget is around $165,000 for two years.  I only have $107,000 and $70,000 of that is in retirement accounts that I don't want to touch and while I just got a wonderful financial aid package this still sounds a little crazy, right?  To make up the gap of around $59,000 ($165k cost - $37k liquid assets - 2*$34.5k aid) it seems like I'm going to have to eat cat food, be a hermit, and never sleep or study because I'm working so much.  I'm pretty sure that that's not going to be true.  At the very least never studying and or socializing would seriously hinder the two biggest goals of most MBAs - learning and networking, defeating the purpose of getting the degree in the first place.  But I also can't say I know where all of that money is going to come from yet either.

Regardless, you may be wondering why the heck I'd put myself through any of this.  You might say that student loans are supposed to be good debt after all.  They're cheap money and are to make an investment in your future.   People do it all the time and do just fine.  No one says you have to take out loans for the whole thing, but do yourself a favor and relax about the whole money bit so you can really get the most out of a once in a lifetime experience 

Most of that is absolutely true.  But none of it is absolute fact.  While student loans are considered "good" debt, they're also the hardest type of debt to get rid of, following you even through bankruptcy.  Student loans are for life and maybe even beyond if you have cosigners.  They also aren't particularly cheap right now.  Though I've yet to look at private loans, students are generally advised to look at Federal first and those are fixed at 6.8% and 7.9% at the moment.  Federal student loan rates have not really followed the market down and aren't really cheap money in this economy.  Jumbo mortgages can be had for less interest and fees.  I've also previously discussed the cost of student loans - by paying for the degree with loans I'd pay for it at least one and a half times.

I'm also concerned with the risk of overburdening myself with debt, banking on a job search two years from now in an economy that may still be sluggish.  There has been plenty of news coverage recently of students graduating from programs with six-figure debt but unable to find a job.  I know someone who graduated from my school of choice and nearly a year after graduation still hasn't started work, though she did finally secure a position.  Though I don't know the specifics of her financial situation, I imagine having a typical debt load would be extremely stressful during that year of searching.  Sure student loans can go into deferment for a number of reasons but the vast majority of student loans will accrue interest during that time.  If you graduate with a "typical" debt of $87,000 then the first year of deferment at 6.8% is nearly $6,000.  At 7.9% it costs you $7,000.  The interest compounds - imagine the magic of compound interest working against you.

So really I guess what it boils down to is that I'm concerned about risk.  Risk that the job market might not be so hot when I graduate, risk that my new shiny MBA degree might not do the career magic that $165,000 price tag implies, risk that I won't be able to pay my loans, risk that I won't want to take a job where I can pay my student loans.  I also would like to be able to work for motivations other than money in my career and have freedom to pursue my own interests and projects or start a business eventually.  All of these worries lead me to think that minimizing my student loan debt would be a really worthwhile investment for me.  But while I was thinking about this I had the small epiphany that I could just try not to have any debt at all.  I mean, who knows? Graduating with debt may be an entirely doable proposition, but I would never know unless I tried.  By setting a really challenging goal for myself I think I'm more likely to succeed at my base goal of reducing risk and increasing freedom through minimizing debt.  Plus not having a single student loan repayment bill show up one month after graduation would be a really sweet graduation present to myself.

I'm not against debt in and of itself.  I do believe in leveraging debt in some situations, though I never have.  But I also believe that student loans, especially once they exceed $25,000, would be a significant hindrance to my career, freedom and choices.  I also know that without this goal I would still worry and be anxious about my financial situation and any student loans I took out.  If anything I hope this route is less stressful because I'm meeting my fears head on and doing my best to address them. 

What do you think about my goal?

Today is a good day.  I got my financial aid package and the news is excellent.  They've approved me for some Federal loans, no surprise, and given me the maximum amount of subsidized Stafford loans - the best Federal loans to have.  But the best news is the grants.  Drum roll please......................................

So I've been wrestling with how to track my progress here and still remain anonymous.  I need to look at how much my program costs versus how much I have and track the remainder (I hope) or the resulting debt.  If I put up my school's exact student budget it will tell you which school I go to which is a little too close to home for my comfort. So I think I will take an average of the "top 5" MBA programs' costs and use that instead.  So my student budget for the blog will be:

	Top 5 Average
Tuition and Fees	$53,946
Health Insurance	$3,153
Room and Board	$21,088
Books and Supplies	$4,163
Total	$82,349

It's not precise, but it's a reasonable benchmark.  When I get my aid package I think I'll scale any grant money I get based on how the average budget compares to my actual student budget so the remainder ends up the same.  The cost after aid is what is really important here after all.  Does that sound reasonable?

I'd like to keep a record of how my finances change as I go through my MBA program.  I'll post now, while my savings are almost as high as they'll get, sometime this summer or early fall after I've paid my first bill and probably quarterly thereafter. Here's where I stand financially:

Account	Balance
Cash	$30,000.00
Credit	-$1,000.00
529	$8,000.00
Retirement	$70,000.00
Net	$107,000.00

Cash is my checking and savings accounts.  I'm definitely going to use some of this along with my 529 to pay my tuition bill this summer but will leave a portion for living expenses.  Credit is my current credit card balance which is paid off at the end of every month.  Retirement accounts are the bulk of my assets with about $25,000 in a Roth IRA.  I don't think I want to liquidate any of these to pay for my MBA though the Roth's contributions would be penalty free.  As you can see I may need a minor miracle to meet my goal of not resorting to student loans while also not touching my retirement accounts.

Do you track your net worth?  How often do you check?

So I was recently accepted to a top-5 MBA program.  A business school that makes mommy and daddy proud and will be a great long-term investment for my career.  I'm going.  Sent in the deposit and applied for financial aid.  Popped some champagne and had a good celebration.  Now I'm looking at the price tag and trying to keep my jaw off the floor. 

I've never had any debt before and, although I know it's hardly realistic, I don't want to start now.  My dream goal is to graduate with zero debt.  No credit card debt, no car loans, no personal loans and no student loans.  Of course the first three are easy - it's what I've been doing for years.  It's the last one, no student loans, that's going to be a sticking point.  But I can dream, right?

Anyone out there tried to do something like this?