Everything You Need to Know About Graduate School Loans

Looking to go back to school and get a graduate degree? According to the US Census Bureau the average salary of a graduate student is 32% higher than those who hold a bachelor’s degree. The incentive to advance your degree, secure a better position and earn more money attracts a lot of people into getting into graduate school, however, the mind-boggling costs of tuition may keep many from fulfilling their ambitions. Tuition costs of graduate school are much higher than those of undergraduate school - and for many, the only option of getting in is to borrow.

Graduate school loans are different from undergraduate school loans in many aspects so before taking on more debt it would be ideal to get well informed regarding these type of loans.

Here we list some of the biggest differences:

1. Interest rates are higher

For loans disbursed after July 1, 2019, undergraduate students will have a fixed interest rate of 4.53%; while on the other hand, graduate students will pay 6.08% for unsubsidized loans and 7.08% for PLUS loans. Private student loans can boast even higher interest rates, unless the borrower has excellent credit.

2. Interest begins to accrue immediately

For undergraduate students some federal loans are subsidized, and interest does not begin to accrue until after they graduate. However, for graduate students, there are no subsidized loans and interest begins to accrue as soon as they take out the loan, and the longer you take to finish school, more interest will be added to the balance.
You may defer payments until after graduation but interest will continue to accrue during the deferment period, which is why you should aim to make at least the interest-only payments. In order to defer payments you must make a specific request, otherwise you would be responsible for making payments as soon as the loan is disbursed.

3. Borrowing limits are larger

With larger tuition costs for graduate school come larger loans students may take out. Graduate students can borrow up to $20,500 in Stafford loans per year, unlike undergraduate students who can only borrow $5,500 the first year, $6,500 the second year, and $7,500 any remaining year. Students in certain health fields such as medicine, or dentistry may borrow up to $40,500 annually.

The table below provided by the US Department of Education gives us a more detailed description of the borrowing limits.

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4. Less financial aid for graduate students

Undergraduate students who qualified for need-based Pell Grants may need to take on debt due to the lack of grants for graduate school. Need-based Pell Grants are only available for undergraduate students, which means graduate students will have to turn to federal loans such as unsubsidized Stafford and Graduate PLUS loans.
Additionally, students may have some luck applying to scholarships, which for graduate schools are very competitive and hard to get - however, they are worth applying to because in the end it is free money.

5. Private loans may be a better choice

Federal student loan rates are much higher for graduate students than they are for undergraduate students - however, unlike undergraduate student loans, private loans may be a better choice for graduate students. If you have been working for a while and have established a good credit history and/or income you may qualify for lower interest rates without the need of a cosigner.

Types of graduate student loans

1. Stafford loans

Stafford loans are unsubsidized, which means they will begin to accrue interest as soon as they disburse. The interest in tied to the 10-year treasury note and the year you took them out will determine the interest rate. For students who took stafford loans in the school year 2019 - 2020 the interest rate is 6.08% for the loan’s lifetime.
The most a student can borrow per year is $20,500, and the government set a limit of how much students can borrow including undergraduate and graduate at $138,500. For students in certain health fields that limit is set to $224,000.

2. Graduate PLUS loans

These types of loans are available for students who want to cover living expenses on top of their tuition and fees. The difference between PLUS loans and other federal loans is that the student must pass a background check and may be denied if she/he have endured bankruptcy and/or have an account in collections. Interest rates on PLUS loans are also tied to the 10-year treasury note.

3. Perkins loans

Perkins loans are low-interest federal loans available to students with exceptional financial needs. The interest on these type of loans does not begin to accrue until after 9 months after the borrower has finished school. The interest is set at 5% for the loan’s lifetime and students are able to borrow $8,000 per year, with a $40,000 lifetime limit which includes undergraduate borrowing too.

4. Private loans

Depending on the borrower’s creditworthiness private loans may be a better choice than federal loans. Some private loans may have changing interest rates that may vary during the lifetime of the loan making the payments that you originally signed up for much larger. Nonetheless, some lenders offer fixed interest rates which can aggregate to lower rates than those of federal loans and may ultimately be a better option than federal loans.

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