School Daze

Borrowing money to further your  education–and by extension, your earning power–is what most financial experts refer to as incurring “good” debt. But even after Laquita Blockson earned her Ph.D. in business, the thousands of dollars she amassed in student loans and credit card debt didn’t feel so good. “I started my Ph.D. debt free, having never taken out a loan for my undergraduate or master’s degrees. I wound up leaving school with a great job, but also a lot of debt,” Blockson says.

Because she’d earned scholarships as an undergraduate, Blockson had no student loan debt when she entered the doctoral program at the University of Pittsburgh in 1996. But by the time she’d completed her studies in 2002, she had accrued more than $40,000 in student loan debt. Today, Blockson is an assistant professor in the School of Business and Economics at the College of Charleston in South Carolina. This was no small feat for the 38-year-old. Only 7% of college faculty in the United States are African American, according to the National Center for Education Statistics, as of fall 2007.

While earning her doctorate, Blockson also used her credit cards. Although her alma mater paid her tuition and gave her a monthly stipend of $1,100 for participating in its teaching assistantship program, the money still wasn’t enough to cover all her expenses. So Blockson charged some school-related items that weren’t covered by her loans or reimbursed by the university. “The credit cards were used primarily for living expenses and other school-related expenses such as books, my computer, access to databases for my research, travel to interview individuals for my dissertation, and travel to conferences where I presented my research.”

Blockson is not alone. According to the National Postsecondary Student Aid Study, which examines how graduate students finance their education, doctoral students amassed up to $49,000 in educational debt during the 2007—2008 school year.

Hampering Blockson’s financial progress is the fact that she carried two mortgages for a year and depleted her emergency savings. She didn’t profit from selling her first home, which was in Iowa, where she lived and taught before moving to South Carolina. “I sold that house for the price I paid [$145,000]. Plus I wound up paying all

the accrual costs and all the arrears to bring myself up-to-date at the closing.  Additionally, the costs of being a homeowner have her strapped. “Any additional money I make usually goes toward maintaining the house.”

The Advice

Danny Freeman, founder and CEO of Darda Wealth Management in Winston-Salem, North Carolina, offers Blockson guidance. Also weighing in are personal finance expert Lynnette Khalfani-Cox in Mountainside, New Jersey, and Michelle Oliver, president and CEO of the Oliver Financial Group in Richmond, Virginia.

n Aggressively reduce debt. What concerns Freeman most is Blockson’s breathtaking debt load, which restricts her ability to save and invest.  “Laquita has about $7,000 in cash on hand. Her problem is she only has enough cash to pay her bills for about two months, which is really not enough.”

Khalfani-Cox echoes Freeman’s concern. “While she might be upset about the $38,000 in student loans, the bigger issue is the credit card debt.” The average interest rate on the two cards Blockson used is about 13%. Khalfani-Cox does not recommend consolidation,  which can lead some borrowers to spend more when cash is freed up. Nor should

she refinance her homes or get a “cash out” mortgage, putting up her home as collateral. This is risky since missed payments could mean the loss of the home. Instead, Blockson should manage her debt by consistently paying more than the minimum, on time, each month.

n Consider adjusting student loan payments.  Educational loans should not exceed 10% to 15% of one’s monthly income. Although Blockson’s monthly $335 loan payments make up about 7% of her monthly income of $5,050, her monthly expenses of $4,600 might make it harder for her to keep up with payments. If Blockson’s financial obligations increase, Khalfani-Cox says she might want to consider a student loan deferment or an extended repayment plan. The drawback is she would end up paying more interest in the long run. For now, Blockson should stick with the standard repayment plan because it will help her pay down the debt more quickly.

Deduct professional expenses. Blockson should hire a tax professional who is familiar with academic expenses when tax time comes around next year. According to the Internal Revenue Service, Blockson can deduct unreimbursed employee expenses, provided that 1) they are paid or incurred during the tax year for which she is filing, 2) they are directly related to her work, and 3) they are necessary expenses.

Blockson can deduct research spending, including travel expenses for teaching, lecturing, or writing and publishing on a topic related to her duties as a professor.

n Leverage skills to generate additional income.  Blockson needs to develop additional streams of income. Although she has started her own consulting company, Blockson Management Advising, through which she conducts speaking engagements and facilitates training sessions and workshops, she has been hesitant to promote the business for fear that it would jeopardize her chances to earn tenure, for which she’ll be eligible in two years. But the experts believe it’s in Blockson’s best interest to develop her company as soon as she can–perhaps finding a way to make her research palatable to corporate audiences that might hire her for speeches and workshops. be

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This story originally appeared in the July 2009 issue of Black Enterprise magazine.