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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|* 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.
1 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 a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. 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 11/4/2019. Variable interest rates may increase after consummation.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for Discover.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).
5 Important Disclosures for Citizens.
Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of December 1, 2019, the one-month LIBOR rate is 1.70%. Variable interest rates range from 2.80% – 11.06% (2.80% – 10.91% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
Please Note: International Students are not eligible for the multi-year approval feature.
|2.84% – 10.97%1||Undergraduate, Graduate, and Parents|
|2.87% – 10.75%*,2||Undergraduate and Graduate|
|2.80% – 11.37%3||Undergraduate and Graduate|
|3.52% – 9.50%4||Undergraduate and Graduate|
|2.80% – 11.06%5||Undergraduate and Graduate|