4 Important Lessons From People Who Used Private Student Loans to Fund Grad School

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Private Student Loan rates starting at 1.04%

1.04% to 11.98% 1

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1.13% to 11.23% 2

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3.80% to 9.36% 3

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You want to go to grad school, but you’re not sure how to pay for it. Although there are several options — work-study, scholarships, and even federal student loans — sometimes you still don’t have enough to cover the full cost.

To make up for this gap, you might consider getting private student loans for grad school. But taking out a big chunk of money from a lender can be scary — not to mention a big responsibility.

But sometimes grad school loans are your best option. We spoke with four real people who used private student loans to pay for grad school to find out their biggest lessons learned.

1. Take advantage of lender incentives

When Chris Kirkham graduated in 2009 at the height of the recession, he found it difficult to land a job in the career of his choice: Journalism. So he decided going to grad school would help him develop more skills and land a higher-paying gig.

“I saw that Elon University in North Carolina had a one-year interactive media graduate program that included learning skills such as film, web programming, and web design,” he said. “But tuition was $50,000, and I didn’t have enough to cover the cost.”

Though Kirkham did get a $7,000 scholarship and dipped into savings, he was still stuck footing a $35,000 bill. “I applied for federal student loans, but the interest rates were 7.5%,” he said. “When I looked at private student loans for grad school … I realized their rates were more variable. That meant I could possibly get a lower rate with options like incentive programs.”

Those incentives helped drive the interest rates down for Kirkham. “There were a lot of incentives that you didn’t get with federal loans,” he said, citing discounts for graduating as an example. “I worked hard to take advantage of all the incentives.”

Ultimately, Kirkham was able to get the rate down to 3.2%, less than half of what was being offered in federal loans. “I was able to borrow a large sum of money at a low interest rate over a long period since [my lender] allowed me to have longer repayment terms,” he said. “This saved me money in the long run because interest rates were overall lower.”

Bottom line: If the math works out for you, consider a private student loan for grad school. If you can find a lender that offers incentives, make sure you check all the boxes to get your interest rate as low as possible.

2. Shop around for the best private graduate student loans

Though Erin Glaser didn’t technically go to grad school, she used private student loans to go back for a second bachelor’s degree. Like a master’s, a double bachelor’s doesn’t have all the federal financial benefits as someone pursuing a first-time bachelor’s degree. For example, once you earn a bachelor’s degree, you are no longer eligible for Pell Grant.

Taking out private student loans was Glaser’s last option. “While I had decent savings — I entered school with about $9,000 in the bank — it was nowhere near enough to cover the cost of tuition and expenses since I couldn’t work during this full-time program.”

She, too, ended up borrowing through a private lender because she already banked with them and wanted to keep it all under one roof. “They made it very easy to take out the loans I needed,” she said. “But I would recommend shopping around more than I did.”

Why shop around? The interest rate that Glaser received was high, but she assumed that was her only option. “I now know people who shopped around more, negotiated more and got better rates,” she said. “Push for what you want and what works for you, because you always have other options.”

Bottom line: Don’t just rely on one bank or lender; take the time to look around. You can check out our list of lenders to get you started if you’re feeling lost.

3. See if your employer will pay for your education

Rives Borland attended an engineering program as a Cornell undergraduate, but found himself without a job offer upon graduation. He decided to take the school’s one-year master’s program to become more skilled in the field and wait for the job market to find an upswing. This meant he would have to take out private student loans for grad school.

“It was easy to apply for the program because I was already a student, didn’t have to take the GRE and was comfortable with the school,” said Borland. “But I did have to take out $40,000 in loans for that one year of grad school. That was three times the total I paid out-of-pocket for all of undergrad.”

While about half of the money he borrowed was in federal student loans, the other $20,000 was in private student loans. “My parents recently divorced, so I was on my own to pay for grad school,” said Borland. “So, I took out the loans hoping it would get me a higher-paying job in the end.”

His plan worked. Borland got a job offer while still in school from Boeing. “I was able to finish out my studies and come into the company at a higher level than if I came in straight from undergrad,” he said.

The only downside, he later learned, was that other people in the company had the opportunity for Boeing to pay for their graduate degrees while still working for the company. This is a benefit some companies offer to their employees usually through tuition reimbursement programs.

“I would suggest looking into whether or not your employer will pay for your graduate degree before taking out student loans to pay for school,” said Borland. “It maybe could have helped me not still be paying back my loans 14 years later. You might not start in as high of a position, but you can move up quickly and not have debt.”

Bottom line: Whether you are applying for a new job or currently in one, see if they offer some type of employee tuition assistance. Others may actually help you pay off your student loans if you’ve already taken them out. Contact your human resources department to find out if these are benefits you didn’t know your company offered.

4. Have 6 months worth of payments set aside

Even my own sister, Paige Stephans, learned a valuable lesson when taking out private student loans for grad school. She was lucky enough to have both her bachelor’s and master’s degree costs covered by our parents, but realized she needed a more specialized degree in psychology to get the job she wanted.

She was able to take out some federal loans, but needed one private student loan to cover living expenses when she suddenly became single.

“When I started graduate school, I was married and owned a home,” said Stephans. “Then I got divorced and was stuck paying for everything on my own. My program also required I complete a full-time internship program to get my certification. So, I couldn’t even work to enough to cover my costs.”

Stephans tutored in the evenings and moved into a rental across from the school where she interned to save money. Unfortunately, it still wasn’t enough to cover the costs and she needed the private student loan for grad school. When it came time for repayment, Stephans still struggled to make regular payments after her drastic personal change.

“I was able to declare hardship a couple of times with my lender and had payments delayed,” she said. “But my biggest piece of advice would be to have at least six months worth of payments set aside. You can’t predict hardship and you don’t want to get behind on your payments.”

Stephans still believes her education helped her fare better in her profession; she now comfortably makes the minimum $270 monthly payments. “I’m at a place where I’m okay to keep paying this amount for another 10 to 15 years,” she said. “It just would have been nice to have that emergency fund, so I wasn’t so far behind.”

Bottom line: It’s always a good idea to have a six-month safety net no matter your financial situation. This can help in the event of an illness, divorce, loss of employment, and more. It will lower your stress in an already stressful situation.

While these four graduate students used private student loans to fund their educations, it’s important to also consider federal student loans, too.

Federal loans have certain benefits private loans don’t, such as income-driven repayment programs, federal subsidy (meaning while you’re in school or even in repayment, the government will pay your interest), and won’t affect your family’s finances if you die with debt.

Learn more about the pros and cons of private student loans and understand they can be beneficial as a last resort — as long as you understand the costs.

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