The Complete Guide to Graduate Student Loans
If you’re considering continuing your education or heading back to school to earn a graduate or doctoral degree, you may need help paying for your tuition, fees, educational and living expenses. As with undergraduate school, the federal government and private lenders offer different types of student loans that could help.
Each loan or lender may have its limitations and benefits, and understanding the playing field can help you determine which graduate student loans are best for you.
Table of contents
How grad school loans work
As with undergraduate loans, lenders usually send your graduate school loans directly to your school to cover your educational expenses, such as tuition and fees. Your loan amount could exceed how much you owe the school, though. For example, the school may include room and board in its cost of attendance, which you used to determine how much to borrow, but you may not have housing or meals through the school.
When this happens, the school may give you a refund for the unused portion of the loan via check, cash or bank transfer. You may need the student loan refund to cover educational expenses. But if you don’t, you could use the refund to make an early payment on your student loans and decrease how much debt you’ll have when you graduate. With federal loans, you may also have up to 120 days from when the loan is disbursed (sent to the school) to cancel the loan and avoid interest and disbursement fees.
Graduate student loans vs. undergraduate
While graduate and undergraduate students loans are similar in many ways, there are a few important differences that can affect how much aid you can receive and your total cost of borrowing.
Many graduate student loans aren’t subsidized. The U.S. Department of Education offers students and parents several types of federal student loans, including subsidized and unsubsidized direct loans. The department pays the interest while subsidized loans are in deferment, such as when you’re in school at least half time.
The education department doesn’t offer direct subsidized loans to graduate students, and your federal loans may start to accumulate interest as soon as they’re disbursed. However, Perkins loans, which are part of a federal program but lent by your school, are subsidized.
Private student lenders generally don’t subsidize loans, and will charge interest to parents and undergraduate or graduate student borrowers once they disburse the loan.
Graduate loans could have higher interest rates. The interest rate on federal student loans is the same for every borrower. However, the rate does change depending on the type of loan, when the loan is disbursed and if it’s used for undergraduate or graduate and professional education. The chart shows the current interest rates for loans that are disbursed through June 30, 2018.
|Federal student loan interest rates|
|The type of federal student loan||Borrowers||Interest rates for loans disbursed on or after July 1, 2017 to June 30, 2018|
|Direct subsidized loans||Undergraduate students||4.45%|
|Direct unsubsidized loans||Undergraduate students||4.45%|
|Direct unsubsidized loans||Graduate and professional students||6%|
|Direct PLUS loans||Graduate and professional students, and parents of undergraduate students.||7%|
|Perkins loans||Undergraduate, graduate and professionals students who have an exceptional financial need||5%|
Whether you’re applying as an undergraduate or graduate student, or taking out a loan on behalf of a student, your interest rate on a private student loan could depend on a variety of factors, including your school, degree, credit, income and outstanding debts.
Graduate loans could have higher borrowing limits. Federal student loan borrowing limits can depend on whether you’re a dependent or independent student and the type of loan.
Independent undergraduate students can have an aggregate loan balance of $57,500 in unsubsidized and subsidized direct loans, while most graduate and professional students can borrow up to $138,500 in combined undergraduate and graduate unsubsidized and subsidized direct loans.
Annual loan limits apply as well. With unsubsidized and subsidized direct loans, undergraduates can borrow up to $7,500 per year (for the third year and beyond), while most graduate and professional students can borrow up to $20,500 per year with unsubsidized loans.
Graduate medical and select health profession students may have higher annual and aggregate loan limits. Direct PLUS loans for graduate students are only limited by your financial need. And Perkins loans have an $8,000 annual limit and $60,000 total debt limit for graduate students ($5,500 per year and $27,500 total for undergrads).
Private lenders may let you borrow up to the school-certified cost of attendance minus the aid you receive from other sources rather than imposing an annual limit. However, private lenders may have aggregate loan limits that include the sum your federal and private student loans.
Graduate student loans could have higher fees. Some federal student loans have a disbursement fee, which is a percentage of the loan amount that gets deducted from the money before it’s disbursed to your school.
The disbursement fee depends on the type of loan and when the loan is disbursed, not whether you’re an undergraduate or graduate student. However, since graduate students may take out direct PLUS loans (which aren’t offered to undergraduates), they may wind up paying higher fees on some of their loans.
|Federal loan disbursement fees|
|The type of federal student loan||Disbursement fee for loans disbursed on or after Oct. 1, 2017 to Sept. 30, 2018|
|Direct subsidized and unsubsidized loans||1.066%|
|Direct PLUS loans||4.264%|
Although they’re not common among the top private student lenders, some lenders may charge an application fee or origination fee — similar to a disbursement fee — to undergraduate and graduate borrowers.
You may need credit to qualify. Most federal student loans aren’t credit-based, and undergraduates may qualify more federal financial aid regardless of their credit history (or lack of one). However, direct PLUS loans have a credit check. While your credit score won’t matter, it may be more difficult to get a direct PLUS loan if you have negative marks on your credit reports.
Private students loans also are credit-based, and your approval, loan amount and interest rate can depend on your credit history and score. Graduate students who have established a credit history may be able to qualify for a private student loan without a creditworthy cosigner.
All federal student loans have the same basic eligibility criteria, such as being enrolled at an eligible school and being a U.S. citizen or eligible noncitizen. Each loan program may have additional eligibility requirements, restrictions and repayment options that you should compare and consider before taking out a loan.
As with undergraduate loans, the Free Application for Federal Student Aid (FAFSA) is the first step in receiving federal financial aid, including student loans. It can also be a requirement for some scholarships or grants, and may be a necessity for school- or state-based aid.
During undergrad, your parents may have filled out the FAFSA for you, or you may have had to ask them for their personal and financial information when you filled it out. Now, you’re likely considered independent for FAFSA purposes and will have to complete it on your own. Although, if you’re married, you could also need information from your spouse’s tax return.
The FAFSA application period opens Oct. 1, and you’ll need to file a new FAFSA each year to remain eligible for federal financial aid. Also, some state- and school-based financial aid is distributed on a first-come, first-served basis, so you may want to complete the FAFSA as soon as possible. You can find a guide to filling it out on the U.S. Department of Education blog.
After you submit the FAFSA, look for an award letter from your school which will show the amounts and types of loans or other financial aid (such as work-study and grants) you’re being offered. You may want to accept every grant and scholarship, as those generally don’t need to be repaid.
To accept a loan offer, you could have to fill out and return a paper aid offer by mail, or sign a master promissory note online after signing into StudentLoans.gov. First-time borrowers, and graduate or professional students who’ve never had a PLUS loan before may also need to complete a 20- to 30-minute online entrance counseling course.
As a graduate or professional student, you may qualify for three types of federal student loans. Compare all your loan options to determine which may be best, and consider only accepting as much money as you think you’ll need, even if you’re offered a larger loan amount.
|Federal graduate student loans|
|Interest rate*||Disbursement fee**||Annual loan limit||Credit check|
|Direct unsubsidized loans||6%||1.066%||The lesser of $20,500 or your school-determine cost of attendance minus your contribution and other financial aid you receive.||No|
|Direct PLUS loans||7%||4.264%||The school-determined cost of attendance minus your contribution and other financial aid you receive.||Yes|
|Perkins loans for grad students||5%||0.00%||$8,000||No|
*For loans disbursed on or after July 1, 2017 to June 30, 2018.
**For loans disbursed on or after Oct. 1, 2017 to Sept. 30, 2018.
1. Direct unsubsidized loans
Direct unsubsidized loans are available to graduate students regardless of whether you demonstrate a financial need. Your unsubsidized loan offer will be part of the financial aid package from your school, and you can choose to accept some or all of the offer.
Receiving and repaying your loan. Once you accept the loan offer, the education department will send the loan amount to your school. The loan may cover an entire academic year, but it will be broken up and disbursed at least two times throughout the year, and maybe more depending on your program and school.
You will have to begin repaying your loan when the six-month grace period ends. The grace period may begin when you graduate, or it could start if you leave school or don’t take enough classes to satisfy a half-time course load.
Direct unsubsidized loans are eligible for the standard, graduated and extended repayment plans, which can give you 10 to 25 years to repay the loan (or up to 30 years after consolidating a loan). They may also be eligible for four income-driven plans, which could limit your monthly payments based on your family size, income, loan amount and where you live.
If you’re having trouble repaying your loans, you may be able to put the loans into deferment or forbearance and temporarily stop making payments. However, unsubsidized loans will continue to accrue interest during these periods.
While increasing your repayment term, lowering your monthly payment or temporarily stopping payments can help your day-to-day budget, it will also increase the amount of interest you pay on your loan.
The direct unsubsidized loans are also eligible for some forgiveness, cancellation and discharge programs, including the Public Service Loan Forgiveness and Teacher Loan Forgiveness programs. Also, any remaining loan balance may be forgiven after making payments for 20 to 25 years on an income-driven plan.
Pros and cons. Direct unsubsidized loans could be a good option for paying for school because they don’t have a credit- or income-based requirement. Also, the loans are eligible for a variety of federal programs that could help you decrease your monthly payment, whether a financial setback or lead to part of your debt being forgiven or discharged.
However, there are limits on how much you can borrow each year and in aggregate. The loans will also accrue interest while you’re in school, which is standard among graduate school loans, but may be different than your experience with undergraduate federal student loans.
2. Direct PLUS loans
Like direct unsubsidized loans, Direct PLUS loans are unsubsidized loans that are part of the direct loan program. As such, they have many similar features including the same: grace period; repayment plans; forgiveness, cancellation and discharge programs; and forbearance and deferment options.
Eligibility. One big difference between direct PLUS loans and direct unsubsidized loans is that direct PLUS loans have a credit check. While your credit score isn’t reviewed, you may not be eligible for a direct PLUS loan if you have an adverse credit history.
There are clear criteria for what counts as an adverse credit history, such as a foreclosure, repossession, bankruptcy or default in the last five years. Or, having more than $2,085 worth of debt that’s 90-plus days’ delinquent, charged off or in collections.
If you have an adverse credit history, you may still be able to take out direct PLUS loans with an endorser (similar to a cosigner) who doesn’t have an adverse credit history. You can alternatively file an appeal with documents that show the extenuating circumstances that led to your adverse credit history. With either option, you’ll also need to complete a 15- to 20-minute online PLUS Credit Counseling session.
Receiving and repaying your loan. As with direct unsubsidized loans, the FAFSA is the first step in applying for direct PLUS loans. The loan is sent directly to the school, and excess money is refunded to you.
However, the application process can depend on the school. Some schools will include PLUS loans on your award letter, while others may require you fill out an additional application through the school or on StudentLoans.gov.
You’ll also need to sign a master promissory note when you accept the loan and may need to complete an online entrance counseling course if you haven’t take out a direct PLUS loan before.
Pros and cons. Direct PLUS loans don’t have a maximum loan amount, which means you may be able to use them to cover all your educational expenses. The loans are also eligible for potentially beneficial federal programs, like alternative repayment plans and forgiveness programs.
However, you’ll need to pass the credit check, or have a creditworthy cosigner, to qualify for the loan. You’ll also pay more for a direct PLUS loan than a direct unsubsidized loan due to the higher interest rate and disbursement fee. Depending on your creditworthiness, you may even find that private student loans will be less expensive than direct PLUS loans.
2. Perkins loans for grad students
Federal Perkins loans aren’t part of the direct loan program. Although you still need to complete the FAFSA each year to be eligible for a Perkins loan, your school will be the lender rather than the U.S. Department of Education.
Eligibility. Perkins loans are for undergraduate, graduate and professional students who have an exceptional financial need and are enrolled at least part-time at a school that participates in the Perkins loan program.
If you’re eligible, your loan offer will depend on your financial need, your other financial aid and how much money the school has to lend. As schools may offer Perkins loans on a first-come, first-served basis, submitting your FAFSA early on could help you get a Perkins loan.
Receiving and repaying your loan. Since your school is the lender, it will use the money to cover your educational expenses, including as tuition and fees, and may send you a refund for any leftover money.
As a graduate student, you can borrow up to $8,000 per year, and up to $60,000 in total at a time with Perkins loans (including undergraduate Perkins loans). The loans don’t have a disbursement fee, and they’re subsidized, meaning the federal government will pay the interest while the loan is in deferment, including while you’re at school.
Perkins loans usually have a nine-month grace period, which begins when you leave school, graduate or are taking less than a half-time schedule. Your repayment plan can vary depending on your school, and you should check with your school to understand your options. And although your school lends the money, a different company may service the loan.
If you want to use one of the federal income-driven plans, you may be able to choose one after consolidating your Perkins loan with the direct consolidation program.
If you’re having trouble repaying your loan, Perkins loans may be eligible for deferment or forbearance, which could allow you to temporarily stop making payments.
Perkins loans are also eligible for some forgiveness, cancellation and discharge programs, including the Perkins Loan Cancellation and Discharge. If you consolidate the loan, it could be eligible for more programs, but weigh the pros and cons because for some people the Perkins-specific program could be better than the alternatives.
Pros and cons. The fixed, low interest rate, lack of disbursement fee and federal subsidy may make Perkins loans a less expensive form of debt than the direct loans that are available to graduate students.
However, only some students will be eligible for Perkins loans and you’re limited in how much you can borrow by the program’s rules and potentially your school’s available resources. In some cases, the school you want to go to may not even be part of the Perkins loan program. Also, if you don’t have an exceptional financial need, you may not be offered any Perkins loans.
As an alternative or addition to federal student loans, graduate students may be eligible for student loans from private lenders. Some federal laws apply to private student loan lenders, such as borrowers’ right to pay off the loan early without paying a prepayment penalty.
Private student loans are credit-based, and you may not be able to qualify for a loan (or qualify with a good rate) unless you have a good credit score, credit history and low debt-to-income ratio. Otherwise, you could have to add a cosigner to qualify for a private student loan with a good rate.
Private loans vs. federal
Although the specifics may vary depending on the lender, there are some general pros and cons to taking out private student loans for graduate school.
- Private lenders may have higher annual and aggregate loan limits than direct unsubsidized Loans and Perkins loans.
- You may be able to choose between a fixed-rate or variable-rate loan. Variable-rate loans tend to start with a lower interest rate than otherwise equivalent fixed-rate loans, which could save you money. However, you’ll also take on more risk as the interest rate, and your monthly payment, could rise in the future.
- Depending on your creditworthiness, you may be able to get a private student loan with a lower interest rate than a federal loan.
- Private student loans generally don’t have origination or disbursement fees.
- You may not be eligible for a private student loan depending on your credit. If you are able to qualify on your own, the interest rate may be much higher than what you’ll receive with a federal student loan.
- Private student loans aren’t eligible for federal programs, including repayment plans, forgiveness, cancellation, discharge and deferment or forbearance programs. Even if you can potentially save money with a private loan, it may be worth paying a little extra for access to the federal benefits.
- Student loan assistance programs that aren’t part of the Department of Education, such as some military loan repayment programs, may only apply to federal student loans.
- Private student loans may not offer a death or permanent and total disability discharge like federal loans, leaving a cosigner or your estate responsible for the debt. This could affect your family if you’re leaving a home, car or other assets behind.
One thing to consider when comparing private and federal student loan offers is that private lenders will often display loans’ potential annual percentage rate (APR) ranges, while federal student loan informational pages show the loan’s interest rate. The APR includes loan fees, such as federal loans’ disbursement fees. To make an apples-to-apples comparison, you may want to calculate a federal loan’s APR and then compare with to a private loan’s APR.
Shopping for private graduate school loans
Large banks, smaller regional banks, credit unions, online-only lenders, states and schools may all offer graduate school loans. Some lenders have loan programs for specific types of students, such as MBA or medical students, while others may have a single application for all graduate students.
How to choose a private student loan for grad school
Qualifications, interest rates, loan terms, loan amounts and other fine-print items and benefits can also vary from one lender to the next. It’s important to closely compare your options and offers before taking out a private student loan.
Here are some of the features, fees and benefits you should look for and consider:
- Interest-rate types. Does the lender offer fixed-rate and variable-rate student loans?
- APR ranges. Compare the APR range for the types of loans you’ll ideally take out.
- Loan terms. Generally, the shorter the loan term, the lower your interest rate and higher your monthly payment. Lenders may let you choose from different loan terms, assign you a loan term within a range or only offer loans with a single-term option.
- Loan limits. Determine the maximum amount the lender will offer you, and look to see if there are program-specific limits and aggregate limits (which may be the aggregate of federal and private student loans). Although lenders may not offer you the maximum amount, you could narrow down your list if you find lenders that definitely can’t cover your needs.
- Origination fees. Some lenders may charge an origination fee, which can increase your cost of borrowing.
- Discount opportunities. You may be able to receive an interest rate reduction by signing up for autopay. Lenders may also offer an additional discount if you have another eligible financial product with them when you take out your student loan.
- Cosigner release option. If you plan to take on a cosigner, a cosigner release option lets you apply to release the cosigner after making a series of consecutive on-time, full payments. The number of payments may vary depending on the lender, and you’ll also need to pass a credit check to qualify to take on the loan.
- Deferment and forbearance options. Depending on the lender, you may have the option to defer making payments while you’re in school, or you could start making partial payments once the loan is disbursed.
- Death and disability discharge. Unlike with federal student loans, private student lenders may not waive or discharge your loan balance if you die or become permanently and totally disabled. If you have a cosigner, spouse or dependents, you may want to take out a loan from a lender that will forgive or discharge the debt.
Don’t assume that the lender with the lowest advertised rate will be the lender that offers you the lowest rate, as the underwriting process and criteria can vary from one lender to another.
Once you’ve identified several lenders that could be a good fit, look to see if they offer pre-approval with a soft credit inquiry. The pre-approval will let you see approximate loan terms and won’t hurt your credit.
If lenders don’t offer a soft credit check pre-approval, you could wait and apply at multiple lenders at the same. Although the hard inquiry that results from an official application can hurt your credit score a little, multiple student loan applications during a short period are usually treated as a single hard inquiry for credit-scoring purposes.
When to consider a private grad school loan
Taking the pros and cons into consideration, there are a few circumstances when it may make sense to choose a private grad school loan over federal student loans.
For example, if you have a great credit score and history, and qualify for a lower APR on a private than you’ll receive with direct unsubsidized loans or direct PLUS loans, a private loan could be a good option.
You may also want a mix of federal and private loans. The Perkins loans and direct unsubsidized loans may have a lower APR than you can get on a private loan. However, direct PLUS loans have a higher interest rate and disbursement fee, and you may find you could save money by choosing a private loan over the direct PLUS loan.
Can you refinance graduate school debt?
As you build a healthy credit history and your income hopefully increases due to your new degree, you may be eligible for a lower interest rate on your loans. When you refinance your graduate student loans, you can take out a new loan and use it to consolidate multiple student loans, including federal and private undergraduate and graduate student loans. Refinancing can simplify the repayment process and you could also save money if you qualify for a new loan at a lower rate than you’re currently paying.
Refinancing isn’t always a good idea, though. If you can’t qualify for a lower rate, you may not want to refinance your loans as it could cost you money. Also, since you have to refinance through a private lender, if you refinance a federal student loan you’ll lose access to the federal programs and benefits.
As with applying for a private student loan, you can compare private student loan refinancing companies to find the lenders that offer terms and benefits that suit your needs.