Graduate Student Loans

Unlike a federal student loan, which is regulated by the government, private student loans are issued by independent lenders. These can be traditional banks or credit unions, or student loan-specific organizations such as Sallie Mae.

Each organization has unique eligibility requirements, interest rates, and repayment terms. That’s why it’s best to shop around to find your best private graduate student loans.

The simple answer is: If you’ve exhausted all other options such as federal aid, scholarships, and grants, and still have a gap in covering your costs, then consider private graduate student loans.

The good thing about private student loans is there’s no deadline to apply, unlike federal aid. This rolling application deadline means you can wait to hear back from schools about their various financial aid packages and apply for a private student loan in the middle of a semester. If possible, don’t wait until the last minute to apply; it might take time for private student loan applications to go through the approval process, depending on the lender.

While the government considers your level of financial need when it comes to issuing financial aid awards, private loan lenders have different requirements. Factors that are taken into consideration can include:

• Income
• Credit score
• Whether you’ll be getting private student loans with a cosigner
• Debt-to-income ratio (how much you owe in monthly debt payments divided by your gross monthly income)

Eligibility will vary by lender, but having a low credit score or no credit history will likely make it difficult for you to qualify. If you have a cosigner, you might still be able to get private student loans if their credit score and income meet the eligibility requirements.

If you do qualify, having a good credit score can mean you’ll secure lower interest rates and not pay as much by the end of your repayment term.

Since every lender has its own set of terms, this answer can vary. But generally, you will face one of three situations.

• • Cost of attendance limit: This means you can only receive a loan for the total cost minus any financial aid. If your graduate education costs $100,000 and you received $50,000 in other types of aid, then you will only be able to take out a max of $50,000.

You can take out graduate student loans for living expenses, but these are usually tabulated into the total cost. For example, the University of California, Berkeley, has a cost of attendance limit of $2,365 per month on off-campus rent or mortgage for graduate students.

• Annual loan limit: The lender will simply stipulate how much you are allowed to borrow in a given academic year.
• Aggregate loan limit: Since you can apply for multiple private student loans, you may face a limit for the number you can combine. For federal loans, the limit is $138,500 (including loans for undergraduate education), while private student loan limits generally range from $75,000 to $120,000 for undergraduates. Although the private student loan limit might be higher for graduate students, it usually includes both private and federal student loan amounts.

With federal loans, you don’t have to start repaying them until you’ve graduated, dropped below half-time enrollment, or the loan is fully disbursed. Private student loan repayment terms, however, will differ by the lender, and there are not as many repayment options as with federal loans.

These are the most common repayment processes you will likely find:

• Immediate repayment: You will start making principal and interest payments while still in school. This could help keep down your overall out-of-pocket costs, but it might present additional financial pressure while you’re in school.
• Interest-only repayment: You will only pay the interest while in school, which could reduce the total cost of the loan you’ll have to repay. Even if the monthly interest costs are minimal, you’ll have to budget this into your monthly expenses and might need to take on a part-time job to cover the payments.
• Deferred repayment: You will only start paying back the loan once you’ve graduated or dropped below half-time enrollment. Interest could still accrue during this time, making your overall debt higher.
• Refinancing your private student loans: You might be able to get a lower interest rate if you have a solid income and good credit. Depending on your specific situation, this can help you spend less money over the life of your loan. Keep in mind that lower monthly payments might mean an extended loan term. A longer-term could cost you more overall, so weigh out the pros and cons of refinancing private student loans.

In general, repayment terms for private loans for graduate students can range anywhere from five years to over 20 years, but remember that the interest will add up over time.

Unfortunately, you won’t be able to choose options like income-driven repayment plans, forbearance, or loan forgiveness offered by the government. But many private lenders will want to work with you to come up with flexible repayment options that work for your situation.

As with any loan, there are positives and negatives to borrowing money. Here are some pros and cons to consider when taking out private student loans.

Pros:

• You can borrow more: The government limits the aggregate amount that you can borrow to $138,500 — that includes what you’ve already borrowed as an undergraduate. With private student loans, you can borrow the entire cost of your education and use graduate student loans for living expenses.
• Your credit score can help your interest rate: Federal aid is determined based on how much money the government determines you need to help pay for school. Private student loans take your credit score into consideration. While poor credit might make you ineligible for a loan, a good credit score might help you secure a lower interest rate which saves you money over time.
• There is a statute of limitations if you default: While it’s never a good idea to default on your loans, as it can land you in court and ruin your credit, it is good to know that there is a limit to how long a lender can go after you. The statute of limitations is different in every state ranging from three to 10 years, meaning after this time lenders don’t have many avenues to go after you. For example, in California the statute of limitations is four years; in New York, it’s six. Federal loans, on the other hand, don’t have a statute of limitations.

Cons:

• Repayment terms aren’t as flexible: Federal student loans have a robust list of repayment plans, including income-driven plans and can also grant student loan forgiveness. Private student loans have limited repayment terms, meaning you won’t have as many options if you find yourself struggling to make payments.
• Lenders set requirements, eligibility, the application process, and regulations: Federal student loans are standardized — all of the terms are set by the government, making them easier to understand. Private student loans, on the other hand, are set at the whim of individual lenders and have no overhead body stipulating lending criteria. With so much variation among private student loan terms, it’s easy to accidentally overlook details that can ultimately cost you hundreds, if not thousands, of dollars.
• There could be variable interest rates: While private student loans can have fixed interest rates like federal student loans, many have variable ones. A variable interest rate can fluctuate depending on the market and are often unpredictable. This can, in turn, increase your monthly payment and the overall amount you’ll pay toward your loan in the end. In addition, interest can start accruing immediately, so you might need to be prepared to start making payments while still in school.

Using private student loans for graduate school is a way to cover any financial aid gaps and afford to go to the school you want. Still, it’s important to take a number of factors into consideration, so you don’t find yourself facing a mountain of debt upon graduation. As a student likely facing high graduate school costs, it’s best to shop around for private students loans that best fit your unique situation.