5 Things About Graduate School Loan Limits You Need to Know

What You Need to Know about Applying for a Graduate School Loan

If you’re headed to grad school, you may think you’ve got the federal student loan game figured out after four long years of experience as an undergrad. However, federal student loans for graduate school are actually quite different from undergrad loans in many ways, especially when it comes to interest rates and the graduate school loan limits.

The Difference between Graduate School Loan and Undergraduate Student Loan

It’s important to be aware of these differences before you begin applying for a graduate school loan, to ensure you make the right borrowing decisions. With that said, here are five key ways federal student loans for grad school differ from undergraduate student loans – and what their differences mean to you.

1. Graduate school loans don’t require your parents. Unlike your undergraduate student loans, you won’t need to enter your parents’ financial information on the FAFSA as a graduate student. Rather, you should only need to submit your personal tax return to receive your loan eligibility amount.

2. Your credit plays an important role. As a graduate student, you’ll need to pass a credit check to take out a PLUS loan. If the check reveals any bankruptcy, foreclosure, or an account in collections, your student loan’s application may be declined.

3. There is less available aid for low-income students. It is very common for graduate students to need to apply for a graduate school loan because there is less overall aid available for individuals who want to pursue a master’s or professional degree.

4. Interest rates are higher on federal graduate school loans. As a graduate student, you are no longer eligible to receive subsidized loans, which means interest will begin accumulating as soon as you take out the loan – even if you’re a full-time student. The interest rates are also higher than undergraduate student loans. As of July 1, 2015, undergrads pay 4.29% on direct subsidized and unsubsidized loans, while graduate students pay a fixed 5.84% on unsubsidized loans and 6.84% on PLUS loans.

5. Your student loan limits increase – but it still may not be enough. You can borrow more in Stafford loans as a graduate student than you could as an undergraduate, but it still may not cover the entire cost of your education. As an undergrad, Stafford loans cap at $5,500 for the first year, $6,500 for the second year, and $7,500 for the remaining years, with a maximum loan amount of $31,000. As a graduate student, you can borrow significantly more. Most graduate students loans are limited $20,500 a year in Stafford loans and cannot exceed $138,500 between both undergrad and grad school loans combined.

PLUS loans, on the other hand, are capped at the total cost of your education as determined by the school, minus any other financial aid received. However, their interest rate is fairly high at 6.84%, and you can be denied if you have an adverse credit history. Thus, many students are able to find lower-cost, more accessible borrowing options with private lenders.

The bottom line…

While federal student loans can be an excellent choice to help pay for your education, many students find that federal graduate school loans simply aren’t enough to cover the entire cost of admission and all education-related expenses.

In these cases, it’s a smart idea to carefully explore your options for private student loans. Credit unions are one of the best options to start your search because they are not-for-profit institutions and can provide some of the lowest interest rates. These loans aren’t restricted to the same federal loan limits, have extremely competitive interest rates, and can often be used for expenses that are directly or indirectly related to graduate school – including housing, books, computers, and tuition.

By choosing a strategic blend of private and federal student loans, you can make sure your education is covered by the lowest-cost borrowing options available – reducing your overall debt and setting yourself up for a successful future.