What are the Best Student Loans for Graduate Students?

With so much of everyone's focus centered on undergraduate students, graduate students can often feel lost in the shuffle. The truth is that graduate students need financial aid to help pay for their educations just like everyone else. That can often mean taking out graduate school loans.

This means that graduate students should still fill out the FAFSA to be eligible for federal financial aid like Direct Loans and work-study programs (graduate students are not eligible for the Pell Grant). Graduate students should also remain mindful when it comes to filing with the Residency Determination Service.

As a grad student, there's a good chance you'll file as an independent student on the FAFSA, and there's a chance you may qualify for in-state tuition. It's all a matter of how long you've lived in the state and your state and institution's specific rules.

Grad Students Worry About More Than Just Tuition

Graduate students come in a wide range of ages and dispositions. While there are plenty of students who choose to enter graduate school directly following their undergraduate degree, there are just as many students who choose to pursue a graduate degree later in life. Graduate students may have families or other bills that a typical undergraduate student doesn't have to worry about.

Even with financial aid, scholarships, grants,and fellowships, it can be difficult for graduate students to make ends meet. Thankfully, there are student loans available that are designed to help graduate students bridge the gap between financial aid and the cost of attending school. Here are a few of the best graduate student loans and tips for prospective students who want to apply for them.

Federal Stafford Loans

Before we get ahead of ourselves, it's important to point out the differences between subsidized and unsubsidized student loans. The main difference between a subsidized loan and an unsubsidized loan is who can use them, and when you'll start paying interest on the loan.

Subsidized loans are federal student loans designed only for undergraduate students with financial need. With a subsidized loan, the U.S. Department of Education will pay the interest on the loan if you're enrolled in the semester at least half-time (taking six credit hours). The Department of Education will also pay the interest for the first six months after you leave school (also known as the "grace period"). You start accruing and paying interest after the grace period is over. You don't pay interest that accrued while in school or during the grace period. This is the chunk of interest the government pays for or "subsidizes."

By comparison, federal unsubsidized loans are available to both undergraduate students and graduate students. Furthermore, borrowers don't have to demonstrate financial need to qualify for an unsubsidized federal loan.

However, interest will begin accruing on an unsubsidized loan as soon as the money is sent out. Borrowers who choose not to pay interest while they're still in school will see that interest capitalized on their loan. Capitalization is when a lender takes any unpaid interest from a loan (like interest accrued while the borrower was in school) and adds that back into the principal amount.

The principal is the total amount of your loan. When interest capitalizes and gets added onto your principal, it increases the total amount you're borrowing plus interest. Example: If you initially borrow $20,000 and don't pay the interest on the loan while in school, the interest gets added onto the $20,000 as the new loan total. Say the interest was five thousand dollars. Now, instead of the principal amount you borrowed being $20,000, the interest is added to hike the amount you borrowed to $25,000. You'd have to pay back the $25,000 PLUS the interest on this amount. It all adds up for sure.

What is the Difference Between Subsidized and Unsubsidized Loans?

Before we get ahead of ourselves, it's important to point out the differences between subsidized and unsubsidized student loans. The main difference between a subsidized loan and an unsubsidized loan is who can use them, and when you'll start paying interest on the loan.

Subsidized loans are federal student loans designed only for undergraduate students with financial need. With a subsidized loan, the U.S. Department of Education will pay the interest on the loan if you're enrolled in the semester at least half-time (taking six credit hours). The Department of Education will also pay the interest for the first six months after you leave school (also known as the "grace period"). You start accruing and paying interest after the grace period is over. You don't pay interest that accrued while in school or during the grace period. This is the chunk of interest the government pays for or "subsidizes."

By comparison, federal unsubsidized loans are available to both undergraduate students and graduate students. Furthermore, borrowers don't have to demonstrate financial need to qualify for an unsubsidized federal loan.

However, interest will begin accruing on an unsubsidized loan as soon as the money is sent out. Borrowers who choose not to pay interest while they're still in school will see that interest capitalized on their loan. Capitalization is when a lender takes any unpaid interest from a loan (like interest accrued while the borrower was in school) and adds that back into the principal amount.

What are Student Loan Fees and How Do They Work?

Next, it's worth explaining the fees borrowers can expect with federal student loans. Student loan fees for federal loans are also called "origination fees." This is money you pay to a lender for processing the loan application. Instead of a flat price, these origination fees are commonly a percentage of the total amount of your loan. An origination fee for a new borrower may fall somewhere around one percent of the total value of the loan, but it's important to check with your lender or institution first.

You also need to remember there is a total limit on the amount grad students can borrow in federal student loans. This is also known as your aggregate loan limit. For grad students, the current aggregate limit is set at $138,500. However, keep in mind that this limit also includes any Stafford Loans a student may have taken out as an undergraduate.

Direct PLUS Loans

Direct PLUS loans are graduate student loans specifically designed for use by grad students. Like Stafford Loans, Direct PLUS Loans (also known as grad PLUS loans) are also operated by the federal government. However, there are some key differences between a Direct PLUS Loan and a Stafford Loan. Graduate PLUS Loans often have higher interest rates.

Like Stafford Loans, there are origination fees associated with Direct PLUS Loans that can be as high as four percent of the total loan amount. Make sure you consult with your school or check with the Department of Education for the most up-to-date numbers.

That said, there's also a benefit to Graduate PLUS Loans in that, unlike Stafford Loans, there's no aggregate limit to how much you can borrow. That is to say, there is no limit up to the cost of attendance laid out by your university, minus any other financial aid you may have received.

NC Assist Student Loans

Other money sources for grad students are alternative or private graduate student loans. The NC Assist Loan is a student loan provided by the North Carolina state-based nonprofit lender, College Foundation, Inc. Because the loan is serviced by a trusted nonprofit, students will receive more competitive interest rates than those with many private loans. In fact, interest rates for NC Assist Loans are often lower than Direct PLUS rates. Furthermore, there are no fees associated with NC Assist Loans.

One big advantage many graduate students have, that many undergrads don't, is that they have had more time to develop a credit history. This can make a big difference when applying for student loans. It may mean that a grad student could have the type of credit score necessary to qualify for student loans with the most competitive interest rates. It can be an effective solution for grad students to find the money they need while also saving in the long run.

See How You Can Qualify for Competitive Graduate Student Loans

Are you or someone you know a graduate student looking to bridge the gap between financial aid and the cost of attendance? Learn more about your options for a competitive loan with no fees from NC Assist. Learn more about how North Carolina student loans can help you find the money you need for graduate school.