Graduate Students and Loans
According to the 2007 2008 National Postsecondary Student Aid Study, about 56% of graduate and professional students take out loans for school. In fact, the average loan debt for a graduate student is $37,000. This number is even higher for those seeking a professional degree. And it does not factor in undergraduate debt.
Before you pursue graduate school, understand the financial commitment you are making, especially if you need to take out loans or if you already have loans from your undergraduate education. Here are a few things to be aware of:
The Importance of Good Credit
If you are thinking about going to graduate school or getting a professional degree, first take a close look at your finances. A good credit history makes you eligible for more types of aid, since many loan programs for graduate students require a credit check.
- Check your credit report once every 12 months from each of the three consumer reporting agencies:
- Visit the National Student Loan Data System (NSLDS ). If you took out federal loans for your undergraduate education, find out how many loans you have and the current balance for each. You will need your PIN (personal identification number) to access this information.
- Practice good credit card use. Do your best to minimize any outstanding balances on your credit cards. Starting graduate school with significant credit card debt may wreak havoc on your credit score if the expense of school creates more debt in the short term.
Repaying Your Undergraduate Loans
Can’t figure out how you’re going to pay off your undergraduate loans while you’re in graduate school? If you have federal loans that are in repayment when you start grad school, you may be eligible for an in-school deferment.
A deferment is a temporary postponement of repayment, so you don’t need to pay back your loan’s principal during this time. However, you are still responsible for paying the interest that accrues (unless you have a subsidized federal loan).
To be eligible for an in-school deferment, you must be enrolled at least half time. If you don’t qualify for an in-school deferment (for example, your enrollment is less than half time) or for any other deferment, your loan may be eligible for a forbearance.
Contact your loan servicer to ask about deferment or forbearance. These options may not be available if you have an alternative (private) loan.
You may want to consider a consolidation loan if you are juggling payments on multiple federal loans. Consolidation allows you to combine several loans into one, with just one monthly payment to one servicer.
The advantages of consolidation include lower monthly payments and a fixed interest rate. However, with consolidation, you will make more payments over a longer period of time, meaning you will pay more in total over the life of the loan. Plus, on a consolidation loan, the interest rate is higher than the average interest rate for the original loans.
For more on consolidation, including whether your loans are eligible, visit StudentAid.ed.gov.
Taking Time Off
Many students decide to take time off between undergraduate and graduate school. There are advantages and disadvantages to doing this, especially in terms of money management.
- Get some work experience and earn some money so you are more financially prepared. You may even want to make payments to reduce the amount of your undergraduate loans.
- Think about what you really want to study, so when you go to grad school, it’s an investment in your career not just an expense.
- Rest and recharge your batteries to prepare for the stress of a rigorous academic environment.
- Experience an easier transition when you go directly from undergraduate school.
- Get your degree at a younger age, maximizing your lifetime earning potential.
- Realize that any loans that you already have may go into repayment.
- Be prepared to answer questions about your time off on your grad school applications, if you decide to pursue an advanced degree.
- Incur additional debt for graduate school on top of any debt you have from your undergraduate years.
- Have no time to make payments on any undergraduate loans.
Grace begins the day you leave school, graduate, or drop below half-time status. During your grace period, you don’t have to make any payments on your loans:
- Federal Stafford Loans come with a 6-month grace period.
- PLUS Loans do not have grace period. However, if your loan was first disbursed after July 1, 2008, you may be eligible to defer repayment an additional 6 months. Interest will continue to accrue during this post-enrollment deferment period and will capitalize if you do not pay it.
- Perkins loans come with an initial 9-month grace period.
- Alternative (private) loans may or may not have a grace period. Contact your loan servicer to find out.
If you have undergraduate loans, your decision to pursue a graduate or professional degree may affect your grace.
For example, if you go to graduate school immediately after undergraduate school, you will not use the 6-month grace period on any undergraduate Stafford Loans, and you won’t need to make any payments until you leave school. However, if you take time off before you go to graduate school (or don’t go), the grace period will run out, and you’ll need to begin making payments on your loans.
Attending School Less Than Half Time
If your attendance at graduate school drops below half time, you may lose your eligibility for some types of financial aid.
For example, to be eligible for certain federal student loans, you must attend school at least half time. If your federal loan has already been disbursed and you drop below half time, the loan will go into repayment.
Depending on the type of aid you received, however, it may be OK to attend school less than half time. For example, some tuition reimbursement programs allow you to enroll in only one class or attend a brief seminar. And you do not need to be enrolled half time to be eligible for the tax benefits from a Lifetime Learning Credit.
Before you drop to less than half time, check what the rules are for the type of aid you have. Make sure that if you drop below half time, you have the financial resources to pay back any monies owed on loans or other aid.
Also check if your attendance status affects any deferments or forbearances that you may have in place. Repayment may begin immediately, and you don’t want to be caught off guard.