What are the pros and cons of federal vs private loans for grad school?

If you are planning to pursue a graduate degree, you may need to consider your options for financial aid. One of the most common sources of funding is student loans, but not all loans are created equal. In this article, we will compare the pros and cons of federal vs private loans for grad school, and help you make an informed decision.

1 Federal loans

Federal loans are loans that are offered by the government, and they have some advantages over private loans. For example, federal loans usually have lower interest rates, more flexible repayment plans, and some forgiveness options. You may also qualify for subsidized loans, which means the government pays the interest while you are in school. However, federal loans also have some drawbacks. You may have to complete a lot of paperwork, such as the FAFSA, to apply for them. You may also face borrowing limits, which may not cover the full cost of your program. And you may not be able to choose your lender or loan servicer.

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Rachel Hanson

Podcasting Expert | Editor in Chief at Sound Sorceresses | Education Professional
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For those of you seeking a graduate degree, it's critically important for you to know that any federal loan you get will be unsubsidized. That means it's going to accrue interest while you're in school. The Department of Education caps Federal Direct Loan borrowing at $137,500 for all graduate work, but you also have access to Graduate PLUS Loans which have the same benefits as Federal Direct Loans. The paperwork for either type of loan is comparable to what you would need to do to apply for a private loan.

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Stephanie Zeppenfelt

Financial Aid Professional
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Graduate PLUS Loans are credit based and students must file a FAFSA. If a student has poor credit and is denied a PLUS Loan, they can be approved with a credit worthy cosigner. PLUS Loans have high origination fees usually around 4-5%. PLUS Loans usually carry an interest rate anywhere between 5-8% and varies per year.

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Stephanie Zeppenfelt

Financial Aid Professional
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All federal direct loans at the graduate level are unsubsidized which means they accrue interest from the origination of the loan. The maximum amount a student can receive per year is $20,500. The overall aggregate limit for federal loans at the graduate level is $138,500 which includes the student’s federal direct loan total from the undergraduate level. Federal direct loans have an origination fee usually between 1-2% and an interest rate between 4-7%. Students need to submit a FAFSA to qualify for federal direct loans. Maximize unsubsidized loans first as they usually have a smaller interest rate compared to Graduate PLUS Loans and private loans.

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2 Private loans

Private loans are loans that are offered by banks, credit unions, or other lenders, and they have some benefits over federal loans. For example, private loans may have higher borrowing limits, which can help you cover the gap between your tuition and your federal aid. You may also have more options to choose your lender, loan terms, and interest rate. However, private loans also have some risks. They usually have higher interest rates, which can increase your debt burden. They may also have stricter repayment terms, such as penalties for late payments or prepayment. And they do not offer any forgiveness or deferment options, which means you have to pay them back no matter what.

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3 How to choose

When deciding which type of loan is best for you, it is important to consider your eligibility, cost, and flexibility. To qualify for federal loans, you must meet certain criteria, such as being a U.S. citizen or eligible noncitizen, having a valid Social Security number, and maintaining satisfactory academic progress. To qualify for private loans, you need to have a good credit score, or a cosigner who does. To compare the cost of different loans, you need to look at the interest rate, the loan fees, and the total amount you will pay over time. Generally, federal loans have lower costs than private loans, but not always. To compare the flexibility of different loans, you need to look at the repayment options, the grace period, and the hardship relief. Generally, federal loans have more flexibility than private loans, but not always. You can also check if the loans have any benefits, such as discounts, rewards, or incentives.

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Misty Dunne, MEd, MSL

Business Development/Marketing/Education
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For most people there is no choice. If you are poor or have no credit, you take out federal loans that you can never file bankruptcy on if you default. If you have good credit and money, you have options and if things go south, you can file bankruptcy and recover. The federal government hands out money for useless degrees and traps people into endless poverty because those students weren't given the information they needed to make an informed decision. 18 years in higher ed shows me that we need to give money out for degrees that improve the economy and yield high paying jobs for families, that is all. There also needs to be a way out if they can't pay. Debt shouldn't be forever under any circumstances.

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4 Tips and advice

Navigating the loan process and managing debt can be daunting, but there are some tips and advice to help you. Start by applying for grants and scholarships, as these are free money that you don't have to pay back. Borrow only what you need to cover your educational expenses, and compare your options carefully before accepting any loan offer. Make sure to read the fine print and ask questions if you are unsure. Once you graduate, you will have to start paying back your loans, so make a realistic repayment plan and stick to it. You can also explore options to lower your payments, such as income-driven repayment, consolidation, or refinancing.

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5 Resources and tools

If you need more information or guidance on financial aid for graduate school, you can check out Federal Student Aid, FinAid, and Student Loan Hero. Federal Student Aid is the official website of the U.S. Department of Education, and it provides comprehensive information on federal loans, grants, and work-study programs. FinAid is a website that offers unbiased and reliable information on various types of financial aid, including loans, scholarships, and savings plans. Student Loan Hero is a website that helps you manage your student debt, and offers tips and advice on how to pay it off faster and smarter. All of these resources can help you apply for aid, manage your loans, calculate your costs, compare your options, and find the best lenders, refinancing options, and forgiveness programs.

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What are the pros and cons of federal vs private loans for grad school?

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1 Federal loans

2 Private loans

3 How to choose

4 Tips and advice

5 Resources and tools

Higher Education

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What are the pros and cons of federal vs private loans for grad school?

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1 Federal loans

2 Private loans

3 How to choose

4 Tips and advice

5 Resources and tools

Higher Education

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