Student loans have a giant drawback: interest charges. One way to offset these interest charges, however, is to take out a subsidized student loan. With a subsidized student loan, you pay less interest on the loans you take out for school.
If you’re a student earning an advanced degree, you might be wondering if a subsidized student loan could be an option for you. Here’s what you need to know.
What is a subsidized student loan?
With subsidized federal student loans, the Department of Education pays your interest charges in certain situations. That means you pay less for the student debt you take on.
But the federal student loan interest subsidy is available only on certain loans and applies only at certain times — usually while the student is in school or if they defer the subsidized student loan in repayment.
Currently, the Department of Education offers just one type of subsidized student loan. These loans, called Direct Subsidized Loans, are extended to undergraduate students who have demonstrated financial need.
There is no subsidized student loan for graduate school
Unfortunately, the Federal Student Aid Office no longer offers a subsidized student loan option to graduate students.
It did offer a couple of subsidized student loans for students earning an advanced degree in the past, however:
- Subsidized Stafford Loans for graduate students: Also called Direct Loans, these Subsidized Stafford Loans were offered to graduate students who 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.
4 ways to save on interest (besides subsidized student loans)
Borrowing with a subsidized student loan is a strategy you can’t use as a graduate student.
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
Graduate students can take advantage of two types of federal student loans: Direct Unsubsidized Loans for graduate and professional students and Grad PLUS Loans.
|Direct Unsubsidized Loans for graduate and professional students||Grad PLUS Loans|
|Annual loan limit||$20,500||Up to cost of attendance after other financial aid is applied|
|Loan fees on $20,000||$213||$853|
|Interest charges on $20,000||$9,091||$10,711|
|Total borrowing costs on $20,000||$9,304||$11,564|
As the table shows, one grad school loan option is significantly more affordable than the other.
Direct Unsubsidized Loans have lower interest rates and loan fees. For a grad student attending a two-year program and borrowing $10,000 per year, choosing Direct Unsubsidized Loans saves $2,260 over the life of their student loans.
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 to beat 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 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.
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.
While getting a subsidized student loan isn’t an option for graduate students, there are plenty of alternatives to pay for grad school. If you shop around, compare your options, and keep refinancing in mind, you can pay less in student loan interest.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* 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.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 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.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 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.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.04% – 13.04%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.25% – 11.10%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|4.92% – 10.01%7||Undergraduate and Graduate|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|