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You should always strive to understand what student loans are and what you’re obligating yourself to before you begin applying for them. For one thing, you’re going to have to start paying them back right away; with private loans, repayments start immediately, on interest at least. With federal loans, you have an option to begin paying interest only as soon as you have the loan. Sometimes you’ll have the option to wait until six months post-graduation to begin paying this each month.

Interest rates and fees are also considerations you should take into account before applying for a loan. Finally, don’t take out too much money. You’re going to have to pay it back and life may get in the way. If this happens, you may not be able to make the payments. Depending on the source of your loan (private or federal), you may have options if something like this happens. However, you should always apply for grants, scholarships, and fellowships before you turn to graduate loans.

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What are Graduate Loans?

Graduate school loans are either federal or private student loans. You obtain these loans from two different sources (the Department of Education or a bank or credit union).

Federal student loans are further broken down into two other categories: unsubsidized Stafford loans and Graduate PLUS loans. These loans also often require an origination fee, which means the amount you receive will be lower than what you actually borrowed. The Graduate PLUS loan requires that you have a good credit history; fill out the Free Application for Federal Student Aid (FAFSA). The origination fees here tend to be higher.

Private student loans don’t come from the federal government. These are issued by a private financial institution. The interest rates may be either fixed or variable depending on which loan company you choose.

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Types of Grad School Loans

Stafford loans are unsubsidized graduate loans. Because they are unsubsidized, you have to repay the interest on your loan during all periods. If you opt not to repay the interest during grace periods, while you are in school, or if your loans are in deferment or forbearance, interest will continue to accrue (grow) on your loans. This means, the added interest will be added to the principal of your loan (capitalized), increasing the amount you need to pay back.

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A subsidized loan means the U.S. Department of Education pays for the interest on your loans while you’re in school. You must be enrolled at least half-time. The DoE also pays the interest during the grace period, which comes after your graduation, until six months later. Your interest will also paid if you put your loans into deferment, which means your monthly payments are postponed if you have trouble paying due to financial hardship.

Graduate PLUS loans are loans that either you or a parent can apply for. Those that your parent applies for are called Parent PLUS loans. You can borrow as much as your cost of attendance is, minus other financial aid you receive. These loans don’t have any aggregate limit. To qualify for this loan, you must have a clean credit history. To begin the qualification process, you have to fill out your FAFSA. You must also request a Direct PLUS loan from the student loans government website.

Differences Between Federal and Private Loans

Federal and private graduate student loans provide the money you need to complete your higher-level education. Beyond that, they are completely different.

The conditions and terms of federal loans are federal law, as established by Congress. These loans have benefits, such as fixed interest rates and income-driven repayment plans, which aren’t always offered with private loans.

Private loans are wholly private. The loans are made by a credit union, state agency, bank, or a school. The terms and conditions of each loan are established by the lender and may be more expensive than federal student loans. However, it’s also possible for interest rates with private lenders to be better, especially if you have a co-signer with excellent credit or something similar.

With private student loans, payments are required to start while you’re still in school. However, some loans do allow you to put off payments until you leave school or graduate. Private student loans are unsubsidized, which means you have to pay all the interest on your loan yourself.

Borrowing Limits

With a Stafford loan, graduate students can borrow $20,500 per year; and they can’t go beyond $138,500 cumulatively for undergraduate and graduate loans. PLUS loans are capped at the total cost of your education, minus all other financial aid you receive.

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Private loans are limited to the cost of attendance, though some companies will allow you to add things like books, room and board, and technology expenses for school into the “cost of attendance”. Different lenders make their own determination of how much you can borrow per academic year.

What to Think About

  • Forbearance/Deferment:
    As soon as you realize that any financial hardship makes it difficult to cover your monthly loan payments, you should begin considering either deferment or forbearance of your student loan payments.
    Forbearance allows you to pause your repayments for up to 12 months at a time. If you know your financial situation is temporary, or if you don’t qualify for deferment, then you can opt for forbearance.
    Deferment can last up to three years; but its length depends on the type of deferment for which you qualify. Deferment is event-specific, requiring you to explain your situation in order to be approved. Situations such as losing your job or returning to school are things which may earn you long-term deferment.
  • Interest Rates:
    With the fixed-rate federal student loan, you’ll find out that you don’t have a choice in the type of interest rate you have. Congress establishes interest rates on federal student loans annually. In 2018, the interest rates was 6% for Direct unsubsidized loans. Direct PLUS loans held an interest rate of 7% percent for the same academic year.
    Private graduate student loans come with either a fixed or variable interest rate. This may be better for you individually. If you choose a variable interest rate, you should know that your loan will be affected by the market’s rise and fall. Your monthly payments will vary according to the changes to your variable interest rate.
    If you have a good credit score, you may be able to obtain a variable interest rate for you private graduate loan and the rate may even fall below 4%. Just remember that variable interest rates can also go up; if that happens, your monthly payments would likely increase. Student loans are tied to the London Interbank Offered Rate or LIBOR.
  • Loan Fees/Origination or Other:
    Federal and private student loans both come with origination fees. This fee is a percentage of the total loan amount. Direct Subsidized and Direct Unsubsidized loans have origination fees capped, depending on what they’ve been set to in any given year. This amount is deducted from the loan disbursed to you.
    For private graduate loans, each lender decides what they will charge for origination fees; not every private lender charges origination fees. Your creditworthiness determines the origination fee they will charge you. If you have good credit, the fee will be lower.
  • Eligibility Requirements:
    For a federal graduate loan, you have several eligibility criteria you’ll have to meet. You should be a US citizen or eligible noncitizen, hold a valid Social Security number, hold a high school diploma or GED certificate, and be enrolled or accepted as a student in an eligible degree or certificate program. You’ll also need to fill out the FAFSA, which determines your financial eligibility by demonstrating financial need.
    To qualify for a private graduate loan, you must be a legal adult in your state, complete a FAFSA, obtain a co-signer for most companies, and/or have a good credit record.
  • Repayment Options:
    The federal options for repayment include:
    • Standard Repayment: You’ll make equal, monthly payments for 10 years (or the term limit of your loan). You’ll pay less interest and repay your loans more quickly.
    • Income-Driven Repayment: This option goes by a few other names: Pay as You Earn (PAYE), Income-Contingent Repayment, and Revised Pay as You Earn (REPAYE). (Each of these types of repayment may have slightly different terms or eligibility requirements.) You’ll pay a smaller percentage of your discretionary income toward your loans. Your loan term extends to 20 or 25 years. If you have any remaining loan balance at the end of this time, it will be forgiven, but you’ll owe taxes on that amount.

    You can apply for an income-driven repayment option with your student loan servicer or at the student loans government website.
    With a private student loan, your servicer decides if it will provide a forbearance or deferment. It’s rare for a private loan servicer to provide repayment options outside of interest-only payments while you are in school. Deferment or forbearance may be offered for specific circumstances.

Sallie Mae Graduate Loans

One of the largest student loan servicers, Sallie Mae has adopted new financing options for graduate students. Students must be pursuing specific majors for some of these loans: law, health professions, MBA, or dental.

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Interest rates are competitively priced fixed or variable rates. Payment terms are available with no origination fees or pre-payment penalties. Loans can pay for up to 100% of the cost of attendance, including cost of living, books, etc.

Why Sallie Mae for Graduate Loans?

Sallie Mae touts its graduate school loans as being the best alternative to federal student loans.

These loans:

  • Have no origination fees
  • Offer variable and fixed interest rates
  • Can be used for less than half-time enrollment
  • Include a 6-month grace period
  • Have an option for deferred repayments
  • Include interest and fixed repayment options
  • Reduce rates for auto-debit enrollment

Repayment Options

Sallie Mae offers repayment options to graduate students in specific degree fields.

These include:

  • Interest repayments while students are in school and during their separation (grace) periods
  • Deferred Repayment: Postponed loan payments while in school and during separation period
  • Fixed Repayment: Pay interest only while students are in school and during separation period

Features and Benefits

Graduate students choosing Sallie Mae graduate student loans may benefit from several loan features:

  • Enroll in auto-debit for monthly payments and receive a 0.25% interest rate deduction on loans
  • Make 12 on-time loan payments covering principal and interest, meet some credit requirements, and get a co-signer release
  • No origination fees or pre-payment penalties for paying student loans off early
  • Pay all school-certified health professions school costs using one lender
  • Have access to your credit score using the free, quarterly FICO credit score online for you and your co-signer