Graduate Student Loans: Compare Federal and Private Options

Grad school is expensive, and most people have to borrow in order to be able to afford to attend. If you are considering attending grad school, it will be important for you to ensure you can qualify for loans on favorable terms as well as other sources of financial aid.

This guide to graduate student loans will help you understand the kind of federal loans you could obtain through filling out your FAFSA and will also provide insight into other loans you can obtain, including private loans.

In this guide:

• Federal Graduate Student Loans
• Federal Loan Benefits and Drawbacks
• Repayment on Federal Graduate School Loans
• Private Graduate Student Loans
• Private Loan Benefits and Drawbacks
• Repayment on Private Graduate School Loans

Federal Graduate Student Loans

To become eligible for federal loans, you need to fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA is required to gain access to loans from the Department of Education, as well as to obtain many types of grants and scholarships provided by the government or your school.

Filling out the FAFSA as soon as you can is important because some sources of aid are limited and may be gone if you wait. You also don’t want to pass those up, because federal loans come with borrower protections private loans don’t offer.

The FAFSA becomes available in October each year and can be completed any time over an 18-month period until June of the following year. So, for the 2019 to 2020 school year, the FAFSA can first be filled out on Oct. 1, 2018, and the latest it can be completed is June 30, 2020. It can be completed at the Federal Student Aid website, and you’ll need financial information about income and assets when completing the form.

Grad students have a choice of two different types of federal student loans to help cover graduate school costs. These are:

Direct Unsubsidized Loans

While undergrads can obtain Direct Subsidized and Direct Unsubsidized Loans, grad students are restricted only to Unsubsidized Loans. This means the government does not pay interest on the loans while you’re in school or in deferment after graduating.

Direct Unsubsidized Loans still have favorable loan terms, including a low fixed interest rate. Before you borrow, you need to understand all of these key loan terms:

• Graduate students can borrow a maximum of $20,500 per year in Unsubsidized Loans. And the maximum aggregate limit for both subsidized and unsubsidized loans, including for undergrad and grad loans, is $138,500.
• To be eligible, grad students must be enrolled at least half-time in an academic program that confers a degree or certification and that participates in the Direct Loan Program. You also must complete the FAFSA.
• The interest rate for loans disbursed between July 1, 2018, and July 1, 2019, is 6.6% for graduate or professional students.
• For loans distributed between Oct. 1, 2018, and Oct. 1, 2019, there is a 1.062% loan origination fee.

Your credit score is not a factor when your eligibility for Direct Unsubsidized Loans is determined.

Direct PLUS Loans

PLUS Loans for graduate students are another option for students seeking federal loans. However, they have different rules and eligibility requirements than Direct Loans.

• The maximum PLUS loan amount you can borrow equals the cost of attendance at your graduate or professional program minus any other sources of financial aid, such as Direct Unsubsidized Loans, scholarships, and grants.
• To be eligible, graduate or professional students must be enrolled at least half time in a program that will lead to a graduate degree, professional degree, or certificate. You also can’t have an adverse credit history, and you must meet the general requirements associated with getting financial aid.
• For loans distributed between July 1, 2018, and July 1, 2019, the interest rate for Direct PLUS loans is 7.6%.
• There is an origination fee of 4.248% for loans distributed after Oct. 1, 2018, and before Oct. 1, 2019.

It’s important to note that you cannot qualify for Direct PLUS loans with bad credit, unlike Unsubsidized Loans. The interest rate and origination fees are also fixed, as with Unsubsidized Loans, but the relatively high rate and fees mean that sometimes private student loans are more affordable.

Perkins Loans

Students used to be able to obtain loans through the Federal Perkins Loan Program. However, federal laws changed recently, and schools no longer have authority to make new Perkins Loans after Sept. 30, 2017.

That means that while Perkins Loans could be disbursed through June 30, 2018, under the law, graduate students who didn’t already have Perkins Loans authorized could no longer obtain this source of funding.

Federal Graduate Student Loan Benefits and Drawbacks

There are both advantages and disadvantages to funding your graduate school with federal student loans.

Benefits of Federal Student Loans

Key benefits include the following:

• Rates and fees are fixed: You don’t have to worry about shopping around with lots of different lenders. You just fill out the FAFSA and are offered loans at a set rate determined by the government.
• You have flexibility in repayment options: You can choose from many different payment plans after graduation, including some income-based plans.
• You enjoy many borrower protections: You may be eligible for Public Service Loan Forgiveness with federal loans. You also have more options for putting your loans into deferment or forbearance for longer periods of time if you face financial hardship.

Drawbacks of Federal Student Loans

There are also some drawbacks of federal loans to consider as well.

• You may be limited in the amount you can borrow. If you’re seeking only Direct Subsidized Loans, there are strict limits, and you may not be able to borrow enough to fund your education.
• You have to pay origination fees. Many private lenders offer private loans that don’t have this up-front fee to pay.
• You have no choice in loan servicers. You’ll be assigned a servicer by the Department of Education. With private loans, on the other hand, you can shop around and find a lender that has a good track record of providing top-notch customer service.

Federal Graduate School Loan Repayment

When it comes to federal student loans, you have multiple choices of repayment plans, including the following:

• Standard repayment plan: Loans are repaid over 10 years on a fixed repayment schedule.
• Graduated repayment plan: Loans are repaid over 10 years (or up to 30 years if you consolidate your loans), and payments increase every two years.
• Extended repayment plan: You can either chose from a fixed or graduated repayment schedule, and your loans are repaid over 25 years.
• REPAYE: Payments are capped at 10% of discretionary income. Any outstanding balance on your loans is forgiven after 25 years of payments if you took out loans for grad school.
• PAYE: Monthly payments are capped at 10% of discretionary income, but the payment can’t exceed the amount you’d have paid under the standard repayment schedule. Any outstanding balance on your loans is forgiven after 20 years of payments.
• Income-Based Repayment: Payments are capped at either 10% or 15% of monthly income, and any outstanding balance on your loans is forgiven after 25 years.
• Income Contingent Repayment: Monthly payments equal the lesser of 20% of discretionary income or the amount you’d pay on a fixed payment schedule over 12 years. Any outstanding loan balance is forgiven after 25 years.
• Income-Sensitive Repayment: Monthly payment is based on annual income, but your loan is repaid in 15 years.

Many of these repayment plans have specific qualifying requirements you will need to meet, so be sure to talk with your loan servicer to choose the right one.

Private Graduate Student Loans

Unlike federal student loans, private student loans don’t just come from one source, and they don’t have one fixed interest rate. There are tons of lenders offering private loans to grad students, including banks, credit unions, and online lenders. There is a lot of variation in rates and terms, so you should shop around carefully to make sure you’ve found the best lender for your needs.

Here are a few private lenders that offer both graduate school loans as well as loans focused on helping students pursuing healthcare degrees to cover their educational costs.

Private Graduate School Loans

Here are a few key options for graduate student loans:

• Discover offers student loans with no origination fees. You could choose from a fixed rate loan with a rate between 5.99% and 13.99% APR or a variable rate loan with a rate between 4.49% and 13.49%. You can borrow a minimum of $1,000, and the maximum you can borrow is your school’s certified cost of attendance minus other financial aid funding. You must be enrolled at least half time, be making satisfactory academic progress, be at least 16 and a U.S. citizen, and pass a credit check.
• Sallie Mae provides student loans with variable rates from 4.87% to 10.23%. You could also obtain a fixed rate loan with rates between 6.25% and 10.23% APR. You can borrow up to the amount of your school-certified costs. To be eligible, you’ll need to attend a participating school, be a U.S. citizen or permanent resident, and pass a credit check.
• College Ave offers student loans for graduate school with variable rates starting between 4.07% and 9.37% or fixed rate loans with rates between 5.29% and 10.45%. There are no fees to apply, and you can borrow as much as the school-certified cost of attending your graduate program. You need to pass a credit check, be a U.S. citizen, and be working towards a degree with a participating institution.

Healthcare Student Loans

Students going to post-grad school to pursue healthcare specialties also have many loan options, including the following:

• Sallie Mae Health Professionals Graduate Loans: These loans are open to students pursuing a graduate-level health degree. You can borrow up to 100% of school-certified expenses. You have a choice of a variable rate loan with a starting rate between 4.87% and 10.23% or a fixed rate loan with a rate of 6.25% to 10.23%.
• Discover Health Professional Loans: These zero-fee loans are available for up to the school-certified costs of your graduate-level school. You’ll have your choice of a fixed rate loan with rates between 5.99% and 11.99% or a variable rate loan with a starting rate between 4.49% and 10.99% APR. Loans are available to students in a wide variety of fields, including nursing, occupational therapy, pharmacy, veterinary medicine, and physician assistant.
• MedCAP Loans from Wells Fargo: MedCAP loans are intended for grad students in medical school, nursing school, dental school, or other health-related programs. There are no origination or application fees, and you have a choice of fixed rate loans with rates between 6.66% and 10.18% or variable rate loans with starting rates between 5.52% and 9.97%.

Private Graduate Student Loan Benefits and Drawbacks

There are both pros and cons to consider when using private student loans.

Benefits of Private Student Loans

Benefits of private loans include the following:

• No origination fees: Unlike Direct Loans and PLUS loans, many private lenders charge no origination fees.
• Flexibility in loan terms: You can choose from among many different lenders, each offering different loan terms.
• You may be able to borrow more than with federal loans: While there are annual and aggregate limits on Direct Loans, many private lenders allow you to borrow larger sums, up to the school-certified costs of attending your program.

Drawbacks of Private Student Loans

There are also some disadvantages of private student loans to consider, including the following downsides:

• You don’t have as many borrower protections: You can only put loans into forbearance with some private lenders, and only for a much more limited time period than with federal loans. You also don’t have access to programs such as Public Service Loan Forgiveness.
• Not all lenders are created equal: It’s much more important to shop around when choosing a private student lender, as some lenders offer much more favorable terms than others.
• You’re locked into a repayment schedule: Once you’ve taken out a private loan, you can’t change the repayment terms you agreed to unless you refinance the loan.

Private Graduate School Loan Repayment

When you repay private student loans, your repayment terms will vary by lender. Many private lenders offer five-, 10-, or 15- year repayment terms. Your payments are always structured to allow you to pay off your loan by the end of the loan term. There are no options for income-based repayment or loan forgiveness.

And while you can change your payment plan with federal student loans, you can’t just switch payment plans or change your loan term once you’ve taken out a loan. If you want to change the way you pay back private loans, you would have to refinance your loan.

You Have Many Options for Grad School Loans

As you can see, you have multiple options for grad school loans, each with their own pros and cons. Be sure to understand qualifying requirements and loan terms before you decide how to borrow — and know how you’ll pay back your loan to ensure it is affordable on your salary after graduation.