Graduate Student Loan Options

Friday, September 11, 2020

Prospective and current graduate students should read up on their graduate school loan options. In this article, we will discuss four possible options for graduate students when it comes to borrowing to pay for graduate or professional school.

It is quite common for graduate school students to borrow money in order to pay for their degree.

The tuition for graduate school degrees often comes with a price tag that is significantly higher than that of any two-year or four-year college degree. There are also fewer scholarships and grants available for graduate students. With so many different options to consider and the added pressure of limited availability of scholarships and grants, it can feel challenging and overwhelming to choose the right kind of graduate student loan for you.

When thinking about what kind of money you need to borrow, you must always consider (1) how much you choose to borrow overall and (2) whether you will be able to manage your monthly payments after graduation. This may be even more important to consider if you are still paying off undergraduate student loans.

For those that choose to borrow money to pay for graduate school, it is key to note that borrowing as a student in graduate school is different than borrowing as a student in an undergraduate degree program.

How so? First of all, the federal direct loan borrowing limit is higher for graduate students. Second, graduate students have access to the Grad PLUS loan program if direct loans are not enough. Third, you also may have a stronger credit history as a graduate students which means you may be able to get lower rates from lenders outside the federal loan program. This can help you save money over time.

Let’s take a look at 4 options for graduate student loans!

1. Federal Direct Student Loans

These loans are typically hailed as the most favorable for both undergraduate and graduate students. Federal direct student loans do not require a credit hack. They are eligible for income-drive repayment and any other options that protect you when a case arises that prevents you from struggling to make your monthly payments. Graduate students also have access to other programs that are part of the federal student loan program such as Public Service Loan Forgiveness, or PSLF.

Graduate students should exhaust their federal direct loan options before looking at other graduate loan options. Amounts are capped at $20,500 per year in direct unsubsidized loans. There is an aggregate limit of $138,500. The overall limit includes federal direct loans previously borrowed, including to obtain an undergraduate degree.

Interest rates are set each year and they are higher for graduate students than for undergraduate students. The current interest rate on direct unsubsidized loans for graduate student borrowers is 4.3%. Federal student loans also have an origination fee taken off the top of the amount borrowed. Loans disbursed between October 1, 2020 and October 1, 2021. The fee will be 1.057%.

Interests accrue as soon as the loan is disbursed. Payment is differed while in school. After graduate students leave school or drop below half-time enrollment, a six-month grace period begins where students are required to begin repayment.

2. Federal Grad PLUS Student Loans

Federal unsubsidized student loans may not be enough to cover the cost the degree program, federal grad PLUS student loans can be an option. The Grad PLUS loan, also referred to as a direct PLUS loan, is available only for graduate and professional students. Students can borrow up to the cost of attendance, which is determined by his or her school, minus any other financial assistance.

Grad PLUS loan terms are not quite as preferable. Eligibility for a Grad PLUS loan is credit-based and the interest rate is higher. The loan will likely cost more in the long term. The current interest rate on these loans is 5.3% and they are subject to an origination fee. This fee is 4.288% for loans disbursed between October 1, 2020 and October 1, 20201.

Grad PLUS loans will also offer a grace period after graduate students finish school.

3. Private Student Loans From State-Based and Nonprofit Lenders

The interest rate is quite high for Grad PLUS loans. Therefore, some students may want to compare them to private student loan options to see whether they are able to get a lower interest rate and save money. It is important to be an informed borrower and look at more than one private loan option, comparing quotes and terms to determine the best option for your personal circumstances.

Students can definitely think about borrowing from a nonprofit or state-based organization. The organizations, which are guided by public-purpose missions, are founded to help students and families pay for school.

These loan providers tend to offer options with fixed interest rates, and many do not charge origination fees. Some nonprofit loan programs include borrower benefits, such as no repayment penalties and interest rate reduction options. Some offer benefits for graduates who work in a critical field in the organization’s state. Nonprofit programs sometimes offer repayment options that take into consideration changes in income.

If you plan to work in a public service field, you will want to keep in mind that these loan options are not eligible for the federal PSLF program. If you want to seek loan forgiveness for public service, make sure that you borrow federal loans.

4. Private Student Loans: For-Profit Lenders

Private student loans from banks and other for-profit lenders can be a great option for graduate students. When comparing loan options, make sure to explore these as well. To be an informed borrower, you must try to get and compare quotes from different lenders so you can be sure you are receiving the best loan deal possible.

You may be able to save money by finding the lowest possible interest rate. Just be sure to ask whether the lender offers any borrower benefits, like an auto-debit discount or options that lower or pause monthly payment.

Student loans from for-profit lenders are not eligible for federal benefits like PSLF. If you plan to work in a public service position after receiving your graduate degree, this is something you will want to keep in mind.

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