How Your Existing Student Loan Debt Affects Graduate School Options

Graduate school enrollment is growing amid the coronavirus pandemic at a faster rate than last spring. According to recent data from the National Student Clearinghouse Research Center, graduate school enrollment is up 4.3% in spring 2021 compared with 1.5% last spring, whereas undergraduate enrollment is declining.

With so many students returning to higher education for advanced studies, questions about how to fund a graduate school education are increasing.

Paying for graduate school can sometimes be more challenging than paying for college because there are fewer “free money” resources like scholarships and grants available, and borrowing options are somewhat different. What’s more, many students who will borrow to pay for all or some of the cost of graduate school will already have student loan debt from undergraduate studies.

If you are considering borrowing for graduate school and already have existing student loan debt, here are some things to keep in mind:

— You may hit federal student loan borrowing limits.

— You may need Grad PLUS or private student loans.

— You could have higher monthly payments after graduation.

— You may want to make payments on college debt while in grad school.

You May Hit Federal Student Loan Borrowing Limits

The federal direct loan program has both annual and aggregate limits on how much you can borrow in subsidized and unsubsidized student loans. Depending on how much you borrowed for college, the amount available to you for graduate school may not be enough to cover the costs.

As a graduate student, you may qualify to borrow up to $20,500 per year in direct unsubsidized loans, with an aggregate limit of $138,500 that includes any unsubsidized, subsidized and other federal loans you borrowed to pay for your undergraduate education. Graduate students are not eligible for subsidized loans, but any that you borrowed and still owe from undergraduate studies are included in the aggregate limit.

[Read: 4 Options for Graduate School Loans.]

If your outstanding federal student loan debt reaches the aggregate loan limit, you are not eligible to receive any additional federal student loans. Also, if the amount that you borrowed is close to the aggregate limit, the amount that you are able to borrow may be less than the annual limit. For example, if you have $120,000 in outstanding federal student loan debt from college, you can borrow only $18,500 for your first year in graduate school, even though the annual limit is $20,500. After that, you may not be able to borrow again.

However, if you are able, you may choose to repay some amount of your existing federal student loans to bring the outstanding loan debt below the aggregate limit. That would allow you to borrow up to the amount of your remaining eligibility under the aggregate loan limit.

Graduate and professional students enrolled in certain health profession programs, which have increased in popularity amid the COVID-19 pandemic, should contact their school’s financial aid office about annual and aggregate limits, since they may be able to receive additional direct unsubsidized loan amounts each year.

You May Need Grad PLUS or Private Student Loans

If you reach the limit for other federal student loans, there are options available to explore, including federal Grad PLUS loans and private student loans. But keep in mind that they often do not have the same borrower benefits and repayment plan options as federal subsidized and unsubsidized student loans, so you’ll want to think carefully about whether to borrow them.

Unlike subsidized and unsubsidized federal loans, the Grad PLUS loan program does not have a set limit. A student can borrow up to the amount of the cost of attendance, as determined by the school, minus any other financial assistance received.

However, it is important to know that interest rates for Grad PLUS loans are generally higher than unsubsidized loans, if the latter remains an option and you’re trying to choose. The current unsubsidized loan rate for graduate students is 4.3% compared with 5.3% for Grad PLUS loans.

PLUS loans also have higher fees. The current disbursement fee for unsubsidized loans is 1.057% compared with 4.228% for PLUS loans.

In addition, your eligibility for a Grad PLUS loan is dependent on a credit check and approval. If you’re turned down you may still be able to qualify by documenting extenuating circumstances related to a problematic credit history, or by obtaining an endorser who does not have an adverse credit history and agrees to repay the loan if you do not repay it.

[READ: Why Your Creditworthiness May Matter for Student Borrowing.]

If you are considering Grad PLUS loans, check interest rates offered by private student loan lenders to see if you can save money over time with a lower interest rate. Private lenders offer rates based on credit history, and if you have a good credit score you may receive a better interest rate from one of these lenders than the Grad PLUS option.

The private student loan market includes nonprofit and state-based lenders, as well as credit unions, banks and other for-profit lenders. Be sure to compare several rates and ask about any borrower benefits that are offered by the lender such as automatic-pay discounts.

One thing to keep in mind is that private loans are not eligible for the federal Public Service Loan Forgiveness program, or PSLF, so you should stick to borrowing federal loans if you are interested in public service employment and plan to seek student loan forgiveness through this program.

You Could Have Higher Monthly Payments After Graduation

Some graduate student borrowers with undergraduate student loan debt are surprised when their federal loans enter repayment after grad school and their monthly payments have increased dramatically.

It’s important to know that any time you borrow more money for your education, you are taking out a new loan and each loan needs to be paid back separately. This means that not only do you increase your total overall amount of student debt, you increase the number of loans that you will have in repayment at the same time.

In the case of federal student loans, unless you arrange a loan consolidation, each loan is repaid monthly in separate payments that are sent to your student loan servicer or servicers. That’s why you may see a large increase in the amount you owe each month after your loans enter repayment.

If your payment amounts are too high to manage, you can look into graduated or income-driven repayment plans to lower your total monthly payments, but this may increase the amount you pay over time due to interest.

You May Want to Make Payments on College Debt While in Grad School

If you have federal subsidized and unsubsidized student loans from college, you can have them placed into an in-school deferment while you are enrolled in a qualifying graduate degree program at least half time.

[Read: When and How to Defer Student Loans.]

Typically, when these loans are in in-school deferment, the federal government pays the interest on subsidized loans while you are responsible for the interest that continues to accrue on the unsubsidized loans. If you do not pay the interest as it accrues, the total amount you owe on your existing loans will increase when that interest is added to the principal balance, which is called capitalization.

If you have college student loan debt, consider making interest-only payments while you are in grad school, if you are able. These smaller payments will allow you to avoid capitalization and ensure that your principal loan balance doesn’t increase.

Note, however, that interest is set at 0% through September 2021 on all federally held student loans due to the coronavirus pandemic. The majority of federal student loans are held by the U.S. Department of Education, but some older loans are owned by private entities. If you are unsure whether interest accrual is paused on your student loans, check with your student loan servicer or lender.

More from U.S. News

Is Graduate School Worth the Cost?

How to Find Free Money for Graduate School

Understanding the Types of Federal Student Loans Available

How Your Existing Student Loan Debt Affects Graduate School Options originally appeared on

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