Ibrahim Gardner
Graduate students often rely on loans to fund their education, but the options available can be confusing. While federal loans are generally safer than private loans, subsidized loans—which do not accrue interest while the student is enrolled—are not currently available for graduate students in the US. This means interest will accrue on any federal loans taken out during graduate school, and must be paid back after graduation. However, there are other options for managing loan repayments, such as income-driven repayment plans, refinancing, and loan forgiveness programs.
| Characteristics | Values |
|---|---|
| Subsidized loans available for graduate students | No |
| Year of phase-out | 2012 |
| Federal unsubsidized loan borrowing limit for graduate students | $20,500 per year |
| Total federal loan borrowing limit | $138,000 |
| Average student loan debt for graduate school borrowers | $77,300 |
| Federal student loan grace period after graduation | 6 months |
| Federal student loan forgiveness eligibility | Permanent disability, school closure, etc. |
Explore related products
What You'll Learn
Subsidised loans are not available for graduate students
Subsidized loans, which do not accrue interest while in school, are not available for graduate students. This option was phased out in July 2012 and is currently only offered to undergraduate students. Graduate students can, however, take out federal unsubsidized loans, Grad PLUS loans, or private loans.
Federal unsubsidized loans are available to both undergraduate and graduate students, and do not require students to demonstrate financial need to qualify. The loan amount is determined by the school, and interest starts accruing as soon as the loan is disbursed. For graduate students, the aggregate loan limit is $138,500, of which no more than $65,500 may be in subsidized loans. Once a student reaches this limit, they will not be allowed to borrow any more money in federal student loans. However, if they are able to pay off some of their loans, they may be able to borrow again up to the aggregate loan limit.
Grad PLUS loans, also known as Direct PLUS Loans, are another federal loan option for graduate students. To be eligible, students must be enrolled at least half-time at an eligible school, and their program must lead to a graduate degree, a professional degree, or a certificate. Students must meet the basic eligibility requirements for federal student aid and must not have an adverse credit history. Under the Grad PLUS program, students are allowed to borrow the cost of attendance less any other financial aid. Repayment on these loans does not begin until six months after leaving school or dropping below half-time enrollment, and interest rates are fixed.
Private loans are another option for graduate students. These loans can cover up to 100% of school-certified costs, including tuition, books, supplies, room and board, and transportation. Repayment plans are flexible, allowing students to find an option that fits their financial plan and budget.
Explore related products
Interest accrues on unsubsidised loans if unpaid during enrolment
Graduate students can take out federal unsubsidized loans, graduate PLUS loans, and private loans to fund their education. Unsubsidized loans are available to both undergraduate and graduate students regardless of their financial needs. These loans start accruing interest right after the funds are disbursed. Interest accrues on unsubsidized loans even during enrolment, and it is capitalized, meaning it is added to the loan's unpaid principal balance. This leads to a situation where interest is charged on interest. For example, a $5,000 loan with a 10% annual rate for a 12-month program accrues $500 of interest while in school and $250 during the six-month grace period, resulting in a total of $750 in accrued interest by the end of the grace period. This $750 is then added to the principal balance, increasing it to $5,750, and interest continues to accrue on this new balance.
While in school, most students defer loan payments until after graduation because they lack the income to pay off their loans. However, interest continues to accrue on unsubsidized loans during this deferment period. Therefore, it is beneficial to start making payments while still in school, even if they are small amounts, as it can significantly reduce the total interest paid over the life of the loan.
In contrast, subsidized loans do not accrue interest while the student is in school, as the government pays the interest during this period. However, subsidized loans are currently only offered to undergraduate students and not graduate students.
To summarize, interest accrues on unsubsidized loans during enrolment, and this interest is capitalized, increasing the overall cost of the loan. While deferring payments until after graduation is a common practice, it is advisable to make even small payments while in school to reduce the total interest burden.
Explore related products
Federal loans are preferable to private loans
Graduate students are not eligible for subsidized loans. However, they can borrow up to $20,500 a year in federal unsubsidized loans. Federal loans are preferable to private loans for several reasons. Firstly, federal loans are issued by the federal government, whereas private student loans are issued by banks, credit unions, and online lenders. Federal loans are, therefore, easier to qualify for and have lower eligibility requirements.
Secondly, federal loans offer a range of repayment options, including income-driven repayment plans. These plans can reduce monthly payments to as little as 10% of discretionary income, which can be beneficial for borrowers who struggle to make their monthly payments. Federal loans also offer the option for partial loan forgiveness with certain payment plans. Private loans, on the other hand, lack benefits like income-driven repayment and Public Service Loan Forgiveness.
Thirdly, federal loans have a fixed interest rate that is the same for all borrowers in a given school year, whereas private loans may offer higher interest rates, especially for borrowers with no cosigner. Although borrowers with excellent credit may be able to access lower interest rates through private loans, federal loans do not reward borrowers with good credit.
Finally, federal loans have borrowing limits, which may not cover the full cost of attendance for some students. In such cases, private loans can be used to supplement federal loans. However, it is important to carefully consider the terms and conditions of private loans, as they may have higher fees or interest rates than federal loans.
Explore related products
$16.53 $22.99
Loan forgiveness and income-driven repayment plans
Graduate students are not eligible for subsidized loans and must instead rely on other forms of federal aid to fund their education. While subsidized loans, which do not accrue interest while the student is in school, were previously available to graduate students, this option was phased out in July 2012. Now, graduate students can borrow up to $20,500 per year in federal unsubsidized loans, which do accrue interest while the student is in school.
To manage their debt, graduate students can consider tactics that save money (forgiveness), lower payments (income-driven repayment), or do both (refinancing). One option for loan forgiveness is the Income-Based Repayment (IBR) plan, which offers loan forgiveness after 20 or 25 years, depending on the loan amount. This plan is available to borrowers with older loans, as Congress recently reduced the number of repayment plans for new borrowers from seven to two. The new income-based repayment plan tailors monthly payments to the borrower's income. However, it is important to note that this option may not be available to borrowers who take out loans after July 1, 2026.
Another consideration for graduate students is the lifetime borrowing cap of $100,000, which is significantly lower than the previous ceiling of $138,000. For students pursuing professional degrees in law or medicine, the cap is set at $200,000, while parent borrowers can borrow up to $65,000 per child. These borrowing limits highlight the importance of exploring alternative financing options, such as private graduate school loans, which parents can take out or co-sign for their children. However, it is crucial to carefully consider the implications of private loans, as they lack the benefits of income-driven repayment plans and Public Service Loan Forgiveness offered by federal loans.
Overall, while graduate students may face challenges in financing their education due to the unavailability of subsidized loans and changing borrowing limits, they can explore various repayment and forgiveness options to manage their debt effectively.
Explore related products
Student loan debt averages $77,300 for graduate students
Graduate students are not eligible for subsidized loans. This type of loan, which does not accrue interest while the borrower is in school, was phased out for graduate students in July 2012 and is now only available to undergraduates.
However, graduate students can borrow up to $20,500 a year in federal unsubsidized loans, which accrue interest while the borrower is in school. They can also take out graduate PLUS loans and private loans.
The average student loan debt for graduate school borrowers is $77,300, not including undergraduate loans. This figure reflects debt for master's degrees, PhDs, and other advanced degrees. With undergraduate loans included, the average debt for graduate students rises to $88,220. Assuming current federal interest rates and a standard 10-year repayment term, the average graduate student would repay about $1,074 each month and around $128,890 overall.
The average federal student loan debt among Black and African American borrowers upon graduation with a bachelor's degree is $33,960, the highest among all racial groups. The average white student borrower with a bachelor's degree owes $30,720. Male borrowers owe less in graduate student debt than female borrowers, except in the case of professional doctorate degrees.
Frequently asked questions
No, subsidized loans are not available for graduate students. They were phased out in 2012 and are currently only offered to undergraduate students. Graduate students can, however, get student loans through the federal government to pay for their degrees, but these loans come with higher interest rates than those available to undergraduates.
Subsidized loans for undergraduate students do not accrue interest while the student is in school. This saves the student thousands of dollars over time.
There are other options available for graduate students who need financial aid, such as federal aid and private loans. Graduate students can also look into loan forgiveness programs, income-driven repayment plans, refinancing options, and extended repayment plans.
