When I decided to get my master’s degree, I knew I’d need to borrow money. My first move was applying for federal loans. However, the cost of attending my school of choice exceeded the annual $20,500 maximum grad students are allowed to borrow through Direct Loans. In order to complete my education, I needed private student loans.
If you want to get an advanced degree but are worried federal loans won’t do the trick, there’s hope. I was able to bridge my funding gap with a private loan, and there’s a good chance you can make it work for you.
Start with your financial aid award
Before you apply for any loans, fill out your Free Application for Federal Student Aid (FAFSA). The information from your FAFSA will be sent to the schools of your choice, and they can use it to put together financial aid packages.
“After you receive your acceptance, wait until you receive your financial aid award and your bill to see exactly what you owe,” said Alexander Lowry, who runs the master’s in finance program at Gordon College.
Lowry pointed out that you might be eligible for scholarships, assistantships, or fellowships that could reduce your total cost — and the amount you need to borrow. Syracuse University offered me a $5,000 scholarship, reducing my private loan borrowing needs from $17,000 to $12,000.
“During this time, while you wait for your results, you could research different private student lenders,” said Lowry. “Start comparing to see which will best meet your needs.”
Max out your federal Direct Unsubsidized Loans
Before you apply for private student loans, apply for Direct Unsubsidized Loans, suggested Rodney Harris, a senior financial aid counselor at the University of North Georgia. Your award letter for grad school will include your federal Direct Loan offer and other student aid options.
Harris warned against getting caught up in advertised interest rates from private lenders. “While an excellent credit score could make a private loan interest rate competitive with federal loans, most of our students report their private loan rates in the 9.00% range,” Harris said. “The 6.00% fixed rate offered by Direct Loans might be a better deal.”
On top of that, Harris pointed out, federal loans come with more generous deferment options, income-driven repayment plans that cap your monthly payments at a percentage of your income, and the possibility of access to loan forgiveness.
Private student loans can be a good choice, though, if you aren’t attending school at least part time. “Private loans allow for students to be enrolled less than five credit hours,” said Harris. “Federal loans don’t.”
Once you max out your Direct Loans, you can attempt to get federal Graduate PLUS Loans, which are designed to make up the difference between the cost of college and the maximum amount available through Direct Unsubsidized Loans.
However, the current rate on those loans is 7.00%. Depending on your situation, you could get a lower rate with private student loans.
Check your credit
“Every lender has different parameters for lending,” said Lowry. “However, credit criteria plays a large role.”
When I applied for a private student loan to bridge my master’s degree funding gap, I had a credit score of 690. It was enough for me to get approval for the $12,000 I needed. Compare the best private student lenders to find out where you are qualified to borrow what you need.
If you don’t know your credit score, check with a consumer credit website, such as Credit Sesame, Credit Karma, or Quizzle, to get an idea of where you stand. Your credit card issuer also might offer free access to your credit score with your statement.
Don’t forget to use AnnualCreditReport.com to view your credit report. If there are mistakes, they could influence your credit score, bringing it down and reducing your chances of approval. Fix any errors you see.
Some mistakes you might see include duplicate loans and improperly reported payments, both of which can drag down your score. Also check to see if there are fraudulent accounts on your credit report.
In the meantime, pay your bills on time and reduce some of your other debt to give your credit score a boost.
Does income matter?
While some private lenders might ask about your income, income isn’t a requirement to access all private student loans.
“Since many graduate students are full-time students with little or no income, you can find lenders that don’t emphasize it,” said Harris. “Look for private student loans that don’t require repayment until after you finish your degree program.”
If you end up with a private loan that requires in-school repayment, you might have to work at least part time to meet your monthly obligation, which can put additional strain on you as you complete your education.
My lender didn’t require in-school repayment, and it didn’t take my income into account, assuming I’d find a job and be able to begin making payments when I completed my master’s degree. I had a six-month grace period for my private loan — the same as with federal loans.
Look for a cosigner
“If you can’t get private student loans on your own,” said Lowry, “apply with a creditworthy cosigner.”
A cosigner is someone who takes responsibility for the loan in the event that you begin missing payments. Your cosigner should have good credit and an income that allows them to handle the monthly obligation.
When my husband went back to school for his master’s degree, his thin credit file prevented him from qualifying for a small private student loan. I cosigned his debt, and he was able to get what he needed to start his degree program.
It’s your debt, and you’re responsible for it, but a cosigner is the backup plan. Having that backup plan can swing the odds in your favor when you apply for private student loans.
Reduce your need for private student loans
Ultimately, you want to borrow as little as you can. You can reduce your need for student debt by looking for other ways to pay for school.
If you’ve already applied for scholarships and maxed out your federal loan options, there are other creative ways to get the money you need without borrowing from private lenders, said Lowry, including checking to see if your university offers tuition payment plans.
Another creative way to pay for your master’s degree without private student loans is to enter into an income-share agreement. With these plans, someone basically “invests” in you. They pay your costs, and, in return, you give them a percentage of your income for a set period after you finish your program.
Using private student loans isn’t the end of the world, though. It worked out well for me. I was able to complete my master’s degree, earn a good living, and easily afford my payments. It’s not exactly fun to borrow money, but if it will get you ahead in your career and lead to a higher-paying job, it might be worth it.
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