Education isn’t cheap. Luckily, graduate students have options to help cover costs and make ends meet. Some of the loans offered to graduate students are similar to undergraduate loans, but others are specific to grad programs.
The federal government offers several loans specifically for graduate students. You should start with these sources before exploring your private loan options. In general, government-sponsored student loans have advantages like lower interest rates and more flexible repayment plans.
As you consider all your options, keep in mind that since July 2012, graduate students cannot enjoy the benefits of a subsidized loan. Unlike undergraduate loans, interest will begin to accrue as soon as you get the money, so you'll want to be especially careful about how much you borrow.
Federal Student Loans
Like undergraduate students, graduate students applying for federal aid benefit from starting the process as soon as possible. To apply for any of these loans, visit your school’s financial aid office. You'll also need to gather personal information and submit your Free Application for Federal Student Aid (FAFSA®) early in the year—preferably in January. Submitting your FAFSA early improves your chances of getting grants and other types of financial aid.
Direct Unsubsidized Loans are available to both undergraduate and graduate students (these may also be referred to as “Stafford Loans”). These loans allow you to borrow up to $20,500 per year for graduate school. Grad students receiving their first loan payments between July 2020 and July 2021 pay a fixed interest rate of 4.30%. The origination fee for first loan payments made between October 2020 and October 2021 is 1.057%.
Due to COVID-19, interest rates for loans owned by the Department of Education were reduced to 0% to provide temporary relief. The 0% interest rate applies to loans at least through Sept. 30, 2021.
While this is likely less expensive than a private loan, you should always shop around, especially if you have a good credit score. Students with good credit may be able to find a great deal from a private lender. But no matter your credit score, you'll likely qualify for a Direct Unsubsidized Loan.
Direct PLUS Loans, also known as “Grad PLUS Loans,” are available if you still need money after you’ve exhausted your Direct Unsubsidized Loans (which offer lower interest rates). You can only borrow as much as needed for your “cost of attendance” minus any other financial aid you’ve received. You also need a credit history that is free from bankruptcy, tax liens, repossessions, and similar events. In general, if you need a co-signer to qualify for a loan, you probably don't qualify for Graduate PLUS Loans.
Students receiving their first payments through this type of loan between July 2020 and July 2021 pay a fixed interest rate of 5.30%. There's also an origination fee. For students who receive their first disbursement between October 2020 and October 20201 that fee is 4.228%.
You may remember Perkins Loans from your days as an undergraduate student. This loan type was popular for the low-interest rates it offered to undergraduate and graduate students who demonstrated "financial need." However, the Perkins Loan was ended by federal law in September 2017. The final disbursements through the program were distributed through June 30, 2018. It is no longer offered to any type of student.
Private Loans for Graduate Students
After you’ve borrowed everything you can through government programs, you'll have to look to private lenders if you need more to pay for the cost of your advanced degree.
This is probably a good time for a common-sense reminder: just because you can borrow more doesn’t mean that you should. Remember that you’ll have to repay these loans, and irresponsible borrowing may haunt you for many years. Student loans are a great way to invest in your future, but there are countless horror stories about people who got in over their heads.
Private student loans are available from a variety of lenders. Banks, credit unions, and online lenders offer private student loan products. Unlike the government, private lenders are more likely to have stricter qualifications for borrowers. You’ll need good credit and sufficient income to repay the loan. Most graduate students are fairly young and they have a hard time qualifying on their own, but a co-signer can help qualify on the borrower's behalf.
Students coming from abroad to pursue post-graduate degrees are ineligible for federal student loans. For international students, private student loans may be the best option to help cover the cost.
How much can you borrow from a private lender when you’re a graduate student? It depends on the lender and your field of study. In general, you can borrow more if you’re studying for a profession that tends to have higher earnings. In other words, future doctors, lawyers, and chief financial officers (CFOs) get to borrow more than future librarians.
Private lenders even offer products that are specific to your field of study, and this is the one way that they might be more attractive than federal student loans. After you graduate, you may need to complete internship hours, pass licensing exams, or earn industry certifications. Some private graduate student loans include provisions that help cover your living expenses while you complete these tasks.
As for how to specifically apply for a private loan, it varies. There are just too many types of loans and lenders to allow for any single, "average" process. Start by searching generally for private loans, then narrow your search by focusing on the type of degree you’re pursuing. When you're ready to apply, prepare to provide financial information to the lender, including bank statements, pay stubs, and school documents.
Online lenders have emerged as a way of making loans more affordable and accessible. That applies to student loans as well as personal loans (which can be used for any purpose).
Be sure to compare online loans to loans from traditional sources. Shopping around is even more important for private loans. With government loans, you can basically rest assured that your loan's rate is relatively competitive. With private loans, you may find some great loan plans along with some predatory ones. Read the fine print to catch any extra hidden fees. Also, keep an open mind about the type of loan you use. You may find a personal loan with good terms that's ultimately a better option than a "student" loan.
You may end up with multiple loans once you've finished your studies. If that's the case, it may be possible to consolidate those loans into a single loan. Whether or not that makes sense will depend on how many loans you have, and what kind of lenders you used.
Multiple federal loans can be consolidated into a Direct Consolidation Loan. Private lenders may also be willing to consolidate both your federal and private loans into one loan. Before consolidating, make sure to take note of factors like the amount of each loan and the interest rates. You could end up with worse terms if you aren't careful, so ensure you won't end up paying significantly more under a consolidated loan plan.