Understanding Graduate Student Loans

As a graduate student, you may be juggling both a career and your studies. It can be hard to find the time to understand the financial aid process. Realize that the decisions that you make today can have a huge impact on your financial future. That's why it's important to review all of your financial aid options and study the various types of graduate student loans before making your decision. Check out our Financial Planning section to learn about more financial aid options for graduates.

Is there anything I should do before taking out graduate loans?

The first thing you should do is look for free money, like grants or scholarships. Once you fill out the FAFSA, the financial aid award letter that you get from your school will detail any scholarships or grants that were awarded to you. You can also apply for additional scholarships available through your school, your workplace and in your community. Depending on your field of study, you may also be able to apply for special fellowships and grants.

Are private graduate loans for me?

That depends on your situation. Many graduate students don't know that they are eligible for increased federal loan limits. You can borrow up to $20,500 per year in federal Stafford loans; $40,500 for certain medical professionals, like doctors. Federal graduate loans should always be maximized before using private graduate loans. If your degree and living expenses aren't met by federal loans and any cash or savings you plan on using, you can consider private graduate loans. You should also check with your employer to see if there is a tuition reimbursement plan available.

What are the types of graduate student loans?

There are basically 2 types of graduate student loans:

1. Federal graduate loans
   The Federal Stafford Loan has increased borrowing limits for graduates, a fixed interest rate of 6.8% for the 08/09 school year, and some great deferment benefits in case you ever run into financial hardship. Graduate Stafford Loans should always be used before considering private graduate loans. Federal Stafford Loans have an origination fee of up to 4%.
   Graduate students can now access the Federal Grad PLUS Loan, which can cover up to the total cost of attendance minus any other aid you have received. The Grad PLUS Loan was designed to be used once you have maximized your Federal Stafford Loan funds. The Grad PLUS Loan has a fixed interest rate of 8.5% and an origination fee of up to 4%.
2. Private graduate loans
   Private graduate loans can cover your school and living expenses after you have maximized free money (scholarships, grants, tuition reimbursement) and federal loans. Private graduate loans were built with you in mind - there are little or no payments until you are finished with school. In addition, private graduate loans are often less expensive than credit cards or personal loans.

Private graduate loans are credit based. Depending on your income and credit history, you may qualify for the loan on your own. In today's financial environment, don't be surprised if you are asked to obtain a credit-worthy co-signer. The interest rate on private graduate loans is generally variable. If you currently have a good income and credit history, you can apply for a private graduate loan to see if your rate and fees will be better than the Grad PLUS Loan (8.5% fixed interest rate, origination fee of up to 4%). If you are not working, or do not have a strong credit history, the Grad PLUS Loan is probably your best option. Both federal graduate loans and private graduate loans can be tax deductible.