Understand graduate student loans

Loans are an investment in your future

Our 1-2-3 approach to paying for graduate school recommends that after you’ve used savings and money you don’t have to pay back, you should turn to federal financial aid and federal student loans. Only then should you consider a private graduate student loan. Here’s what you need to know about your options in graduate student loans, both federal and private.

Federal vs private loans for graduate students

While there are several ways to borrow money, the two general types of loans specifically designed for graduate students are federal loans and private loans. We’ll cover the differences between them, but there are some shared features:

• You have to pay them back with interest.
  Interest begins to accrue (grow) from the day that your graduate student loan is disbursed (sent) to your school. Learn more about interest.
• There’s a grace period.
  You’ll generally have six or more months after leaving graduate school before you begin making principal and interest payments on federal student loans. (The grace periods for private loans will vary depending on the lender.) Loans specifically for professional programs like law, medical, and dental degrees may have a longer grace period.
• They’re disbursed directly to your graduate school.
  Unlike personal loans or loans for some career-related activities (residency and relocation), the graduate student loan money goes to the school’s financial aid office, not to you.

Federal loans for graduate students

There are two types of federal loans for graduate students. While both are funded by the federal government, there are differences in interest rate, how you apply, and how much you can borrow from each.

• Federal Direct Loans
• Direct Graduate PLUS Loans

You can apply for both loans by filling out a FAFSA. Based on the information you submit, the cost of attendance, and the amount of other financial aid you’re receiving, your graduate school will determine how much you can borrow.

Note: Federal Direct Subsidized Loans (where the federal government pays the loan’s interest while you’re in school and during your grace period) aren’t generally available for graduate students.

Federal Direct Loans

Federal Direct Loans (previously known as “Stafford Loans”) aren’t based on financial need, and you’re responsible for paying all the loan’s interest. To get a Federal Direct Loan, you must be enrolled at least part-time in a degree program.

Benefits

• You’ll likely receive a lower interest rate with a Federal Direct Loan than with a private graduate loan.
• Federal Direct Loans usually have more flexible repayment options and benefits than a private graduate loan.
• They’re not credit-based, so there’s no credit check and you don’t need an endorser (cosigner).

Considerations

• You’re awarded a set loan amount based on your FAFSA information, and may need more money for your graduate program.
• You’re charged a “loan fee,” a percentage of the disbursed loan amount.
• Federal Direct Loans only offer a fixed interest rate.

Direct Graduate PLUS Loans

If you need additional aid beyond your Federal Direct Loans, Direct Graduate PLUS Loans can help cover your graduate school costs. To get PLUS Loans, you must be enrolled at least half-time at an eligible school taking part in a program leading to a graduate or professional degree, or a certificate.

Benefits

• You can apply for your entire cost of attendance, minus any financial aid (like Federal Direct Loans) that you get.
• You can apply with an endorser (cosigner) if your credit history is weak.
• There are several types of loan repayment plans you can choose.

Considerations

• This loan considers your credit; if you have an “adverse credit history,” you may be denied. Learn what constitutes an adverse credit history.
• You’re charged a “loan fee,” a percentage of the disbursed loan amount.
• The interest rate is higher than for a Federal Direct Loan. And, if you’re highly qualified, you may receive a lower interest rate with a private student loan.
• They only offer a fixed interest rate.

Private student loans for graduate students

Private student loans are offered by banks or credit unions, rather than the federal government, and you apply directly with them. A lender will consider your credit history, among other factors. If your credit isn’t up to their requirements, you may need a cosigner to increase your chance of approval.

Interest rates for private graduate loans are generally higher than for federal loans, but if you’re a highly qualified borrower, you may receive a lower interest rate than with a Direct Graduate PLUS Loan.

Direct Graduate PLUS Loans require you to be enrolled at least half-time, but you’re eligible for Sallie Mae graduate student loans if you’re enrolled full-time, half-time, or less than half-time in an eligible school.

While we can’t speak to all private student loans, here are some of the benefits of Sallie Mae graduate student loans.

Benefits

• You can have a choice of fixed or variable interest rates.
• You can apply for a graduate school loan or one tailored for your specific field (business, medical, dental, law, or graduate health professions).
• There’s no origination fee.
• You can choose to make payments while you’re in graduate school or defer until after you leave.
• You can borrow up to the graduate school’s cost of attendance.
• If you have a cosigner on your graduate student loan, you have the opportunity to release your cosigner.

Considerations

• Private student loans usually don’t offer the same flexibility of repayment options as federal student loans; you generally can’t change your repayment plan after you take out a private student loan.