GRADUATE STUDENT LOANS

For most borrowers, taking out federal student loans first can be a wise choice. These loans come with added borrower benefits, including standardized interest rates, income-driven repayment (IDR) plans, forgiveness programs, and more relaxed deferment and forbearance. Also, only federal loans are eligible for the COVID-19 student loan payment pause.

That said, borrowers with good credit and a reliable income may find lower interest rates and fees with private loans. For example, federal Grad PLUS Loans had a rate of 7.54% and an origination fee of 4.228% for the 2022-23 school year. But rates for private loans can start below 5.00%, and many lenders don’t charge an origination fee. If you can qualify for the best rates with a private lender, it could offer significant savings over federal loans.

Grad students can access two types of federal student loans:

• Direct Unsubsidized Loans: These loans had a 6.54% interest rate and a 1.057% origination fee for the 2022-23 school year. Graduate students can borrow up to $20,500 per year, and $138,500 total (including undergrad loans).
• Grad PLUS Loans: These loans had a fixed interest rate of 7.54% and an origination fee of 4.228% for the 2022-23 school year. You can borrow up to your school’s certified cost of attendance, but if you have an adverse credit history — such as a foreclosure or wage garnishment in the last five years — there are additional requirements to qualify for this loan.

To access federal student loans, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA) as soon as it becomes available on October 1 annually. This will not only determine which federal loans you qualify for, but it will also help you access other aid, such as work-study programs or federal and state-based grants.

It’s also a good idea to apply for scholarships (and perhaps take on a part-time job or paid internship) to minimize the amount you have to borrow. If you still need more funding after exhausting these options, a private student loan could help fill that gap.

You can use graduate school loans to pay for living expenses, including dorm fees, off-campus rent, utilities, food, transportation, and miscellaneous personal items. It’s wise to only spend your loan money on necessities, since you’ll have to repay it all with added interest. If you purchase luxuries like a vacation, event tickets, or a new TV, make sure that’s coming out of your savings or other income.

If you discover you have extra loan money after covering your needs, consider returning the cash to your lender or loan servicer. That way, you’re not stuck paying interest on money you didn’t really need.

Merit-based scholarships offer educational funding that doesn’t need to be repaid. These are awarded based on your accomplishments, such as a high GPA, a stellar sports record, or commendable community service. You might also look for need-based awards, which are based on your economic background and financial need.

Either way, searching for scholarships that align with your identity (such as your gender, race, or military status) is usually a good place to start since it narrows the field of applicants.

You could also search for a part-time or full-time job. That will take time away from your studies, but could lower your debt burden while offering you some extra spending money. Weigh the pros and cons to determine if it’s the right move for you.

Graduate students can benefit from the following federal student loan perks:

• Fixed interest rates: Federal loans come with fixed rates, so your rate remains the same over the life of your loan. Federal loan rates are also standardized, so everyone who qualifies in the same year pays the same rate, regardless of your credit.
• Federal protections: Federal loans come with special protections such as forgiveness opportunities and more flexible hardship programs, if you have trouble repaying your debt. The protections on private loans are set by each lender, and generally aren’t as generous as federal options.
• Multiple repayment options: Most federal loans come with several repayment options, including income-driven plans. These set your loan payments at a percentage of your discretionary income, and your payments can be as low as $0 per month. Few private lenders offer income-based repayment options.

While federal loans are useful for many borrowers, you may run into the following problems:

• Student loan limits: Direct Unsubsidized Loans have an annual and lifetime cap, which may be lower than your school costs. Graduate students can borrow a maximum of $20,500 a year and $138,500 for your entire education, including your undergraduate studies. If you hit these limits, you’ll need to turn to Grad PLUS Loans or private loans.
• Higher interest rates: If you have excellent credit and a good income, you may be able to qualify for lower interest rates from private lenders. Federal loan rates are set by the federal government and not based on your credit.
• Can only lower your rate through refinancing: Because federal loan rates are fixed and set by the government, the only way to lower your interest rate is through student loan refinancing. Doing so could save you money, but you’ll give up all federal benefits in the process.

When reviewing private lenders, consider the following factors:

• Interest rate: This is the largest cost of borrowing, so make sure you’re getting the lowest rate that you can.
• Repayment terms: A longer repayment period will give you lower monthly payments, but you’ll usually pay more in interest fees. A shorter term gives you higher monthly payments, but can reduce what your interest costs since you get out of debt faster. Find the right balance so you can comfortably afford the payment and pay off the loan as soon as you can.
• Loan amounts: Many lenders allow you to borrow up to your school-certified cost of attendance, but others may have maximum loan amounts or aggregate limits. Be sure the lender you’re researching can offer the amount you need.
• Fees: Student loans may come with origination fees and late fees, but these will vary based on the lender. Comparing annual percentage rates (APRs), which account for these fees, will be more informative than simply looking at various lenders’ interest rates.
• Discounts: If you’re willing to enroll in autopay, many lenders offer an interest rate discount. You might also get a loyalty discount if you’re an existing customer, or a referral bonus if you get a friend to sign up.
• Hardship programs: You’ll be repaying your student loans for years, and no one can know what the future holds. Review the lender’s policies to see what help it can offer if you suddenly find yourself struggling to make payments.

The student loan application process varies depending on the lender, but in general, expect the following:

• Prequalify, if possible: Many lenders offer you the chance to prequalify for a loan online. Input a few pieces of information to view the estimated rates and terms you could qualify for. This will give you a better sense of your approval odds and more personalized cost comparisons. (Plus, prequalification doesn’t impact your credit.)
• Send in your application online: You’ll likely have to include information about your income, employment, funding needs, and school.
• Accept and sign: If approved, you’ll receive the final paperwork, including your rates and terms. If you agree with the offer, sign it to make it official.
• Get your funds: The lender will typically verify your enrollment information with your school before releasing the funds. Most private lenders send the money directly to your school, which will apply it to any pending tuition and fees. Anything that’s leftover can be sent to you — but the exact timing of this will depend on the lender and your school’s financial aid office.

Tip: If you can’t qualify for a private loan, consider adding a cosigner to your application. This can help you get approved and lock in lower interest rates than you could qualify for alone.

• Simpler application process: You have to fill out the FAFSA to qualify for federal loans, and it can be several months before you find out which loans you qualify for and how much you can borrow. For private student loans, the applications are much shorter and require less documentation. Plus, private lenders can typically process a loan in a matter of weeks.
• Higher loan amounts: You may be able to borrow more from private lenders than you can from the federal government. If you attend a more expensive school or enroll in a pricier program, you may need the extra funding.
• Potentially lower rates and fees: If you have great credit and a stable income (or a cosigner with those things), you may be able to qualify for rates that are lower than what’s available on federal loans. In addition, federal loans come with an origination fee — but many private lenders don’t charge lending fees.

• Fewer options for poor or no credit: If you don’t have great credit, you may find it difficult to qualify (or you may receive worse terms than you’d find with federal loans).
• No federal benefits: Private graduate student loans don’t typically come with many borrower protections, such as hardship options or forgiveness programs. A private lender may be less willing to help you if you can’t afford your payments.
• Lack of repayment options: You won’t be able to access federal IDR programs, which can come with extremely low monthly payments and lead to forgiveness at the end of the term.

Exact requirements vary by lender, but you’ll typically need to have:

• Good credit: You (or a cosigner) must have a good credit score to qualify. Each lender sets its own credit guidelines, but you should have a FICO score in the mid- to high-600s or greater before applying.
• Verifiable income: Lenders want to be sure you can afford your future payments, so you’ll need to provide documentation about your income. Some lenders also require applicants to earn a minimum income. (A cosigner can also help in this regard.)
• Low debt-to-income (DTI) ratio: The more debt you have, the less cash you have to put toward your new loan. In the eyes of the lender, a higher ratio is riskier. Calculate your DTI and aim to get it below 36% before submitting an application.

Variable rates might start out lower, but they can change over the life of the loan based on certain economic benchmarks. A variable rate can save you money if you plan to pay the loan off relatively quickly, but your monthly payments would increase if your rate goes up.

Fixed rates could start out a little higher than variable rates, but they’ll never change. This makes them less risky, and you’ll always know how much your monthly payments will be.

Reminder: Federal student loans carry fixed rates, while private loans typically offer fixed or variable APRs.

Federal Direct Unsubsidized Loans don’t require a credit check, and everyone who qualifies in the same year receives the same interest rate.

Federal Grad PLUS Loans, however, do check for “adverse credit.” While your credit score doesn’t come into play, your credit will be checked for certain red flags. For example, you might have adverse credit if you’ve had a delinquent debt in the last two years, or a foreclosure, bankruptcy, or tax lien in the past five years. Even so, you could still qualify if you add an endorser — similar to a cosigner — to your loan.

For private student loans, lenders typically want to see a FICO score in the mid-600s or higher. But even if you do qualify, your interest rates would very likely be higher if you have a weaker credit profile.

Federal Direct Unsubsidized Loans are capped at $20,500 per year, and $138,500 total (including undergraduate loans). Grad PLUS Loans max out at your school’s certified cost of attendance.

Private student lenders each set their own loan caps, though many also max out at the school’s cost of attendance. Aggregate limits may also apply. If you’re in a traditionally expensive graduate program, such as law school, you may be eligible to borrow more than someone in a cheaper program.

Federal student loan rates are set by the federal government, and they are typically updated annually. Here are the 2022-23 rates for graduate federal loans:

• Direct Unsubsidized Loan: 6.54%
• Grad PLUS Loan: 7.54%

Private student loan rates can be fixed or variable. As of March 27, 2023, rates on 10-year fixed-rate student loans averaged 7.66%. Rates on five-year variable-rate student loans averaged 11.56%. However, factors like your credit, income, loan amount, and repayment term will determine your rates.

Learn More: Average Private Student Loan Rates

It depends on your loan term and how much you borrowed. Federal student loans come with repayment periods of 10 to 25 years, while it’s common to see private loan terms between five and 15 years.

Regardless of your agreed loan term, it can be smart to pay off your loans ahead of schedule if you can afford to. You won’t encounter prepayment fees in student lending, and getting out of debt sooner can save thousands in interest.

Learn More: Use a student loan repayment calculator to see how much you could save by making extra payments on your student loans.

There are a few forgiveness programs that federal loan borrowers may qualify for:

• Public Service Loan Forgiveness: If you work for a nonprofit or federal, state, or local government, you could be eligible for this program. You must make 120 qualifying payments while working for an eligible employer. After that, your remaining balance will be forgiven. Note that not all federal loan types qualify for this program.
• Income-driven repayment: There are four IDR plans, all of which offer forgiveness at the end of your term. You’ll pay a percentage of your discretionary income every month for 20 or 25 years. At the end of that period, you can have your remaining balance forgiven.
• Teacher Loan Forgiveness: If you’re attending grad school to become a teacher, you may be eligible to have your federal loans forgiven. You must work as a full-time, “highly qualified” teacher for five consecutive years at a school that serves low-income students. Eligible borrowers can get $5,000 or $17,500 in debt discharged, depending on the subject you teach.

There are also state-based student loan assistance programs. While these don’t offer forgiveness, you can get thousands of extra dollars for debt repayment. These programs are typically offered for certain careers, such as teaching, healthcare, pharmacy, dentistry, legal, and veterinary jobs. You usually must commit to working in a high-need area or serving in a vulnerable community for a number of years to qualify. Both federal and private loans are often accepted.

Lastly, there are even some geographically based repayment assistance programs. For example, Tulsa Remote offers $10,000 for remote workers to move to Tulsa, Oklahoma. And Kansas offers its Rural Opportunity Zones program, where you could get up to $15,000 towards your education debt for moving to a rural Kansas county. Again, both federal and private loans are often accepted into programs like these.

Learn More: The Complete List of Student Loan Forgiveness Programs

The best student lender depends on your needs and circumstances. For many students, the best option is the U.S. Department of Education, since federal loans tend to be less expensive and offer so many protections, including multiple pathways to forgiveness.

But for those who aren’t eligible for federal loans or need to borrow more than what’s available, private loans can be a useful strategy. In addition to reviewing each lender’s APRs and lending policies, read reviews online to get a sense of how easy the lender is to work with and how helpful their customer service department is.