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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|2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7% variable Annual Percentage Rate (“APR”): 96 monthly payments of $179.28 while in the repayment period, for a total amount of payments of $17,211.20. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 5/22/2019. Variable interest rates may increase after consummation.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
4 Important Disclosures for Discover.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.99% – 11.32%2||Undergraduate, Graduate, and Parents|
|4.50% – 11.35%*,3||Undergraduate and Graduate|
|4.84% – 13.49%4||Undergraduate and Graduate|
|4.25% – 11.30%5||Undergraduate and Graduate|
|4.50% – 9.47%6||Undergraduate and Graduate|
|3.74% – 9.72%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.32%8||Undergraduate, Graduate, and Parents|