If you’re planning to take out student loans for your second degree, you might think you could draw on your experience with undergraduate debt.
Unfortunately, it’s not that simple. Federal and private student loans are much different for undergraduate vs graduate students.
Before you take on graduate loans, consider these eight differences between the borrowing situations.
1. FAFSA forms
2. Need-based aid
3. Federal loan types
4. Federal loan interest rates
5. Federal loan borrowing limits
6. Qualifying for federal loan forgiveness
7. Private loan terms
8. In-school loan deferments
There are many differences between being a dependent student and an independent one. As a graduate or professional student considered independent of your parents (and their finances), you should have an easier time completing the Free Application for Federal Student Aid (FAFSA) — the gateway to Federal Student Aid, including loans.
You’ll no longer need to attach mom or dad’s tax returns to your FAFSA paperwork. It should take you less than an hour to fill out the online form, so don’t procrastinate.
Even though you don’t have to count your parents’ income and assets on your FAFSA form, which should lower your Expected Family Contribution or out-of-pocket cost, there likely isn’t as much need-based aid available to you as a grad student.
Federal Pell Grants, for instance, are typically only available to undergraduate students. Even if you received a Pell Grant for your bachelor’s degree, you likely won’t be eligible to receive one for graduate school. (Aspiring teachers participating in a postgraduate certificate program are the exception to this rule.)
Other need-based grants and aid may also be more difficult to find. Instead, you may have more luck with scholarships and fellowships. Other ways to pay for grad school without resorting to debt include seeking on-campus jobs, especially those with tuition reimbursement perks.
If borrowing loans for your next degree becomes a necessity, the FAFSA opens the door to federal financing. But your options as a graduate student vary from those available to undergrads.
If you borrowed subsidized student loans as an undergrad, for example, you weren’t charged interest on your loans while enrolled as a full-time student. This isn’t the case for graduate students. Instead, your student loan options — Direct Unsubsidized and Direct PLUS loans — would start accruing interest charges right away, whether you’re a full-time student or not.
The longer you take to finish graduate school, the more interest will be added on to the principal balance of your graduate school loans. For example, if you borrow $10,000 when you start school, the balance will increase to about $11,200 two years later. That’s $1,200 more that you would owe than if you were an undergrad with a subsidized loan.
Although federal student loan rates decreased across the board for the 2019-2020 school year, this fact remained unchanged: Graduate students pay higher interest rates than undergraduates do.
Student loan interest rates are set by Congress and are tied to Federal Treasury notes. Currently, rates are 4.53% for undergraduate student loans and range between 6.08% (Direct Unsubsidized Loans) and 7.08% (Direct PLUS Loans) for graduate students.
Of course, the higher your rate, the more interest you’ll have to fork over in repayment.
As you’ve likely heard, both undergraduate and graduate student loan balances can add up to a whole lot. But it can be easier to rack up student debt for graduate school because of higher maximum loan limits.
Current allotments are $20,500 per year and $138,500 total for graduate or professional students. The latter limit includes any loans you already borrowed for your undergraduate degree.
Students can borrow even more in Direct Unsubsidized Loans for medical school and other health professional degrees. The student loan limit is capped at $47,160 per year and $224,000 for these students.
In addition, for PLUS Loans, there are no limits short of your school’s cost of attendance. You could borrow every last cent needed via a PLUS Loan.
While borrowing more seems like good news, it can translate to trouble. It’s tempting for students to take out more than they need to because graduate school student loans can be used for living expenses. Student loan money isn’t tracked or monitored, so it’s easy for students to abuse it, using the money for nonessential expenses.
Undergraduate and graduate students are eligible for student loan forgiveness programs like Public Service Loan Forgiveness. However, graduate and professional students face a longer path (25 years) toward forgiveness on the REPAYE income-driven repayment (IDR) plan. Undergrads could have their balance wiped away after just 20 years of qualifying payments.
With that said, many student loan repayment assistance programs exist exclusively for careers that require a postgraduate degree. Doctors, lawyers and teachers are among those professionals who could access relief programs offered by state governments, employers and other entities.
When federal student loans aren’t enough to cover your cost of attendance, you might consider private student loans. Again, however, private loans for undergraduate versus graduate students are anything but identical.
Most reputable lenders require undergrads to attach a cosigner to their loan application, for example. As a graduate student, you could net a lower rate by piggybacking on a creditworthy cosigner — but you could also qualify on your own.
In all likelihood, as a grad student, you’ll have a thicker credit file and could score a better deal on a private loan than you might have been able to snag as a wide-eyed underclassman.
Keep in mind, though, that banks, credit unions and online lenders vary their rates depending on the degree you’re pursuing. CommonBond, for instance, advertises five distinctive fixed and variable rate ranges for undergrads, grads and MBA students, as well as dental and medical program attendees.
Also, remember that it typically makes sense to prioritize federal loans over private debt options. Even the best private student loan companies listed on our site fail to match federal loan-only protections like IDR, deferment and forbearance, as well as governmental pathways to forgiveness.
As a full-time graduate student, you’re typically allowed to defer payments on your undergraduate federal and private student loans.
Just beware: Interest will continue to accrue during deferment, too. If possible, you may want to continue to pay off interest on graduate student loans while you’re in school. If not, your bill will continue to grow.
There is some good news: If you have subsidized federal student loans from your undergraduate program, you won’t be charged more interest while they’re in deferment. You can find out how much interest will accrue using our student loan deferment calculator.
Undergraduate vs graduate student loans: Understand the differences before borrowing
There are a host of ways that your graduate or professional program will differ from your undergraduate experience. You could find yourself in smaller classes studying more specific material, for example. You might even have to put in the research to defend a serious thesis project.
As you know now, you’ll also have a new borrowing experience.
While being an undergraduate borrower might prepare you for the process as a graduate student, it’s essential to understand the differences before taking out more loans. In fact, you should review all of your financial aid options for grad school before making a decision.
Andrew Pentis contributed to this report.
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1 Important Disclosures for Earnest.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 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.
Information advertised valid as of 9/1/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
4 Important Disclosures for Discover.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.76% annual percentage rate (“APR”) (with autopay), variable rates from 1.90% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.83% APR (with autopay), variable rates from 1.80% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.98% APR (with autopay), variable rates from 1.97% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 11.26% APR (with autopay), variable rates from 1.90% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 07/10/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).
6 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 applicant’s ability to supply the necessary information for submission.
7 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.17% effective Sep 1, 2020 and may increase after consummation.