Whether you’re going back to school after several years or you’re planning on going directly to graduate school when you finish your undergraduate degree, you’re probably wondering how you’re going to finance two more years of expensive education.
As a grad student, you may get a teaching or research assistantship, but you can’t count on that to fund your tuition. After all, the competition is stiff, and departments lose funding for those kinds of positions on a regular basis. Instead of crossing your fingers and hoping for a free ride, you need to plan to pay for graduate school with graduate student loans.
As a grad student, you won’t qualify for a Pell grant or a lot of other subsidies that are open to undergrads. However, you do have options, and a lot of them are very attractive, including some private loans.
Though you won’t qualify for a subsidized loan, you can qualify for up to $20,500 per year in direct federal loans (Stafford loans). So long as your loan does not exceed $138,500 between your undergrad and graduate years, you should be able to fund a large amount of your graduate degree with a Stafford loan. Also, if you are in certain medical or health fields, those limits increase by a great deal.
Stafford loans have fixed interest rates that determined each year and are capped at 9.5%. For the 2013-14 academic year, grad students with Stafford loans paid about 5.4%.
Graduate PLUS Loans
With a graduate PLUS loan you can borrow enough money to cover all of your tuition, living expenses, and supplies. However, PLUS loans are the only federal loans that require a credit check. If you have a poor credit score, you may be turned down for a PLUS loan.
If you’re currently an undergrad and you want to pursue a graduate PLUS loan, you might want to look into a few credit-improving strategies in the years leading up to graduation. Maintaining credit cards that you pay on each month, buying a car, and consistently holding a job can all improve your score and your chances of being approved for a PLUS loan.
PLUS loan interest rates are very similar to Stafford loan rates, but they are capped at 10.5% instead of 9.5%. Last year students paid 6.41% on their graduate PLUS loans.
If you show significant financial need, you may qualify for $8,000 per year in Perkins loans for graduate school. Interest rates on these loans are fixed at 5%, but be aware that these funds are very limited. Only a small number of Perkins loans are awarded each year, and they go to only the students with the greatest financial needs.
Private Graduate Student Loans
If you don’t qualify for a PLUS loan and/or your other federal loans don’t cover all of the costs of grad school, you do have other options. In fact, at this point in your academic career, private student loans may actually be a great idea if you have good credit.
This is especially true if you’re going back to school after a few years working in your industry. In that time you should have had the opportunity to maintain credit cards, finance a car or house, hold a consistent job, and build your credit score. By this time you shouldn’t need anyone to cosign on a loan for you, and your own credit history should be enough to get you a decent interest rate and payment plan.
If you are currently an undergraduate student investigating the financial details of grad school, you can put yourself in this position in relatively little time, simply by practicing good credit-building techniques (like maintaining credit cards, financing a car or property, etc.). However, having bad credit or insufficient credit history is not the end of the world.
If you can get a family member or friend with good credit to cosign on a private student loan, you will be much more likely to be approved. You’ll also be much more likely to get a good interest rate.
On that note, be wary of variable interest rate loans. With interest rates below 3%, some private graduate student loans are incredibly attractive when you sign up. Unfortunately, though, as your interest rate fluctuates, you can see major increases in your payments.
Private loans also don’t have the same forgiveness and lenience built into them that federal graduate student loans have. If you lose your job or find yourself in some other financial hardship, you’ll have a much easier time working out a repayment plan with a federal loan than with a private loan. Keep this and variable interest rates in mind before you sign on any private graduate student loan.
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