Undergraduate vs. Graduate: 8 Student Loan Differences

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Undergraduate vs Graduate Student Loans

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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

1. FAFSA form

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.

2. Need-based aid

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.

3. Federal loan type

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.

4. Federal loan interest rate

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.

5. Federal loan borrowing limits

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.

6. Qualifying for federal loan forgiveness

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.

7. Private loan term

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.

8. In-school deferment

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 College Ave.

CollegeAve Disclosures

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 Disclosures

  1. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  2. View Auto Reward Debit Reward Terms and Conditions at DiscoverStudentLoans.com/AutoDebitReward.
  3. Aggregate loan limits apply.
  4. 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. The interest rate ranges represent the lowest interest rate offered on the Discover Undergraduate Loan and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.00% as of January 1, 2020. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please visit discover.com/student-loans/interest-rates for more information about interest rates.
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.

CommonBond Disclosures

Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).

  1.  Rates are as of July 1, 2019 and include auto-pay discount. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment. Variable rates may increase after consummation.

5 Important Disclosures for Citizens.

Citizens Disclosures

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 February 1, 2020,the one-month LIBOR rate is 1.66%. Variable interest rates range from 4.22% – 7.81% (4.22% – 7.81% APR) and will fluctuate over the term of the borrower’s 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 4.36% – 7.95% (4.36% – 7.95% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown for eligible, creditworthy applicants with an undergraduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discount of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. 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 their loan.

Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance,including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review. 

Citizens Bank Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank- participating school. 
Please Note: International Students are not eligible for the multi-year approval feature.

Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan. 

Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.

Undergraduate, Graduate, and Parents

Visit College Ave

2.75% – 10.65%*,2Undergraduate and Graduate

Visit SallieMae

Undergraduate and Graduate

Visit Discover

3.52% – 9.50%4Undergraduate and Graduate

Visit CommonBond

4.22% – 7.81%5Undergraduate and Graduate


Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.