Both undergrad and graduate students looking to finance their education commonly choose to take out a loan. However, if you’re considering grad school, it’s important to understand that there are several key differences between graduate and undergraduate student loans. Most notably, graduate loans are never subsidized—unlike their undergrad counterparts—and usually have higher interest rates. Additionally, you should explore both private and federal loans and choose the best option for your financial situation. As with any educational pursuit, it’s best to exhaust other resources—such as grants and scholarships—before pursuing a loan.
Many students don’t think about the ensuing debt they will amass after receiving a degree, leaving many individuals unable to make their minimum payments. If you are struggling to make your minimum payments, it’s important to seek professional guidance on the best way to handle or restructure your loans. Going into default should be avoided at all costs, as it can significantly impact your credit score and your ability to qualify for loans in the future. Outlined below is a quick look at some of the most important factors grad students should consider when exploring loan options in Arizona.
What Are the Types of Student Loans Available to Graduate Students?
Just like undergrad students, grad students can either take out a federal or private loan to pay for school. One of the biggest differences between undergrad and graduate loans is that there aren’t any subsidized loans available to grad students, meaning loans are not available on the basis of need. There are two kinds of federal loans graduate students qualify for:
- Stafford Loans. These are unsubsidized loans with a variable interest rate adjusted annually on July 1. However, the interest rate on these loans never exceeds 8.25%. Through a Stafford loan, you can receive up to $20,500 annually.
- Grad Plus Loan. These loans allow you to borrow up to the full cost of tuition for your graduate program. To qualify, you’ll need to have a good credit score and be in attendance at a qualifying school. These loans have a fixed interest rate and flexible loan limits; for the 2020-2021 academic year, the interest rate is 5.30% on Plus loans. One drawback to these loans is that they have a stiff origination fee of 4.228%.
In general, it’s best to pursue federal loan options before exploring private alternatives. However, both have key advantages and disadvantages depending on a student’s financial situation. To choose the best loan for your grad school education, it’s essential to fully assess your finances and pick the loan that is best for your unique circumstances.
Federal Loans Vs. Private Loans for Grad School
Federal loans tend to have better repayment terms and interest rates than those offered through private lenders (banks, credit unions, and other financial service companies.) They are available at both fixed and variable interest rates, which are almost always set higher than federal loan options. Additionally, the federal loans available to grad students discussed above have deferment options, meaning you can choose to not pay the loan while you’re in school. Private loans do not have this option.
Private loans are credit-based, meaning if you have a really great credit score you can potentially borrow more money at a better rate than that offered by some of the federal options. One of the key drawbacks to federal loans are borrowing limits, but with private loans, there are virtually no limits on the amount you can borrow. Additionally, federal loans have origination fees. Specifically, the Plus loan’s steep origination fee of 4.228% could be avoided with a private loan.
What Are the Differences Between Grad School and Undergrad Loans?
If you’re considering grad school, it’s equally important to understand the differences between undergrad and grad school loans. Some of the biggest differences between the two include:
- Higher interest rates: Interest rates on grad school loans are significantly higher than those on undergrad loans. For example, federal grad school loans tend to waver between 6-7% while the interest rate of most undergrad federal student loans tends to stay below 4.5%. These numbers change annually, but you can usually almost count on paying more in interest as a grad student.
- All loans are unsubsidized: As an undergrad, you are eligible for subsidized federal loans; interest does not accrue on these loans while you’re a full-time student. Conversely, in grad school, these loans are unavailable, meaning interest will start accruing the moment you receive your loan.
- Increased borrowing limits: As a grad student, you can borrow more money in federal loans than undergrads. Undergrad students are usually only eligible to borrow $5,500-$12,500 per year in federal loans. However, grad students can borrow up to the full cost of their tuition through the Plus loan. While this may seem appealing, the combination of higher borrowing limits and interest rates can cause grad students to quickly accumulate a lot of debt.
These are a few of the key differences between the federal loans available to grad and undergrad students. It’s important to note that if you are going into a grad program with leftover debt from undergrad, the interest will continue to accrue if your undergrad loans were unsubsidized. Conversely, if your undergrad loans were subsidized, the interest will pause while you’re in graduate school.
What Are the Similarities Between Graduate and Undergraduate Student Loans?
Federal undergrad and graduate loans share a few key similarities:
- You won’t need to start repaying the loan until you’re no longer enrolled as a full-time student. However, interest will continue to accrue (for grad students) in the meantime.
- You won’t have to complete a credit check to receive a loan. All you need to do is fill out a FAFSA.
- You may be able to qualify for income-driven repayment plans if your salary makes it too hard for you to make the minimum payments.
- If you work in certain qualifying fields, you may be eligible for federal loan forgiveness. However, grad students typically have to make more qualifying payments than undergrad students to be eligible.
Pursuing a graduate degree should be exciting. However, if you’re in a stressful financial situation, it can be hard to choose the best loan path for your situation. Working with a skilled student loan lawyer is a great way to ensure you enter a loan with favorable terms.
Consult a Skilled Student Loan Lawyer
If you are struggling to figure out the best strategy for paying off your student loans, learn about the various programs you can take advantage of. Working with a skilled student loan lawyer is a great way to understand all your options and pick the best repayment plan for your situation.
At McCarthy Law, our attorneys are dedicated to helping students navigate the complexities of the student loan system. Under our student loan debt settlement program, our licensed attorneys negotiate with lenders to ensure our clients pay only a fraction of their original loan balance. To schedule a consultation with one of our skilled student loan settlement attorneys, call (855) 976-5777 or fill out our online contact form.
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