6 questions about private student loans for graduate students


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The rate at which graduate students take out private student loans continues to rise. According to a report from Franklin University, with a master’s degree costing between $ 30,000 and over $ 100,000, it makes sense that private loans to graduate students are on the increase.

If you’ve ever completed the Free Federal Student Assistance Application (FAFSA) and been awarded scholarships, but are one of those graduate students facing a financial deficit, here are six key questions about managing private loans for study. higher than you should consider:

1. What are private graduate student loans?
2. When should I take out private student loans?
3. How do I know if I am eligible for private student loans?
4. How much can I borrow?
5. How does the repayment process for private graduate student loans work?
6. What are the advantages and disadvantages of taking out private student loans?

1. What are private graduate student loans?

Unlike a federal student loan, which is regulated by the government, private student loans are issued by independent lenders. These could be traditional banks or credit unions, or organizations specializing in student loans such as Sallie Maé.

Each organization has unique eligibility requirements, interest rates, and repayment terms. That is why it is best to shop around for your best private student loans.

2. When should I take out private student loans?

The simple answer is: If you’ve exhausted all other options like federal aid, scholarships, and grants, and you still have a gap in covering your costs, consider private student loans.

The advantage of private student loans is that there is no deadline to apply, unlike federal assistance. This application deadline means that you can wait for the schools to return on their various financial aids and apply for a private student loan in the middle of a semester. If possible, don’t wait until the last minute to apply; the approval process for private student loan applications can be time consuming, depending on the lender.

3. How do I know if I am eligible for private student loans?

While the government takes your level of financial need into account when it comes to providing financial aid, private lenders have different requirements. Factors taken into consideration may include:

  • Returned
  • Credit score
  • Whether you get private student loans with a co-signer
  • Debt-to-income ratio (how much you owe in monthly debt payments divided by your gross monthly income)

Eligibility will vary by lender, but having a low credit score or no credit history will likely make it difficult for you to qualify. If you have a co-signer, you may still be able to get private student loans if their credit rating and income meet the eligibility criteria.

If you qualify, having a good credit score can mean you will get lower interest rates and not pay as much at the end of your repayment period.

4. How much can I borrow?

Since each lender has their own set of conditions, this answer may vary. But generally, you will be faced with one of the following three situations.

    • Cost of the participation limit: This means that you can only receive a loan for the full cost minus any financial assistance. If your graduate studies cost $ 100,000 and you received $ 50,000 from other types of assistance, then you will only be able to withdraw a maximum of $ 50,000.

You can take out graduate student loans for living expenses, but these are usually counted in the total cost. For example, the University of California at Berkeley has a participation cost limit of $ 2,365 per month on rent or off-campus mortgage for graduate students.

  • Annual loan limit: The lender will simply state how much you are allowed to borrow in a given academic year.
  • Overall loan limit: Since you can apply for multiple private student loans, you may face a limit on how many you can combine. For federal loans, the limit is $ 138,500 (including loans for undergraduate studies), while the limits for private student loans typically range from $ 75,000 to $ 120,000 for undergraduates. While the private student loan limit may be higher for graduate students, it generally includes both private and federal student loan amounts.

5. How does the repayment process for private graduate student loans work?

With federal loans, you don’t have to start repaying them until you graduate, fall below half-time enrollment, or the loan is fully disbursed. . The repayment terms for private student loans, however, will differ depending on the lender, and there are not as many repayment options as with federal loans.

Here are the most common refund processes you are likely to find:

  • Immediate refund: You will start paying principal and interest while you study. It might help you lower your overhead costs, but it could put additional financial strain on you while you’re in school.
  • Repayment of interest only: You will only pay the interest while you are in school, which could lower the total cost of the loan you will need to repay. Even though the monthly interest charges are minimal, you will need to factor it into your monthly expenses and may need to take a part-time job to cover the payments.
  • Deferred reimbursement: You won’t start repaying the loan until you graduate or fall below half-time enrollment. Interest could still accrue during this time, which would increase your overall debt.
  • Refinance your private student loans: You might be able to get a lower interest rate if you have solid income and good credit. Depending on your particular situation, this can help you spend less money over the life of your loan. Keep in mind that lower monthly payments can mean an extension of the loan term. A longer term could cost you more overall, so weigh the pros and cons of refinancing private student loans.

In general, private loan repayment terms for graduate students can range from five years to over 20 years, but keep in mind that interest will accumulate over time.

Unfortunately, you won’t be able to choose options like government-offered income-based repayment plans, forbearance, or loan cancellation. But many private lenders will want to work with you to provide flexible repayment options that are right for you.

6. What are the advantages and disadvantages of taking out private student loans?

As with any loan, there are pros and cons to borrowing money. Here are some pros and cons to consider when taking out private student loans.

Advantages:

  • You can borrow more: The government limits the overall amount that you can borrow up to $ 138,500 which includes what you have already borrowed as an undergraduate. With private student loans, you can borrow the full cost of your education and use graduate student loans for living expenses.
  • Your credit score can help your interest rate: Federal aid is determined based on how much money the government determines you need to help pay for your education. Private student loans take your credit score into account. While bad credit can make you ineligible for a loan, a good credit score can help you earn a lower interest rate, saving you money over time.
  • There is a limitation period in the event of default: While it is never a good idea to default on your loans as it can land you in court and ruin your credit, it is good to know that there is a limit to how long a lender can give you. to chase. The statute of limitations is different in each state, ranging from three to 10 years, which means that after that time, lenders won’t have much money to sue you. For example, in California, the statute of limitations is four years; in New York, it’s six o’clock. Federal loans, on the other hand, do not have a statute of limitations.

The inconvenients:

  • The repayment terms are not so flexible: Federal student loans have a solid list of repayment plans including income-oriented plans and can provide student loan forgiveness as well. Private student loans have limited repayment terms, which means you won’t have as many options if you’re struggling to make your payments.
  • Lenders set requirements, eligibility, application process and regulations: Federal student loans are standardized – all terms are set by the government, making them easier to understand. Private student loans, on the other hand, are set at the discretion of individual lenders and have no general body stipulating lending criteria. With so many variations in private student loan terms, it’s easy to accidentally overlook details that can end up costing you hundreds or even thousands of dollars.
  • There may be variable interest rates: While private student loans can have fixed interest rates like federal student loans, many have variable rates. A variable interest rate can fluctuate depending on the market and is often unpredictable. This can, in turn, increase your monthly payment and the overall amount you will pay for your loan at the end of it. Plus, interest can start accruing immediately, so you may need to be prepared to start making payments while you are in school.

Using private student loans for higher education is one way to fill the financial aid gap and allow you to attend the school of your choice. Nonetheless, there are a number of factors that you should consider so that you don’t end up facing a mountain of debt after you graduate. As a student who is likely to face high tuition fees, it is best to seek out private student loans that best suit your unique circumstances.

Christina Majaski contributed to this report.