Know your loan options to pay for graduate school
Student loan options for grad students:
- Unsubsidized federal student loans (Stafford loans)
- Grad PLUS loan
- Private student loans
There’s a lot of money available to help pay for an undergraduate education: scholarships, grants and subsidized student loans abound. But when you’re ready to move on to graduate school, where can you turn for help paying your tuition?
Unfortunately, there isn’t as much money available to help students pay for grad school. The help that is available is, in many ways, substantially different from its undergraduate counterparts. But with a little work, grad students can find ways to pay for college and make their dreams of obtaining an advanced degree a reality.
Student loans for grad school
There are three main categories of student loans grad students can use to pay for school. Two of these options — federal unsubsidized loans and Grad PLUS loans — are what’s called “direct loans,” meaning the funds are disbursed directly from the U.S. Department of Education. Private loans, on the other hand, are funded by private financial institutions such as banks.
Federal unsubsidized loans
These loans — also known as Stafford loans — are available to both undergraduate and graduate students. Stafford loans come with a borrowing limit, however, which is currently at $20,500 per year for graduate students.
Federal Grad PLUS loans
Graduate students can use these loans to cover any educational costs not covered by other financial aid, up to the full cost of attendance. Grad PLUS loans work best for students who have exhausted the Stafford loan borrowing limit; since the interest rate on Stafford loans is lower (more on that in the next section), it makes sense to borrow as much as possible from them first before moving on to Grad PLUS loans to cover any remaining education costs. Unlike unsubsidized loans, however, Grad PLUS loans don’t favor borrowers who have an adverse credit history, though borrowers with poor credit may still be approved with a co-signer.
Private student loans
Another option is to take out private student loans. One of the main drawbacks of most private student loans is that they have variable interest rates, which means the interest rate could rise over time. The interest rates for federal loans are fixed for the entirety of the loan term.
Many types of financial aid available to undergraduate students are not available to grad students. Federal Pell grants, for example, are typically only available to undergraduate students (although some grad students, such as those pursuing a post-baccalaureate teaching degree, may be eligible for Pell grants).
And though the Consumer Financial Protection Bureau (CFPB), a consumer protection agency, generally steers borrowers away from private loans in favor of federal loans, it says that under a very specific set of circumstances, private loans can be a better alternative than federal Grad PLUS loans. According to the CFPB, grad students should only pursue private student loans if they meet all of the following criteria:
- You’re a graduate or professional school student with a high certainty of job placement
- You have a very high credit score
- You can borrow at interest rates substantially lower than 6.41 percent
- You are committed to finishing the degree program on time
- You have a specific plan for repaying your loan within a few years of graduation — repaying over 10 or more years increases the risk that the interest rate will increase
- You’ve already borrowed as much as you can under the Direct and Perkins loan programs
Expect higher interest rates
If you’re planning to take out a student loan for graduate school, expect to pay higher interest rates than you paid for your undergraduate education. Federal student loan rates are set by Congress, and for 2017 and 2018, interest rates for graduate students can be more than 2 points higher than for undergrads. For unsubsidized federal student loans, the interest rate is 4.45 percent for undergraduate students; 6 percent for graduate or professional students taking out unsubsidized loans, and 7 percent for Grad PLUS loans. The interest rates reset every year on July 1, based on current market rates.
Additionally, whereas federal loans for undergraduates include subsidized options, no subsidies are available for federal grad school loans. While subsidized loans don’t accrue interest while you’re enrolled at least half time or during deferment periods, unsubsidized loans begin accruing interest immediately after they’re taken out.
Consolidating undergraduate and graduate student loans
If you’ve taken out both undergraduate and graduate federal student loans, you may be able to consolidate them into one loan. The benefit of doing so is that instead of having to make multiple payments each month, you can just make one.
The U.S. Department of Education issues consolidation loans directly, but the program cannot be used to consolidate private student loans. Most federal student loans can be consolidated, but there are exceptions. More information can be found on the DOE’s Federal Student Aid website.
How to pay for grad school without loans
Perhaps you want to avoid going into debt, or you want to limit the amount of money you borrow. There are ways to pay for grad school, in whole or in part, without taking out student loans.
Some schools may offer scholarships for graduate students, although fewer are offered than for undergraduate students. Still, it doesn’t hurt to contact the financial aid office of colleges you’re interested in attending and seeing what kind of scholarships may be available.
Many graduate programs also offer fellowships or assistantships that can significantly reduce the cost of tuition. Some even pay students a stipend. Be aware, however, that these programs may require a significant time commitment.