Navigating Student Loan Options for Grad School

Navigating the financial landscape of graduate school can feel overwhelming, but chances are that you will need at least some financial aid. If you’re considering taking out student loans for grad school, you’ll need to understand the weight of your decision and how it will impact your future.

In this post, we'll guide you through the process of securing financial aid, from filing your FAFSA to choosing the right loans, so you can focus on your studies with peace of mind.

Filing your Free Application for Federal Student Aid (FAFSA)

The first step toward obtaining financial aid is to file your FAFSA. Complete it online and submit it to all of the universities you applied to, and once accepted, each one will use the FAFSA to determine your eligibility for financial aid. Be sure to take a look at our article Grad School Financial Aid 101 for more information about the FAFSA. 

Research student loan options for grad school

You may receive scholarship, fellowship, and grant money (none of which need to be repaid) to help pay for school, but the bulk of your financial aid package will most likely be in the form of loans—money you will eventually pay back. After you file your FAFSA, you’ll receive financial aid recommendations from your university’s financial aid office. This is the point when you should apply for the suggested loans. Your financial aid office will guide you through this process, but it’s good to know the advantages and disadvantages of each loan type before you decide which ones to take out. Once you receive your loan funds, put together a loan management strategy to effectively minimize your debt.

Federal loans

Federal loans come in several forms for individuals looking to pursue higher education, and often have a lower, fixed interest rate for repayment that make them an attractive first option for potential students. Here’s an overview of two common ones to look out for:

• Direct Unsubsidized Loan: Eligible undergraduate, graduate, and professional students are able to apply for these loans, which may award up to $20,500 annually (minus any subsidized amounts received for the same period), depending on grade level.
• Direct PLUS Loans (or Grad PLUS Loan). Parents borrowing money for their dependent undergraduate students, as well as eligible graduate or professional students, may apply for these student loans. The maximum amount awarded is the cost of attendance (determined by the school) minus any other financial aid the student receives.

Private loans

Private loans are available from many lending institutions and are not subject to specific terms or fixed rates like federal loans. The lack of fixed rates means your lending institution can raise your interest rate at any time.

The low fixed interest rate of federal loans make them the most attractive option, and as a general rule, these should be your first loan choice. If your federal student aid offer does not sufficiently cover the cost of your education and living expenses, however, private loans may be an option to cover the difference. Private lenders are competing for your business, so if you decide to take out a private student loan, shop around for the best rates and be wary of variable interest rates (which can fluctuate!).

Alternatives to student loans for grad school

If you are attending grad school as a working professional or already possess assets like a home and savings, consider other loan and investment options. You can take out a home equity loan, Education IRA, or 529 plan—an investment plan that can be used to pay for school. Contact your bank and/or financial planner for more detailed information about these alternative options and how they will affect your short- and long-term financial health.

It is important to outline a personal budget for yourself for the entire time you are expected to be in school. Your budget should include all expected expenses and income so you can estimate how much you will need to seek in loans and other forms of aid. Also, be sure that research about financing your degree includes looking into scholarships and other funding options.

Grad school is an investment in your future, and what you spend now will most likely pay off later. Be informed about your financial aid options and maintain a long-term strategy for managing your loan debt once you receive your aid package. This will make paying for grad school easier, and your future debt more manageable.

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Are you interested in speaking with an admissions representative? Attend Idealist’s free graduate school fair in New York City, taking place on October 9, 2024.