For most graduate students, it’s probably no surprise that higher education can be expensive. However, many students will be surprised to find that paying for graduate studies can be even more difficult than paying for undergraduate studies, as there are usually fewer resources like scholarships and grants available for graduate students.
Many graduate students will need to use student loans to cover some or all of their program costs, even if they did not need to borrow for their undergraduate studies. For students who are not careful, graduate student debt can spiral out of control.
One option that many graduate students turn to is the Federal Grad PLUS Loan, which covers up to the full cost of graduate study, including living expenses, minus any other financial aid. Although the Grad PLUS loan has relatively high borrowing limits, it also has a high fixed interest rate and high fees, so it is important to be informed and careful when considering this loan.
Whether you need to borrow to pay for college or vocational school like medicine or law, an informed borrowing can help save you a lot of money over time. Here are four costly mistakes to avoid:
- Don’t use up unsubsidized federal student loans first.
- Don’t compare interest rates.
- Do not pay interest while studying.
It’s important not to borrow more than you can afford to repay, and you shouldn’t borrow more than you absolutely need. This means that you shouldn’t automatically borrow the full cost of the attendance, and you should only accept what you need. If there’s room in your budget, you can borrow less than what is offered.
The Consumer Financial Protection Bureau “financial path to graduation is a free online resource that can help you understand a school’s financial aid offer, create a plan to pay off any remaining costs, and assess how much debt you can afford to pay off.
If you find later in the semester that you haven’t borrowed enough, you can always choose to borrow more based on your remaining eligibility.
Don’t Deplete Unsubsidized Federal Student Loans First
Federal direct student loans should always be your first choice when borrowing to finance higher education, but not all have the same terms.
Direct unsubsidized federal student loans have the lowest interest rates among federal student loans, which for graduate students is currently 5.28% for those taken out on or after July 1, 2021 and before July 1, 2022, plus a 1.057% creation fee for these. taken out on or after October 1, 2020 and before October 1, 2022. Graduate students are entitled to up to $ 20,500 per year under these loans.
Grad students can also borrow Federal Grad PLUS Loans, which carry a higher interest rate of 6.28% for loans taken out on or after July 1, 2021 and before July 1, 2022, and higher origination fees. at 4.228% for those taken out on or after October 1, 2021 and before October 1, 2022. Graduate students can borrow up to the cost of attendance less other aid from these loans, but they are not the least option Dear.
The Free Federal Student Aid Application, commonly known as FAFSA, determines eligibility for federal student loans. Once you have submitted the form and your eligibility is approved, you will be eligible to borrow unsubsidized federal loans.
Note that neither subsidized student loans, on which the federal government pays interest while the student is in school and in some other cases, nor federal Pell grants are available to graduate and professional students.
Don’t compare interest rates
After exhausting federal unsubsidized loans, graduate student borrowers can compare interest rates in the private market before automatically accepting Grad PLUS loans. Borrowers can often find cheaper interest rates and no origination fees, which can save them money over time.
Additionally, graduate students may have more established credit histories than undergraduates and can often take out these loans without the need for a co-signer. A credit check is required when applying for a Grad PLUS loan, but there are exceptions if you have an adverse credit history, such as obtaining an endorser.
Be sure to review several loan options and compare interest rates and terms to determine the best option for your personal situation. Be aware that private student loans variable rates allow interest to fluctuate over time, so while the rate may be low initially, it is likely to change over time and could be much higher afterwards.
One option to consider is borrowing from a nonprofit or state organization, as these lenders follow a strong set of consumer protections and offer fixed interest rate loan options with low or low set-up fees. zero. You can find nonprofit loan options in your specific state at ForYouNotForProfit.org.
Borrowers should be aware that some federal student loan repayment benefits, such as public service loan forgiveness and federal income-tested repayment plans, are not available for private loans.
Do not pay interest while studying
Keep in mind that interest accumulates on federal and private loans while you are enrolled in school.
After graduation, the accrued interest will be added to the loan principal, which can make a loan even more expensive. Once the interest is part of the principal, which is called compounding, you will pay interest on the interest. Making interest payments only while in school can help keep costs down.