A client is having difficulty finding employment that will allow him to pay off his student loan debt. He is currently employed as a dental assistant with a salary of $53,000 per year, but he is pondering a major career shift and pursuing an MBA. He expects that his job as a dental assistant is safe and that his current salary will increase by about 3% per year until retirement. He has firm plans to retire at age 60 which is 38 years from now. He pays 26% in income tax. The dental assistant job includes a fully paid health insurance policy. He is considering two options for the MBA, both of which would commence at the beginning of January 2018 (next month) as follows:
1. A two-year program at NYU with an annual tuition of $58,000, payable in full immediately at the start of each year. Books would cost $2,000, also at the start of each year. The health insurance plan would cost $6,000 for the two years and would be payable at the start of first year. Living expenses in graduate student housing during each year would save him $4,000 per year off his current annual living expenses. With an MBA from NYU, he reckons that he can land a job in January 2020 starting at $87,000 p.a., which salary would increase by 4% p.a., plus a first year signing bonus of $10,000. The job would include a fully paid health insurance plan. The higher salary would push him into the 31% tax bracket.
2. A one-year intensive program at Pace with a tuition cost of $75,000, also payable at the start of the program. Books would cost $4,200 at the start of the year. The one-year health insurance plan would cost $3,000, also payable at the start of the year. Living expenses in graduate student housing during the year would also save him $4,000 from his current annual living costs. With an MBA from Pace, he believes he can get a job in January 2019 starting at $78,000 p.a., which salary would increase by 3.5% p.a., plus a first year signing bonus of $8,000. The job would include a fully paid health insurance plan. The salary in this job would put him in the 29% tax bracket.
The client has no plans to work during his MBA studies. He would finance his graduate school attendance costs with a loan at a rate of 6.5% p.a.
From a purely financial standpoint, what should he do?