Graduate School: Types of Student Loans to Consider

There are plenty of resources dealing with how students and/or their parents can obtain financing for undergraduate education.

But, far fewer are available for those looking to finance graduate or professional school.

We’re going to look specifically at the types of student loans available for graduate school.

Much as is the case with loans for undergraduate education, graduate school can be financed by either federal or private student loans.

Federal Student Loans

The federal government has several loan programs available for graduate students.

Those include Direct Unsubsidized Loans, Grad PLUS Loans, and Parent PLUS Loans, each of which will be detailed in the following sections.

Please be aware that Direct Subsidized Loans are available only for undergraduate education, not for graduate school attendance.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are available for graduate or professional students.

The annual loan limit is $20,500.

The aggregate loan limit is $138,500 including all federal loans received for undergraduate study. However, no more than $65,500 of the total may be in the form of subsidized loans (incurred during undergraduate attendance).

To qualify, you must be enrolled at least half-time at a school that participates in the Direct Loan Program, in a program that leads to a degree or certificate. You are not required to show financial need to be eligible for this loan type.

Loan terms can run between 10 and 25 years depending on the repayment plan you choose.

You’ll be responsible to begin making payments after you graduate, leave school, or your attendance falls below half-time. That will be followed by a six-month grace period, after which payments will be due on a monthly basis.

Eligibility also requires US citizenship, though certain noncitizens may also be eligible. The program is available in all 50 states.

Loans are fixed rate only with a current rate of 6.08%, and an origination fee of approximately 1.06. No variable rate loans are available. No credit check will be performed, and no interest is due during the deferment period.

To apply for a Direct Unsubsidized Loan, you must complete and submit the Free Application for Federal Student Aid (FAFSA) form. Your school will use the information from the completed application to determine your loan eligibility. Direct Loans are generally included as part of your financial aid package.

Grad PLUS Loans

Grad PLUS Loans are specifically for eligible graduate or professional students attending schools participating in Federal Direct Loans.

To be eligible, you must be a graduate or professional student enrolled at least half-time at a participating school offering a graduate or professional degree or a certificate.

You must also meet the general eligibility requirements for federal student aid. In addition, you will be credit-qualified for the loan.

Otherwise, you’ll need to have an acceptable co-borrower or documentation proving that your adverse credit history is due to extenuating circumstances.

The current interest rate on Grad PLUS Loans is 7.08%, with an origination fee of 4.236% of the loan amount.

Depending on the plan you select, loan terms can run from 10 to 25 years. Payments are automatically deferred as long as you’re enrolled at least half-time, as well as for a six month grace period after leaving school.

You must be a US citizen or eligible noncitizen. The program is available in all 50 states. The maximum loan amount is your cost of attendance as determined by the school, less any financial assistance you receive.

To apply for a Grad Plus Loan you’ll need to have completed a FAFSA application, though most schools will require you to submit a PLUS loan application online.

Parent PLUS Loans

Parent PLUS Loans work like Grad PLUS Loans, except the loans are taken by the parents of the attending student. It’s a Direct PLUS Loan referred to as a Parent PLUS Loan when a parent is the borrower.

It’s a Direct PLUS Loan referred to as a Parent PLUS Loan when a parent is the borrower.

To qualify:

You must be the biological or adoptive parent, though in some cases you can also be the stepparent of the attending student.

A grandparent can be eligible if he or she has legally adopted the student, otherwise they’re eligible. Applicants must have an acceptable credit history, or provide proof that their adverse credit was due to extenuating circumstances.

The pricing is the same as it is for Grad PLUS Loans, with an interest rate of 7.08%, and an origination fee of 4.236% of the loan amount. Terms range between 10 and 25 years, and payments are automatically deferred while the student is enrolled in school and during the six-month grace period following.

The loan amount is the cost of attendance for the program, less any other financial assistance received.

The application process is similar to the Grad Plus Loan. You’ll need to have completed a FAFSA application, though most schools will require you to submit a PLUS loan application online.

Private Loans

There are a large and growing number of private student loan providers for graduate school. Many banks and even more credit unions offer student loans for both undergraduates and graduates. As you might expect, the terms, loan amounts, and pricing of private student loans are different than that of federal student loans.

Let’s look at three of the most popular sources of private loans for graduate school.

SoFi

SoFi has grown rapidly in recent years to become one of the leading providers of private student loans, both for in-school attendance and refinancing.

They offer three types of loans:

• Graduate Loans
• Law & MBA Loans
• Parent Loans

In each case, SoFi will lend up to 100% of the school certified cost of attendance, including tuition, room and board, meals, books and supplies, transportation and personal expenses. Loan terms are five, 10 or 15 years.

To qualify, you’ll need to provide your Social Security number, school information, proof of income, and the amount of the loan you’re requesting.

You can also add a cosigner to your loan application if one is needed to qualify. You must be enrolled in a degree program at an eligible school and attend at least half-time.

Graduate and Law & MBA Loans offer four different repayment plans while you’re in school. You can defer payments of principal and interest while you’re in school, and for six months after you finish.

Alternatively, you can pay the interest portion on your loan as a way to prevent it from being added to the loan. You can also make partial payments of as little as $25 per month. And if you have the resources, you can also begin making full payments immediately.

And perhaps best of all, there are no fees at all. That means no application, origination, or late fees.

Graduate Loans

Standard fixed-rate loans with attractively-low rates.

Law Schools & MBA Student Loans

These loans are available specifically if you are attending law school or an MBA program.

Parent Student Loans

These work much like the other two graduate loan programs, except they’re taken by the parent of a qualifying graduate student.

The main difference is that there are only two repayment options.

You can either pay interest only while your student is in school, or begin making full payments immediately.

There is no payment deferment. 

Commonbond

Commonbond offers Graduate, MBA, Dental and Medical School loans. With each loan, there’s no prepayment penalty, and you’ll also have the option to postpone your payments for up to 12 months over the life of your loan. If you use a cosigner, you’ll have the option to take advantage of a cosigner release.

Loan amounts are available from a minimum of $2,000 up to the total cost of your schooling, with an absolute maximum of $500,000. Loan terms range from 5 to 15 years. The minimum credit score required is 660.

Deferral is available while you’re in school, and for a six-month grace period thereafter.

Graduate Loans

Available in fixed rates from 5.40% to 9.74%, and variable rates from 1.33% to 7.41%. A cosigner is required on this loan type.

MBA Loans

Available in fixed rates between 5.37% and 7.20%, and variable rates between 3.15% and 4.87%. If you’re attending an eligible program and meet the criteria, no cosigner will be required

Dental Loans

Available in fixed rates between 5.33% and 6.98%, and variable rates between 3.23% and 4.87%.

Medical Loans

Available in fixed rates from 5.56% to 6.76%, and variable rates ranging from 3.46% to 4.64%.

These loans require no cosigner, and if you’re in a verified residency program you can make monthly payments as low as $100.

College Ave

College Ave has loans available for postgraduate, Masters, doctoral or professional degrees. Loan terms are available for five, eight, 10 and 15 years. Fixed-rate loans range from 4.39% to 11.98%, and variable rates from 1.79% to 10.97%. There are no origination fees.

There are four payment options. You can defer payments while you’re in school, with interest added to the principal balance upon graduation. You can also make interest-only payments while you’re in school to avoid increasing the principal balance. You can also make flat payments of $25 each month to reduce the interests accruing on the loan. And finally, you can begin immediately repaying both principal and interest.

To qualify, you must be enrolled in a degree program and attending classes full-time, half-time or even less than half-time at an eligible school. You can borrow up to 100% of school certified attendance costs, but there is a minimum of $1,000.

You can apply online, and add an eligible cosigner if necessary to get a loan approval.

Tips for Prospective Grad Students

You’ll need to decide whether a federal student loan or a private student loan will work best for you.

In making that decision, consider the following:

• Private student loans are typically available for higher loan amounts.
• Federal loans require the payment of an origination fee, private student loans generally don’t.
• While private student loans offer some type of limited forbearance in the event of a financial crisis, federal student loans have better relief plans. For example they offer Income Driven Repayment Plans to lower your monthly payment and the Public Service Loan Forgiveness plan that can eliminate your debt entirely after 10 years of employment in public service.
• Federal loans have longer repayment terms, which can result in lower monthly payments. Terms extend up to 25 years, compared to a typical maximum of 15 years for private loans.
• While private loans can be discharged in bankruptcy, federal student loans generally cannot.

Apart from the federal student loan vs. private student loan consideration, you should also carefully examine the merits of fixed-rate loans versus variable.

• Variable rate loans typically have lower initial interest rates than fixed rates.
• But variable rates are just that – variable – and can fluctuate dramatically over the life of the loan.
• Variable rate loans may work if you are in an occupation where you anticipate a rapid increase in your annual salary. Fixed rates may be the better choice if your salary is likely to be more constant.

As is the case with any type of financing, the first best strategy is to minimize the amount borrowed by any means possible.

Even if you must take a loan for your graduate education, the less you need to borrow, the easier your life will be after graduation.