Mistakes to Avoid When Paying for Grad School

Sage Crary
Sage Crary
Director of Financial Aid and Scholarships; pursuing an M.S. in Ethics and Religion
Mini graduate cap sitting atop a stack of coins.

Pursuing a graduate education is an investment in your future, and with all investments, there are things you should be aware of. First of all, this investment has a guaranteed return. Your salary, earning potential, and career opportunities will increase significantly simply as a result of completing your graduate degree. How many investments have almost guaranteed returns of two-four fold? Not many that I am aware of! However, there are a few things to consider to ensure you have the best financial plan for you and your family.

Not Applying for Scholarships and Grants

First of all, unless you are eligible for a TEACH Grant, it’s important to know that there are limited scholarships or grants for your graduate studies. This is different from your undergraduate program where grants and scholarships were the staple of any financial aid package. However, just because there are fewer of them, doesn’t mean you shouldn’t apply. In fact, it’s actually quite the opposite.

More graduate scholarships go unfulfilled annually than undergraduate scholarships, simply from the mere fact that most graduate students don’t apply for them. This means that the competition is significantly lower than at the undergraduate level for the same scholarship dollars and increases the likelihood of you being awarded the funding.

Additionally, graduate scholarships tend to be degree and major specific, so you’re only competing against a finite group of similar students pursuing the same career interests. If you spend a little time on those applications, making sure to tell a compelling story in your essay, you will have a great chance at being awarded one (or more!) of them.

Lastly, don’t shy away from applying to scholarships that might seem like a long shot. If the scholarship requires a GPA of 3.0 and yours was a 2.5, but you overcame personal obstacles and persevered, it’s worth applying for. Scholarship review committees would much rather the funding go to someone who needs it (rather than goes unclaimed) even if they don’t meet every single criterion. Furthermore, telling a story of perseverance, commitment to becoming a teacher or educator, or another compelling story demonstrates just as much strength and aptitude as a GPA might.

Not Checking Interest Rates and Loan Benefits

Another mistake to avoid is assuming that all student loans are the same. Every loan has a different interest rate and terms and conditions. To make things a bit more nuanced, oftentimes interest rates are not the primary feature to look at when determining which loans are best for you. In general, most graduate student loans can be ranked in the following ways:

Direct Unsubsidized Loan

Most of the time Direct Unsubsidized Loans are the ‘best’ option for graduate school loans. These loans do not require a credit or income check, are very competitive in interest rate, and will automatically consolidate with your undergraduate subsidized and unsubsidized loans. The consolidation benefit means that you will save money in interest and reduce your monthly payments over the long term. For current interest rates and information, check out www.studentaid.gov. The FAFSA is the only application required in order to receive a Direct Unsubsidized Loan.

Graduate Direct PLUS Loans

Graduate Direct PLUS loans require a small credit check and are applied for online. These loans have a slightly higher interest rate than an Unsubsidized Loan, but they can still be consolidated with other federal student loans that you may have. These loans do have a processing fee, which varies year to year, but it’s usually around 4%. So, for every $1,000 that you borrow in a Graduate PLUS loan, there will be a processing fee of around $40.

Alternative (aka Private) Loans

Alternative or private loans are independent student loans based exclusively on your credit, debt-to-income ratio, and annual household income. These loans are a good option for students with excellent credit and no other federal student loans. They cannot be consolidated with other student loans, so you will most likely have a higher monthly payment vs. the Direct Unsubsidized Loan and the Graduate PLUS loan. However, under the right circumstances it’s possible to receive a lower interest rate than the federal loans offer. In order to do this, you must have a strong credit score and low debt-to-income ratio and agree to a short-term repayment plan at the time of application. In order to get the best interest rate, you will most likely need to agree to a repayment plan of five years or less.

Waiting to Start Paying Off Your Loans

While we are on the topic of student loans, you should consider paying the interest on your loans while you are in school (if you can afford it). If you had a $10,000 loan at 6% interest, your monthly interest payment would be around $50 a month. While that might not sound like a lot now, if you allow that interest to accrue over 5 years it would cost you several hundred dollars in additional interest charges.

Not Working While in School

Lastly, depending on where you are in your life and your career and what type of academic commitment you want to make (enrolled full-time or part-time, for example), it’s important to consider working while you are going to school. If you are able to juggle work and school, it’s the number one way to reduce your total loan debt. At a minimum, if you can avoid borrowing student loans to pay for your rent, utilities, and other monthly expenses, you will save yourself tens of thousands of dollars.

Expecting Lifestyle to Stay the Same

However, if working while going to school is not an option for you, please consider making changes to your lifestyle so you can borrow as little in student loans as possible. Graduate school is an investment in your future, so with every good investment you want to do so wisely. If you do need to borrow student loans in order to pay your monthly living expenses, try to make those living expenses as small as possible. Perhaps you consider a roommate, carpooling to class/work, eating out less, or giving up ‘extras’ such as a latte on your way to class for the short term while you finish your degree.

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