Getting a graduate degree can be a tempting goal, especially if you’re looking to advance your skillset or prepare for a more specialized or higher-paying position. One of your considerations, of course, will be how to pay for that graduate degree.
Undergraduates have several financial aid options based on need, such as the Federal Pell Grant, which in many cases does not have to be repaid. However, financial aid options are generally more limited for graduate students. It’s always smart to investigate grants, scholarships, and fellowships that you may be eligible for based on your background, institution, or field of study. Other options include federal and private student loans.
If you already have student loans from your undergraduate education, then you’re familiar with the process and options available to you; but if you haven’t looked into student loans before, the options may feel overwhelming. Regardless, there are some key differences between student loans for undergraduate and graduate degrees you should know—and that might help you save some money along the way!
Federal Graduate Student Loans
Interest Rates
Federal graduate student loans often have higher interest rates than federal undergraduate student loans. A higher interest rate results in more interest costs, meaning you are paying more money to borrow the loan. Interest rates can change annually, so it’s important to know the current rates when you’re considering taking out student loans. The difference in interest rates can add up to thousands of dollars in interest over the life of the loan. When borrowing federal graduate student loans, it’s recommended to borrow only the amount you need since you will be paying a relatively high interest rate.
FAFSA
When applying for Federal Student Aid, regardless of what level of education or degree you’re entering, you are required to fill out the FAFSA form. The major difference is that graduate students are considered independent students as opposed to dependent students, so your parent’s financial information is not used. In addition, as an independent student, you may earn less than your parents, which could make additional financial aid available.
Higher Borrowing Limits
Federal graduate student loans have higher borrowing limits to cover the higher cost of tuition. For undergraduates, the maximum that can be borrowed depends on your year in school and whether you are a dependent or independent student, with limits ranging from $9,500 to $12,500 per year. Graduate students can borrow up to $20,500 per year in direct unsubsidized loans. There is no limit to how much can be borrowed in Grad PLUS loans, except for the cost of attendance.
These higher limits can be helpful when you need to cover all the expenses related to graduate school. However, this can lead to borrowing large loans at high interest rates that may be difficult to repay. Since graduate loans can be used to pay living expenses, it is important to continue living on a budget and only borrow the amount necessary.
No Subsidized Loans
With subsidized loans, interest does not accrue while you are in school. However, that option is not available for federal graduate student loans. Your graduate student loan options include Direct Unsubsidized loans and Direct PLUS loans, which both begin accruing interest as soon as they are disbursed.
To avoid accruing more interest than necessary, be sure to minimize your graduate school expenses and loans. Also, if you are able to pay at least the interest costs while you are in school, this will prevent you from having a larger total to pay back after graduation.
Loan Fees
You may pay higher origination fees for federal graduate student loans versus undergraduate student loans. Origination fees are based on a percentage of the total loan amount you borrow, and it is taken out of your student loan disbursement. This technically lowers the actual amount you will receive, but isn’t discounted from the full loan amount you’ll be required to pay back.
Some private lenders, like ELFI, do not charge an origination fee for loans, so be sure to consider that when comparing loan options.
Private Graduate Student Loans
Private student loans are another way to help pay for the costs of attending graduate school, regardless of whether you’re interested in a business or law degree, nursing or medical degree, or teaching or liberal arts degree.
Private student loans are based on your income and credit history, so if you’re looking to return to school while employed and have built a healthy credit score, you have a good chance of locking in a relatively low interest rate.
If you already have federal student loans, that doesn’t exclude you from further private student loans. Also, private lenders can help you consolidate multiple student loans or refinance, regardless of what type of loans you currently have. These options can decrease your interest rate and monthly student loan payment, or otherwise help you reach your financial goals on your terms.
The Bottom Line
There are a number of ways to fund your graduate education, and many students choose to combine financial aid with federal and/or private student loans. If you have questions about your private graduate student loan options through ELFI, previewing your rates and terms requires no credit check or obligation. It’s easy to connect with a personal Student Loan Advisor who will get to know you and your goals. So, whether you’re new to student loans or you’re familiar with the process, we’ll help you understand the differences between undergraduate and graduate student loans and help you make an informed decision about funding your education.
