Paying for and Paying Back Grad School

Published on Author Bethany Sims

Pursuing an advanced degree can be an exciting, but expensive, decision. It’s important to remember that the same rules apply to grad school loans as undergrad – only take what you need and try to exhaust all other aid options first. Let’s look at some options available for financing grad school.

Paying for School

Federal Loans – Once you fill out the FAFSA, your financial aid offer will include the total cost of attendance, just like undergrad. However, unlike undergrad, there are no subsidized options for graduate-level education. The total cost of attendance in your aid offer includes living expenses, books, and other costs you can expect for school. But if you just need to take out loans for tuition, don’t accept the full loan amount. Pay any extra expenses out of pocket or with scholarships whenever possible. Ideally, you have a budget and know what you can afford to pay back before taking out loans. A general rule of thumb is to not take out more than you expect to earn in your first year’s salary.

Remember, with federal loans you can accept a partial amount to only borrow what you need. Here are the two most common types of federal loans for advanced degrees:

Type Purpose Interest Rate Max amount Fees
Direct Unsubsidized Loans Graduate or Professional 5.31% $20,500 About 1.1% depending on disbursement
Direct PLUS Loans

(Unsubsidized)

Parents and Graduate or Professional Students 6.31% Cost of attendance About 4.3%

depending on disbursement

Source: https://studentaid.ed.gov/sa/types/loans/interest-rates

Unsubsidized loans mean that you can defer payments on the principal balance while in school, but interest will still accrue. You’ll have the option to make interest-only payments (and if you can, you should). Subsidized loans allow you to defer payments without accruing interest but are only available for undergraduate.

If you do take out more federal loans than you need, you can typically return the funds within 14 days of disbursement. It may be tempting to keep the extra cash for expenses, but it’s best to return anything you don’t need to save you from paying interest costs.  Because federal loans are for a full academic year, it can be difficult to plan how much you will need the following semester. Check with your school’s office of financial aid or billing to make sure you know exactly what you’ll owe and when it’s due.

Private Loans – Federal loans are often a good first choice for many returning students. But when you take fees into account and not making payments during school, federal loans can have a higher cost than private loans. If you aren’t going into public service and don’t need the deferment period you would receive with federal loans, consider taking out private loans in addition to or in place of federal loans. This is especially helpful for students who will be working while attending school. Many private loan options don’t have origination fees and the interest rate will be lower if you have good or excellent credit. There are many different private lenders – our partners at NerdWallet highlight some good options.

Scholarship Resources – Graduate school scholarships are available, but you may have to look a little harder than an undergrad would. Start with scholarships and grants that your school offers. Some of these may be targeted towards certain groups, so don’t be discouraged if you don’t qualify for anything your university offers. Make sure to check with any associations or professional organizations you are part of to see if there are scholarships available. Many big brands also offer grants and scholarships for those pursuing a degree beyond their Bachelor’s that relate to the company’s specialty. For example, Tylenol offers a $25,000 scholarship for graduates pursuing a degree in healthcare.  Fastweb is a good scholarship resource and has many options for advanced and specialty degrees.

Other Funding Options – Your employer can be a great resource when returning to school. Unlike contributing to an employee’s existing loan, there are tax benefits for those who offer tuition reimbursement (up to $5,250) for an employee’s continuing education.  If you are going back to school for an advanced degree in your current field, your employer benefits from this since you’ll apply what you learn at the office. If you are returning to school with the goal of a career change, keep an eye out for jobs and companies that will help you with tuition reimbursement.

One of the main benefits of pursuing an advanced degree while working is the ability to earn a salary while attending school.You don’t have to give up years of earning a salary and have the earning potential to make payments while in school to shorten the amount of time you are in debt.

Paying back your Loans

Refinancing  Refinancing is often an excellent choice for graduate students. Because they have completed an advanced degree, they often qualify for extra discounts and don’t have to worry about the employment requirement many refinancing lenders have. You can refinance all or some of your loans — both federal and private — to get a lower interest rate and more favorable term.

Federal Programs  Federal loans have many benefits, but lowering your interest rate isn’t one of them. If you are eligible for federal programs like public service loan forgiveness or income-based repayment and you think you’ll need them, don’t refinance your federal loans as you will lose the federal benefits. You can review the different federal programs here.

Employee Perks – If you are seeking a new job after graduation, you may be able to negotiate student loan contributions from your employer as part of the offer. Employee-sponsored student loan repayment is a fairly new and increasingly popular benefit. Of course, you can always ask for a higher salary to pay back your loans, but if your employer has this program in place, take advantage of it.

Graduate school can be a great experience and allow you to do the things you love to the best of your ability. An advanced degree can enhance your career, or in the cases of law and medical degrees, make your career possible. If you have any questions about refinancing your grad school loans, give us a call at 202-524-1115. We love talking about saving you money!

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