What Are The Financing Options for Graduate School? (Part 1)
Graduate School Funding Options
Students who need money to pay for graduate school can attain assistance through four main channels: scholarships, federal student aid, private student aid, and Income Share Agreements (ISAs). Scholarships are a great way to get money (for free!). We’d recommend checking out some sources that compile opportunities, such as Fastweb and Unigo.
Federal student aid for graduate students comes through either Federal Direct Unsubsidized Loans or Grad PLUS loans, each of which have different stipulations and requirements. A variety of repayment options are available for these federal loans.
The private student aid market is where you can go to find a private loan from a financial institution with rates that vary from bank to bank. These loans are also very dependent on the borrower’s credit history, outstanding loans, cosigner status, and the payment period of loan.
Finally, ISAs (like the ones we offer here at Stride Funding), are a way to pay for school through an Income Share Agreement, rather than paying the cost of tuition upfront. ISAs are an agreement wherein a student receives an upfront payment for tuition and, in return, agrees to pay a percentage of their income for a set number of payments.
Federal Aid Programs for Graduate Students
The two federal student funding sources for graduate students are Federal Direct Unsubsidized Loans (also known as Stafford loans) and Grad PLUS Loans. Each of these loan types have different limits and requirements, so read on to learn the details.
Stafford Loans have lower interest rates (currently 6.08%) and fees (currently 1.06%) than Grad PLUS loans, but there are limits to the amount you can borrow. Graduate students can borrow $20,500 per year of Stafford loans with an aggregate limit of $138,500, which includes any Stafford loans that you borrowed as an undergraduate. To apply for Stafford loans, you must fill out the FAFSA, and your school will determine the amount you can borrow based on the cost of attendance and other financial aid.
Grad PLUS Loans are the second option for federal loans for graduate students. Grad PLUS loans have higher rates (currently 7.08%) and fees (currently 4.25%) than Stafford Loans. However, borrowing limits are much higher than for Stafford Loans– the maximum loan amount is equivalent to your school’s Cost of Attendance. Applying for a Grad PLUS Loan requires a credit check, so if you have a poor credit history, you may need a cosigner to be approved.
Repayment Plans for Federal Loans
The Standard Repayment Plan for federal loans is the traditional plan with monthly payments calculated so that you will pay off your loan in full in 10 years. There are a variety of alternative repayment plans available, such as the Graduated Repayment Plan, Extended Repayment Plan, and a variety of Income-Driven Repayment Plans.
The Graduated Repayment Plan is similar to the traditional plan in that your loan will be paid in full in 10 years. However, monthly payments under this plan start lower and increase over time, meaning that you will pay more in this plan than through the Standard Plan.
The Extended Repayment Plan has monthly payments that can be either the same or graduated, in the amount that will ensure that your loans are paid in full in 25 years. To be eligible for this plan, you must have greater than $30,000 in outstanding loans. You will also pay more in this plan by the end than under the Standard Plan.
Some students who are in debt from federal loans may be eligible to switch their monthly payments to a variety of Income-Driven Repayment Plans – where monthly payments are calculated based on income, family size, and state of residence, and are often lower than traditional Standard Plan payments. Under these plans, you will pay a percentage of your discretionary income (10 or 15%) until your loan balance is paid, or until the outstanding loans are discharged (typically after 20 or 25 years).