What is the Difference Between Grad School Loans and Undergrad Loans?

Whether you just graduated from undergrad, or you’ve been in the workforce for a while, you’ve made the bold decision to go back to school for a graduate degree. Next to deciding where to go, figuring out how to pay for grad school is your biggest hurdle.

Graduate school isn’t cheap, and tuition continues to rise. However, if you’re smart about the investment (and grad school is an investment), then the financial payoff should be well worth it.

Graduate school loans and financial aid are very different than undergrad. Now that you’re considered an independent student, you can fill out the FAFSA form without needing your parent’s tax returns and information. But that also means you won’t be eligible for certain federal loans, such as the subsidized ones you may have received for undergrad.

As a grad student you’ll be more likely to have to apply for unsubsidized loans, like direct PLUS loans. These also include parent PLUS loans in which parents can borrow money on behalf of their child.

The difference with these versus undergrad subsidized loans is that the interest starts accruing right away — and those interest rates as a grad student are usually higher than undergrad rates. So, the longer you take to finish grad school, the more interest those loans are going to accrue.

Since need-based aid may be more difficult to find as an independent student, you may have more luck with other forms of aid such as scholarships, grants, work-study programs, stipends or fellowships.

It’s also worth it to investigate loan forgiveness programs, although they are more restrictive with graduate loans than undergrad. One financial advantage to going to graduate school, as opposed to undergrad, is that if you’re going back to school after being in the workforce for a while, your company may offer tuition reimbursement programs and loan forgiveness.

Although you may be locked into loans, you’re not necessarily locked into those interest rates forever. Student loans can be refinanced and often payments can be deferred or recalculated based on income.

As you weigh your financial aid options for grad school, and loans are a part of that, beware of over-borrowing for life expenses while in grad school. You may find it necessary but understand that it’s just more money you’ll have to pay back at somewhat higher interest rates than undergrad loans. Make sure you compare your expected post-graduate income with how much debt you’re willing to accrue.

Grad school is usually a worthwhile investment if, as with all investments, you do your research and apply common sense and wisdom. The return on your investment should be well worth it.