Can You Get Subsidized Loans for Graduate School?

 October 14, 2021
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Subsidized loans for graduate school are, unfortunately, a thing of the past. The Department of Education stopped offering an interest subsidy for graduate students in 2012, though this option is still available to undergraduates with financial need.

If you’re pursuing an advanced degree, you can still borrow unsubsidized federal loans. There are other ways to cut down on the amount of interest you’ll fork over during repayment. Here’s what you need to know.

Can graduate students get subsidized loans?

With subsidized federal student loans, the Department of Education pays your interest charges while you’re enrolled or in deferment. That means you pay less for the student debt you take on.

But the federal student loan interest subsidy is available only to undergraduate students who have demonstrated financial need.

Unfortunately, the office of Federal Student Aid (FSA) no longer offers subsidized loans for graduate school.

In the past, FSA offered subsidized loans for graduate school
Subsidized Stafford Loans for graduate students Also called Direct Loans, these Subsidized Stafford Loans were offered to graduate students with a demonstrated financial need until July 2012. Then they were cut to free up funding for other forms of federal student aid.
Federal Perkins Loans The Federal Perkins Loan Program created funds that allowed colleges to offer additional loans to low-income students. Federal Perkins Loans came with a federal interest subsidy and were available to both undergraduate and graduate students. Unfortunately, the Federal Perkins Loan Program expired in 2017 and wasn’t renewed by Congress, so this subsidized student loan option is no longer available.

Without subsidized loans for graduate school, how can you save on interest?

Borrowing a subsidized loan for graduate school is no longer a possible strategy. However, a federal student loan subsidy isn’t the only way to pay less interest on educational debt. Here are a few ways you can lower your costs when borrowing for an advanced degree:

1. Use low-interest federal student loans first
2. See if you can get a lower interest rate with private student loans
3. Pay off grad school loans early
4. Refinance once you’re in repayment

1. Use low-interest federal student loans first

Graduate students can take advantage of two types of federal student loans: Direct Unsubsidized Loans for graduate and professional students and Grad PLUS Loans.

Obtaining these loans is only possible after completing the Free Application for Federal Student Aid (FAFSA).

Terms for 2021-2022 Direct Unsubsidized Loans for graduate and professional students Grad PLUS Loans
Interest rate 5.28% 6.28%
Loan fee 1.057% 4.228%
Annual loan limit $20,500 Up to cost of attendance after other financial aid is applied
Loan fees on $20,000 $211 $846
Interest charges on $20,000 over 10-year term $5,785 $6,984

As the table above shows, one grad school loan option is significantly more affordable than the other. Direct Unsubsidized Loans have lower interest rates and loan fees.

Grad PLUS Loans, on the other hand, allow a student to borrow more than $20,500 a year, up to their program’s cost of attendance. But it’s a good idea for grad students to borrow the max amount possible through Direct Unsubsidized Loans before turning to Grad PLUS Loans to finance their studies.

2. See if you can get a lower interest rate with private student loans

Many graduate students turn to private student loans rather than Grad PLUS Loans. If you have good or excellent credit (or a cosigner who does), you likely can get a lower interest rate with private student loans.

Shop around for private student loans to see which ones offer good rates. You can even get quotes on private student loan rates from lenders that use a soft credit check. They’ll give you customized private student loan offers you can compare to Grad PLUS Loans — without dinging your credit.

Some lenders work specifically with students earning advanced degrees in certain fields.

Top private student loans for:

Borrower Program Personal situation Lender feature
Part-time students Nursing school Applying without a cosigner Credit unions
International students Medical school Bad or no credit Cosigner release
Adults returning to school Law school Economic hardship forbearance
Graduate students Dental school Hybrid interest rate
Business school

Keep in mind that lenders set borrowing amount minimums and maximums. You might be able to borrow up to your remaining cost of attendance with certain banks, credit unions and online lenders.

3. Pay off grad school loans early

Another way to reduce interest charges on grad school loans is to prepay your student debt. In other words, pay more than the required amount on your student loans each month.

While you’re in school, that could mean making small payments on deferred student loans. Once your debt enters repayment, you might want to pay extra each month to get ahead of interest charges.

By paying more than you’re required to each month, you’ll pay off your debt faster — and pay less in interest in the process. Our student loan prepayment calculator can show you your potential savings.

4. Refinance once you’re in repayment

Even if you don’t have great credit or can’t qualify for low private student loan rates right now, you can keep this option in mind. You can get a better rate if you refinance your student loans once you have your advanced degree and land a high-paying job.

Refinancing your student loans after graduation can save you tens of thousands of dollars in interest over the life of your debt. You can use the best option to pay for grad school now, whether that’s federal or private student loans.

After you graduate, consider refinancing your student loans to see if you could lower your costs and pay less. Just be aware of the pros and cons of refinancing, such as losing your federal loan repayment protections.

While getting a subsidized loan for graduate school isn’t an option anymore, there are plenty of alternatives to pay for your next degree. If you shop around, compare your options and keep options such as refinancing in mind, then you can pay less in student loan interest.

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