It all depends on the interest rates. If you can get student loans at a better interest rate than the debt you're currently paying down, as you may well be able to do, it would make more sense to continue paying all you can afford toward the debt reduction and then take out student loans to pay the school expenses. Putting extra money into savings would probably make little sense, because you're probably not going to get much interest on it. So, you'd be losing the difference between the meager interest you'll probably receive and the interest you're paying out on the debt you didn't pay off because you put the money in savings instead.

I think you'll probably find that it makes most sense to take out student loans for the school expenses and keep paying what you can afford toward the existing debt.

Student loan payback is often deferred until after graduation. Also, why don't you look into scholarships, or perhaps cost sharing from his employer... Any tax deductions out there you can take advantage of - Hope scholarship (may not apply to grad school)?

Honestly, we are not interested in acquiring any new debt, no matter what the interest rate is and even if payments can be deferred until after graduation. Cost sharing from his employer will be dependent upon funding (he works for the gov't). I am torn between always trying to keep at least the next semester's tuition and books in the bank or just trying to come up with the of the money when it is due.

One definite problem with trying to come up with the money when it is due is sometimes, we may not be able to come up with the money as readily and if that is the case, he would have to take the semester off and it would be hard to put a price tag on the lost momentum. Tax deductions on it won't help us all that b/c as of right now, we are paying very little in taxes (4 kids, new house so the interest we paid last year was quite high, etc.)

It's admirable not to want to acquire any new debt, but you already have debt, so the student loans are, in essence, a way of "moving" debt from whomever you currently owe it to, most likely at a higher interest rate than a student loan, to a lower interest rate student loan. The net effect is that you will be completely out of debt sooner.

Obviously you'd be out of debt sooner still by not spending the money for extra schooling, but presumably the master's degree will allow your husband to increase his income, which is something you have to think about, too: Taking a semester off here and there because you don't have the cash to pay tuition pushes back the day when he gets the degree and earns the higher income as a result of it.

I was in a similar situation 4 years ago- not wanting to take out education loans for veterinary school. However due to unforeseen circumstances- namely DH being unemployed for 18 months- we had dried up our savings and not gotten nearly as far in paying off consumer debt as originally planned. So we got the %^&() loans anyway.

Now that I am on the cusp of graduating and looking at a salary bump of 400%, it seems silly that we even fretted about my loans (which will total close to $100k). We will have them and the rest of our consumer debt paid off within 5 years, right about the time I'll be asking the bank for a couple million bucks to build my own hospital.
At least in my program, you are not allowed to drop out and come back willy-nilly. There has been only 1 student in the entire history of the school to have done this, with much negotiating and cajoling, and there were extremely extenuating circumstances. The schools invest a huge amount of money into each students' success, and risking losing them is not an option. I would caution your husband to make absolutely certain that dropping out and coming back is even an option.

I would also say that being so tight that you cannot come up with the tuition and supplies in time speaks loudly about your reserve cash- which sounds very low and therefore very risky, notwithstanding grad school. If a car breaks down, how will you pay for that if he is in school? What if the water heater blows up? Things like this happen, in my experience exactly at the times you can least afford it (ask me about my $6000 veterinary bills some time).

For us, having the loans was a godsend. Yes, it was disappointing having to get them, but not having to rely on using our savings for "small" emergencies allowed us to continue saving, pay down our consumer debts, and I'll be able to get it all paid off in less time than if I had not taken the loans. Basically we were able to pay down our higher-interest consumer debt with my lower-interest student loan, which of course does not have to be paid back until graduating when I'll be making the aforementioned 400% more salary. If we hadn't taken the student loan, the consumer debt load would have been much higher, our savings much lower, and we'd be looking at paying off debts in 12 years instead of 5 (I ran the numbers both ways). And of course, if your husband does take off a semester, which in turn delays making more money, which causes you to accumulate more interest in your debts, you haven't gotten anywhere at all.

Finally, grad school is enough pressure, especially when you're already working. The last thing he needs is to worry about money on top of everything else. From what you are saying, you are already skating on thin ice financially (not being able to come up with money in time). One little disaster with your lack of savings and lack of equity and you could lose your home very quickly. Having the student loans will soften any unforeseen financial hits, allow your husband to complete his degree in a reasonable amount of time, and get you back on track to reducing debt and increasing savings and investments much more quickly.

You don't have to get a student loan every year either. Take out one the first year, and if you still have all that money just sitting there, don't get a loan next year. Then you can earn interest on the first year loan and pay it all off when it is due after he graduates. Just an idea.

Meghane, thank you for some other things to ponder. We do keep an emergency fund of at least $1000 (I am planning to increase this hopefully to about $2500 before school starts) but that is emergency money (car repairs, emergency health co-pays when the flex account runs out, etc) and that money is not for school. Dh will not realize an increased income of 400% from grad school but it will enable him to be much more competitive when openings come in his current agency or if he wishes to pursue some other line of work with the state. The good news is that although he will not raise his income 400%, the necessary school costs will only run about $12,000 for 3 years.

In my particular industry, a graduate degree means squat.

I have hired a couple of people who had master's degrees, and many more who did not. I am always MUCH more interested in what someone has actually done at their job, and then after that, what their personality/life experience is like.

Especially if you're in a tight money situation, I think I might want DH to spend a little more time asking the folks in his agency, and in others, about what would help him move up faster. In *my* industry, it would NOT be the master's degree. Or it would only help him a little bit.

It would be a shame to stay in debt longer (either by taking much longer to pay off high-interest debt, or by taking on low-interest debt) and have no financial return to show for it.

Also, I agree w/ ky114--taking on a student loan will mean that the money you would have spent for school can instead go to pay off a higher interest loan. The difference in the interest rates might make up for the interest rate on the student loan.

And I agree w/ Meghane--you sound awfully close to the bone to be trying to do this w/o a cushion. (and $1,000 isn't what I mean by a cushion)

What might be considered a good cushion?

In the agency he currently works for, everybody he would be competing against has the degree. He can be promoted without it and he has been promoted over some of these people before, and these same individuals filed formal complaints as a result of it. He also has considered going into the more technical sides of water management (hydrology) and to be considered for that, he would have to have his masters.

I do appreciate all input to help us make the most responsible decision for our family. Thank you.

I have always heard 6 months of living expenses is a good cushion. I sure don't have it...

If your DH is competing against people who all have degrees, then yes, I'd agree he probably needs to get one. There are some companies/industries where it is getting to be almost a minimum requirement.

Get a student loan - that is, if you can. The current credit problems have spilled over into the student loan program and last I heard, it was rough getting one. Start now, right away, because it might take a while.

Your "cushion" is way too low. We, too, never could manage the recommended six months cushion, but $1K these days is about as thin as one could be. I'd recommend at least two months' worth of expenses as the amount you should have as backup savings. That should be sufficient unless you run into some really bad luck.

And yeah, no pets (just in case you were thinking of one). That sounds hard-a$$, I know, because I love 'em. But they will literally cost you thousands of dollars in a year's time, and at this point in your life you really can't afford it.

Good for you for trying to reduce your debt. Try not to stress over it, and remember there are a lot of low-cost ways to add pleasure to your life that don't take much money.

Good luck!