Graduate Student Loans: How to Finance Your Advanced Degree

 If you are planning to pursue a master’s, doctoral, or professional degree, you may need to take out graduate student loans to cover your education costs. Graduate school can be a rewarding investment in your future, but it can also be expensive and challenging to finance. That’s why it’s important to understand your options and make smart decisions about borrowing and repaying your graduate student loans. In this article, we will explain what graduate student loans are, how they differ from undergraduate student loans, and what are the best practices for managing them. We will also compare the pros and cons of federal and private graduate student loans, and explore some other ways to finance your advanced degree.

What are graduate student loans and why do you need them?

Graduate student loans are loans that are specifically designed for students who are enrolled in a graduate or professional degree program, such as a master’s, doctoral, law, medical, dental, or business degree. Unlike undergraduate student loans, which are mostly based on financial need, graduate student loans are mostly based on creditworthiness and expected future income. This means that graduate students can borrow more money at higher interest rates than undergraduate students.

Graduate student loans can help you pay for any education-related expenses that are not covered by other sources of funding, such as tuition, fees, books, supplies, equipment, travel, living expenses, etc. The amount that you can borrow depends on your cost of attendance (COA), which is determined by your school and includes both direct costs (such as tuition and fees) and indirect costs (such as living expenses). However, you should only borrow what you need and what you can afford to repay in the future.

What are the different types of graduate student loans and how do they compare?

There are two main types of graduate student loans: federal and private. Federal graduate student loans are offered by the U.S. Department of Education through the Direct Loan program. Private graduate student loans are offered by banks, credit unions, online lenders, or other financial institutions. Each type of loan has its own eligibility criteria, application process, interest rates, fees, loan limits, repayment options, and benefits. Here is a brief overview of how they compare:

Federal Graduate Student Loans	Private Graduate Student Loans
Eligibility: You must be a U.S. citizen or eligible noncitizen; have a valid Social Security number; not be in default on any federal student loans or owe an overpayment on any federal education grants; be enrolled at least half-time in an eligible degree or certificate program at an eligible school; maintain satisfactory academic progress in your course of study; register with Selective Service if required; complete the Free Application for Federal Student Aid (FAFSA).	Eligibility: You must meet the lender’s credit and income requirements; have a good credit history or a co-signer who does; be enrolled at least half-time in an eligible degree or certificate program at an eligible school; meet any other criteria set by the lender.
Application: You must complete the FAFSA at https://studentaid.gov/h/apply-for-aid/fafsa; log in to https://studentaid.gov with your FSA ID (a username and password that serves as your electronic signature); select “Apply for a Direct PLUS Loan” from the menu and choose “Direct PLUS Loan Application for Graduate/Professional Students”; submit the application and wait for a credit decision; complete a Master Promissory Note (MPN) at https://studentaid.gov/mpn/gradplus/landing; complete an Entrance Counseling session at https://studentaid.gov/app/counselingInstructions.action?counselingType=entrance if required. Interest Rates: You have a fixed interest rate that is set by Congress each year. For the 2022-2023 academic year, the interest rate is 5.28% for Direct Unsubsidized Loans and 6.28% for Direct PLUS Loans. The interest rate may change in future years. Fees: You have to pay a loan fee that is deducted from each disbursement. For the 2022-2023 academic year, the loan fee is 1.057% for Direct Unsubsidized Loans and 4.228% for Direct PLUS Loans. The loan fee may change in future years. Loan Limits: You can borrow up to the cost of attendance (COA) minus any other financial aid received for Direct Unsubsidized Loans and Direct PLUS Loans. The COA is determined by your school and includes both direct and indirect costs. There is no aggregate limit for Direct Unsubsidized Loans, but there is a limit of $138,500 for Direct PLUS Loans (including any undergraduate loans). Repayment Options: You have several repayment options to choose from based on your income and preferences. You can also change your repayment plan at any time by contacting your loan servicer. You can use the Loan Simulator tool at https://studentaid.gov/loan-simulator/ to compare different repayment options and see how they affect your monthly payments and total interest costs. Some of the repayment options include: Standard Repayment Plan: This plan requires you to pay a fixed amount each month until your loan is paid off within 10 years (or up to 30 years if you consolidate your loan). This plan has the lowest total interest cost but also has higher monthly payments than other plans. Graduated Repayment Plan: This plan starts with lower monthly payments that increase every two years until your loan is paid off within 10 years (or up to 30 years if you consolidate your loan). This plan has a higher total interest cost than the standard plan but may suit you if you expect your income to increase over time. Extended Repayment Plan: This plan allows you to pay either a fixed or graduated amount each month until your loan is paid off within 25 years (or up to 30 years if you consolidate your loan). This plan has a higher total interest cost than both the standard and graduated plans but also has lower monthly payments than those plans. Income-Contingent Repayment Plan (ICR): This plan calculates your monthly payment based on your income, family size, and loan balance. Your payment will be the lesser of 20% of your discretionary income or what you would pay under a fixed 12-year plan. Your loan will be forgiven after 25 years of qualifying payments. This plan has the highest total interest cost but also has the lowest monthly payments for some borrowers. However, you will have to pay income tax on any forgiven amount. Income-Driven Repayment Plans (IDR): These plans calculate your monthly payment based on your income and family size and forgive your remaining balance after 20 or 25 years of qualifying payments. These plans also have low monthly payments for some borrowers but also have high total interest costs and tax implications. There are four IDR plans: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Sensitive Repayment (ISR). Each plan has its own eligibility criteria and payment formula. Benefits: You have some benefits that can help you manage your loan more easily, such as deferment, forbearance, forgiveness, discharge, cancellation, consolidation, etc. However, these benefits are not guaranteed and may have certain eligibility requirements and conditions. You should contact your loan servicer for more information about these benefits and how to apply for them.	Application: You must compare different lenders and their loan terms; choose a lender that suits your needs and preferences; fill out an online application on the lender’s website; provide information such as your personal details, school information, loan amount requested, co-signer information (if applicable), etc.; submit the application and wait for a credit decision; review and sign your loan agreement electronically; complete any other steps required by the lender. Interest Rates: You have either a fixed or variable interest rate that is determined by the lender based on your credit score, You have either a fixed or variable interest rate that is determined by the lender based on your credit score, co-signer’s credit score (if applicable), market conditions, and other factors. The interest rate may vary from lender to lender and may change over time. Some lenders may offer interest rate discounts or incentives for certain actions, such as enrolling in automatic payments or making on-time payments. Fees: You may or may not have to pay an origination fee, an application fee, a disbursement fee, a late fee, a prepayment penalty, or other fees depending on the lender and the loan terms. The fees may vary from lender to lender and may be added to your loan balance or charged separately. Loan Limits: You can borrow up to the cost of attendance (COA) minus any other financial aid received depending on the lender and the loan terms. The COA is determined by your school and includes both direct and indirect costs. There may be an annual or aggregate limit for private graduate student loans depending on the lender and the loan terms. Repayment Options: You have limited repayment options to choose from based on the lender and the loan terms. You may or may not be able to change your repayment plan after you start repaying your loan depending on the lender’s policies. Some of the repayment options include: Immediate Repayment: This option requires you to start making full principal and interest payments as soon as your loan is disbursed. This option has the lowest total interest cost but also has higher monthly payments than other options. Interest-Only Repayment: This option allows you to pay only the interest on your loan while you are in school and for a grace period of six months after you leave school. This option reduces your monthly payments while you are in school but increases your total interest cost and extends your repayment term. Partial Interest Repayment: This option allows you to pay a fixed amount of interest on your loan while you are in school and for a grace period of six months after you leave school. This option reduces your monthly payments while you are in school but increases your total interest cost and extends your repayment term. Deferred Repayment: This option allows you to postpone making any payments on your loan while you are in school and for a grace period of six months after you leave school. This option has the highest total interest cost and extends your repayment term. Benefits: You may or may not have some benefits that can help you manage your loan more easily, such as deferment, forbearance, forgiveness, discharge, cancellation, refinancing, etc. However, these benefits are not guaranteed and may vary from lender to lender and from loan to loan. They may also have certain eligibility requirements and conditions that differ from federal loans. You should contact your lender for more information about these benefits and how to apply for them.