If you took out student loans for college, youâ€™re already familiar with the borrowing process. But when you go back to graduate school, your options will look different. In fact, youâ€™ll have just three choices for student loans: Direct unsubsidized loans, grad PLUS loans and private graduate student loans.
Direct and grad PLUS loans are federal loans, so they come with flexible repayment plans and other perks. But direct loans have borrowing limits, and grad PLUS loans have a relatively high interest rate of 7.6%.
So it could be wise to look into private loans for grad school, especially if you can snag a lower rate than you would on a grad PLUS loan. Before exploring how private loans graduate students work, consider this word of caution about borrowing money for grad school.
These days, graduate school can easily leave you with six figures of student loan debt. According to personal finance website Make Lemonade, dentists leave school with one of the highest debt burdens at $260,000. Those who go to medical or pharmacy school also have similarly huge debt balances of $180,000 and $160,000, respectively. And veterinarians and lawyers end up with $140,000 in loans on average.
Debt of this magnitude can take a long time to pay off, so make sure youâ€™re confident in your career choice before borrowing this much. Whatâ€™s more, do some research on post-graduation outcomes at your school of choice and possible incomes for your career.
If you end up with a high income, youâ€™ll have an easier time paying off all this debt. Alternatively, you might work in an underserved area for a few years to qualify for loan repayment assistance. Whatever you choose, make sure youâ€™ve thought through your decision to borrow.
When it comes to graduate school, you want to make sure your investment is worth the cost.
Maybe youâ€™ve thought through the return on investment you expect from graduate school, and youâ€™ve decided you might be interested in taking out a private student loan to finance your degree. But before signing any paperwork, read through these five common questions about private loans for grad school to make sure you have a full understanding of what youâ€™re taking on.
While federal loans are issued by the federal government, private student loans are provided by private financial institutions, such as banks, credit unions or online lenders. Each lender sets its own terms and conditions, and your offer will vary, depending on who you borrow from.
Thatâ€™s why itâ€™s important to research multiple lenders before borrowing. By shopping around, you can find a private student loan with the best terms and lowest costs of borrowing.
Private loans can be a useful tool for covering the costs of grad school, but theyâ€™re not your only option. As a graduate student, you can borrow direct loans from the federal government in the amount of $20,500 per year.
Direct loans are probably your best loan option, since they come with relatively low interest rates of 6.6% and have a variety of federal student loan repayment plans, such as income-driven repayment and deferment.
But if you need additional money, you might want to compare the other federal option â€” grad PLUS loans â€” with private ones.
With a grad PLUS loan, you can borrow up to the full cost of attendance of your school. Youâ€™ll need to prove you donâ€™t have an adverse credit history â€” if you do, you may have to apply with a creditworthy endorser â€” but otherwise, you donâ€™t need to pass a credit or income check.
On the other hand, grad PLUS loans arenâ€™t always so competitive when it comes to interest rates. As of May 1, 2019, grad PLUS loans had a fixed rate of 7.6% and an origination fee of 4.248%. But on that same date, Citizens Bank, for example, offered variable rates starting at 3.00% and fixed rates starting at 3.89%, while College Ave Student Loans had variable rates from 4.07% and fixed rates from 5.29%. If you can get those rates, private loans might be a superior option to grad PLUS loans.
Then again, private loans typically donâ€™t come with as many borrower protections as federal ones. So consider what your priorities are â€” whether itâ€™s finding the lowest rate or accessing income-driven repayment plans, for example â€” and let those point you in the right direction.
Private lenders set their own underwriting requirements for their loans, looking at your credit and income to make sure you have the means to pay back your loans. Without these financial credentials, youâ€™ll have a hard time qualifying on your own.
To boost your chances, you could apply with a creditworthy cosigner. Note, however, that your cosigner becomes just as responsible for the debt as you are. Late payments could drag down their credit, for instance, and could lead to a host of bad consequences for both of you.
Make sure you and your cosigner are on the same page about whoâ€™s paying back the loan before entering into a loan contract together. Whether you apply on your own or with a cosigner, having strong financial credentials will help you get the best rates.
Rates and terms vary by lender, which is why itâ€™s so useful to shop around. We have a few recommendations for lenders that offer competitive rates and strong customer service. But itâ€™s always good to compare offers so you make sure your private loan checks all your boxes.
Most private lenders let you borrow up to the full cost of attendance of your school, but some set lower annual limits. Others might set a cap on your aggregate loan amount, which includes loans from other sources.
If youâ€™re looking to borrow a large amount, make sure your lender will go up to the maximum you need. And remember that you canâ€™t borrow for all four years at once, but instead, will need to reapply year after year.
When you take out a private student loan, youâ€™ll usually get to choose your repayment term. Most range from five to 15 years.
Unlike federal loans, you may or may not have a grace period while youâ€™re in school. Some private lenders require you to start paying right away, and others ask for small payments while youâ€™re in school.
Although expectations will vary, here are the most common in-school repayment options youâ€™ll find for private graduate student loans:
As for repayment after you leave school, private lenders donâ€™t generally offer the same range of options as the federal government does. You probably wonâ€™t find income-driven repayment, graduated repayment, or extended repayment. Some lenders will let you postpone payments through forbearance or deferment, but this depends on the lender.
For the most part, the term you choose is the one youâ€™re stuck with, so be thoughtful about selecting your repayment plan. Your only other option for changing it would be to refinance your student loans.
When you refinance, you can choose new repayment terms, as well as potentially get a lower interest rate. And if your variable rates have been increasing, you could switch to a fixed one for peace of mind.
As with most debt, private student loans have both advantages and disadvantages. Here are a few to keep in mind before you decide.
Private loans for graduate students can help fill any funding gap and allow you to attend your school of choice. But be careful not to borrow too much, or you could face an overwhelming mountain of debt upon graduation.
And make sure youâ€™re clear on all the details of private loans for grad school, so youâ€™re not caught unaware by an increasing interest rate or a student loan bill while youâ€™re still in school. By researching your options â€” and shopping around for the best rate â€” you can make an informed decision about how to finance your grad school education.