Cover Story

Leslie Case, PhD, says she can't stand to think about the amount of debt she faces after wrapping up a clinical psychology doctoral program at the University of South Dakota in 2002. She owes $110,000 in student loans and about $25,000 in credit card debt-mostly spent on asthma medication since she had no health insurance while in school.

"I knew I would be taking loans, and I knew there would be debt," Case says. "I don't think I quite calculated how big it would be by the end."

Even though Case makes $42,400 per year as director and senior behavior analyst for Medallion Foster Care in Dunedin, Florida, she says she still can't afford to make student loan payments. So, she takes business classes at a community college so she can continue to defer payments.

Case is hardly alone in her financial troubles. Twenty-six percent of psychology doctoral graduates reported a debt of $75,000 or higher, and the average debt for a psychology doctoral grad is $53,111, according to the 2001 Doctorate Employment Survey by APA's Research Office.

Moreover, students in some specialties within the field face worse debt than others. In fact, students in the health-service provider subfields carry nearly twice the amount of debt of research and teaching students, according to the survey (see Health service fields report highest amount of student debt).

To avoid debt-shock after graduation, students need to think about how they intend to pay off their debt as they choose a lender and determine the amount to borrow. Otherwise, they could be heading for a financial mess, financial advisers say.

"It can be really easy to sign a note to borrow $30,000 this year and next and not really think about the implications," says Jim Miller, dean of admissions and financial aid at Bowdoin College.

So what steps can you take to manage your debt? Financial advisers recommend learning your financial aid and payback options, finding financial guidance and tapping loan repayment programs. But the best step? Avoid debt in the first place.


Avoiding debt

There are other ways to fund your education than loans. Students can cover some tuition costs with:

  • Teaching or research assistantships
    According to APA's survey, psychology students' most popular means of support are university research or teaching assistantships, which students apply for through their university (see chart at right). Some schools—mainly research programs—offer full tuition stipends in exchange for students undertaking research or teaching assistantships through their department.

  • Family or own earnings
    Nearly 90% of students use their own earnings or family support to help fund graduate school, but only 27% rely on it as their primary support, according to the APA survey.

  • Scholarships and grants
    Students can also explore scholarship or grant opportunities to help cover tuition costs, suggests Martha Holler, a spokeswoman for Sallie Mae, a leading student-loan provider. Holler recommends Web sites like, which can provide personalized lists of scholarships you are eligible for. About 18% of psychology grads reported using grants to help curb tuition costs, according to APA's survey.

For example, Melinda Beane, a graduate student in the cognitive psychology/neuroscience program at the University of Oregon, received a teaching fellowship through her psychology department and a training grant through her neuroscience department to help cover her tuition and living expenses.

"The training grant has given me the opportunity to focus on research…[and] the teaching fellowships have given me the opportunity to gain experience teaching at the college level, which is very valuable," Beane says. "Both fellowships have allowed me to focus on my education and research rather than having to spend time looking for outside jobs."

Similarly, Michael Proulx, a cognitive psychology doctoral student at Johns Hopkins University, avoids debt with the help of a fellowship he earned through the National Science Foundation to pursue his research interests on visual attention and perception. He combines that fellowship with the full-tuition support from his program to avoid incurring any debt from tuition and living expenses.

"This way I can really put my time toward training and research," Proulx says.

Students can obtain financial support outside of their program as well. Clinical psychology student Chris Ferguson avoids debt by teaching up to four community college psychology classes a semester. He earns $30,000 a year to help pay his current graduate tuition and make payments toward his undergraduate student loans (see Working overtime). Ferguson wanted to wipe his slate clean of the $19,000 of debt he accrued as an undergraduate student and avoid accruing any debt while in his doctoral program at the University of Central Florida.

"I made a vow to myself that I wasn't going to take out any more student loans," says Ferguson, now on internship at University of Texas Medical School in Houston. "So I work extra to put myself through graduate school."

But, once you've explored funding options, you may have only one choice—student loans. 

Borrowing basics

Financial advisers warn students to borrow only what they need because they will eventually have to pay it back—with interest. That's why knowing your options and understanding your financial aid package is crucial, Miller says.

For example, federal loans—such as Perkins and Stafford loans—are the largest source of education loans. Private or alternative loans are also available through banks and other financial institutions, but often post higher interest rates and fewer repayment options than federal loans.

Some students may qualify for a subsidized loan, which is usually provided by a bank or credit union, with the federal government acting as the guarantor. With a subsidized loan, interest does not accrue until six months after the student graduates or is no longer enrolled part time. Unsubsidized loans—which are not backed by the federal government—begin accruing interest when the loan is granted. The university's financial aid office can help students determine which aid packages they are eligible for.

Another tip: Students should submit the federal Free Application for Federal Student Aid form early, Holler advises. "There is a limited pot of financial aid," Holler explains. "When you get in the queue early, you will be more likely to get more aid from more sources."

The funding application process for this fall began on January 1, and the deadline is June 30. For the application, visit

Choosing a lender

By making smart decisions about financial aid options—such as in choosing a reputable lender and feasible repayment plan—students and new professionals can take advantage of low interest rates and save some money in the long run. Your institution's financial aid office can provide you with a list of preferred lenders.

"In choosing a lender, basically treat it like a job interview rather than just an application process," suggests Kenneth Redd, director of research and policy analysis for the National Association of Student Aid Administrators. "Then choose the lender that has as many benefits as possible."

For example, ask questions such as what benefits and options the lender offers, like if they provide discounts for a consecutive number of on-time payments each month. Miller suggests students ask graduate programs and lenders these questions:

  • What should I expect to happen to my financial aid package after the first year?

  • What happens if my financial situation changes? Can I get more aid?

  • Are there scholarships, grants or any external funding that I might qualify for?

  • Are there any strings attached to my financial aid package? For example, do I have to maintain a certain grade point average or take a certain number of credits?

  • How much of the costs will be covered by my financial aid package? Does it cover tuition and room and board too?

Loan-repayment programs

Tim Blaney, PsyD, had $70,000 in student debt when he graduated from the Illinois School of Professional Psychology in 1997. But after three years in the National Health Service Corps (NHSC) loan-repayment program, he was debt-free.

NHSC gives $50,000 toward student loan debt— plus an extra 39% of that amount to pay taxes on the loan—to health professionals who commit to working for two years in an underserved area—in Blaney's case, Buffalo, Wyoming.

Also, participants who extend their commitment receive $35,000 per year in added relief. Blaney opted to stay in Buffalo, Wyoming, and open a private practice after finishing the program. For eligibility requirements, visit

The National Institutes of Health also offers a loan-repayment program ( that provides health professionals with $35,000 toward their student loans if they commit 50% of their time for two years to research funded by a nonprofit or government agency.

Payback options

Graduates who opt to pay back their loans themselves usually have a six-month grace period after graduating before having to make loan payments. Students have a variety of payback options to choose from, including:

  • Standard repayment—equal payments are due each month usually over a 10-year term.

  • Extended repayment—payments are spread over a longer period of time, up to 25 or 30 years.

  • Income-contingent repayment—monthly payments are calculated on the basis of your income and the total amount of your loans.

  • Graduated repayment—payments start low and gradually increase

Many financial advisers recommend that monthly student loan repayments not exceed 10% of a new grad's monthly income. Students should also keep in mind that up to $2,500 in paid student loan interest can be tax deductible each year. For more information, visit

To consolidate or not?

One way lenders offer to reduce monthly payments is through loan consolidation—in which lenders combine all of a student's loans into a single loan with a locked interest rate. Generally, consolidation reduces the size of the monthly payments by extending the term of the loan. Federal law, however, allows students only one chance to consolidate their student loans and receive a fixed interest rate.

Corey Habben, PsyD, consolidated his two student loans with the U.S. Department of Education shortly after graduation. "There was one bill, one person to call and all the interest rates were down to one number," says Habben, a psychologist in the behavioral health clinic at Walter Reed Army Hospital in Washington, D.C. "It helps to keep the process more simple."

Neuroscience graduate student Melinda Beane plans to consolidate her student loans this spring to take advantage of low interest rates, which have been posting record lows of 2 to 3 percent.

However, financial adviser Flora L. Williams, PhD, warns students to beware of consolidating their loan if it extends the term of their loan. A lower interest rate stretched over a longer period of time than your current loan usually does not save money in the long run, she says.

Make payments on time

If you have trouble paying back your loans, contact your student loan provider to find out what options are available, Holler says.

Defaulting—a failure to make student loan payments for 270 consecutive days—can have serious consequences. Students could lose their eligibility for future financial aid, be sued for the balance of the loan and face the addition of late fees and increased loan costs. Also, missed payments will be reflected on your credit history and can affect your credit rating for future purchases, such as a home or car.

To prevent default, students may be able to change their payment plan, apply for deferment or forbearance—in which payments are postponed or reduced—or apply for a loan consolidation to lower their monthly payments.

Find financial guidance

To get help with the financial aid process, "Start with your institution's financial aid office, but you can also do a lot of research yourself," Miller says. Web sites like and provide various financial aid information.

After Habben graduated, he hired an accountant to help him manage his finances and sort out his taxes.

"We are trained to be psychologists, not money managers," Habben says. "An accountant can help you learn about investing, taxes, negotiating salary and expense management and make the process easier."

The hyperlinks in this section were updated in October 2012.

Good debt and bad debt

As for Leslie Case, she will be paying off her $110,000 in student loans for a long time. Looking back, she realizes she could have prevented her debt from growing so high by thinking more about her professional future.

"I wish I had more awareness of what the salary level would be after I graduated," Case says. "That changed dramatically from the time I began to when I finished my degree. I would have planned better then."

That said, student loan debt is still better to carry than other debts, like car or credit card debt, Holler says. Unlike those, student loans offer more flexible repayment options—such as deferment or forbearance—tax breaks, and a capped interest rate of 8.25%.

Plus, student loan debt is an investment in the future, Habben says. Although squeezing in student loan payments each month with a new professional's startup expenses can be tough, it's something he has accepted as the cost of graduate school.

"Most people don't owe as much as I do," Habben says. "But if someone didn't lend me the money for school, I would not be a psychologist today. I see it as an investment, and a career is worth putting money into."