Grad school is a commitment—and so are the loans you take out to pay for it. While scholarships and grants for graduate school are gifts and do not have to be repaid, loans are quite different. For most students, graduate school loans are considered a necessary evil. Your graduate program is looked upon as an investment in your future, and it helps you achieve the means to repay the loans later—after you find success in the working world. With that in mind, most lenders offer flexible repayment choices that can help you pay off your loans without placing you in financial jeopardy.
Repayment and postponement options are similar among many of the major lenders in the education industry. Of course, each lender is its own business, so it’s up to you to know the terms and conditions of each of your loans. Most will provide you with the following features:
Most graduate school loans come with a "grace period"
Most educational loans allot a grace period to you after you graduate or drop below half-time student status. During your grace period, you don’t need to start repayment on your loans. This buys you some time to make sure you have the means to pay the loan bills when they come due! In the case of Stafford loans, for example, the grace period is typically six months. However, if your loan is subsidized, you can begin repayment during your grace period if you want to—payments will be applied directly to the loan principal, which will pay off of the loan sooner.
Grad school loan deferment
If you’re having difficulty making your loan payments, you may request a deferment, which is a temporary suspension of your required payments. Deferment isn’t automatic; you don't get it just by asking for it. You need to meet certain qualifications, and you should keep making your payments until you know if you’ve been approved or not. Deferment is also not indefinite. Deferment will be time-limited and cannot be requested over and over again. If you’re not sure if you’re eligible for deferment, you’ll need to check with your lender to find out about eligibility requirements and limitations. Depending on the type of loan you have and when the money was borrowed, your interest rate may or may not be "locked."
Grad school loan forbearance
Loan forbearance will let you reduce or temporarily stop your payments if you’re having difficulty making them. However, while you’re not making payments, interest still accrues and the balance of your loan mounts up. Forbearance is granted in intervals that can last up to 12-months at a time and for up to a total of three years. Forbearance can extend your time for making payments or be for an agreed upon period of time during which you make smaller payments.
Whether or not your graduate loans qualify for forbearance is up to your lender, but if you are experiencing any of the following situations, the lender must grant forbearance to you as long as you make your request in writing and submit any required documentation:
- You are a dental or medical intern
- Your monthly student loan payments equal or exceed 20 percent of your monthly income
- You are serving in a national service position
- You qualify under the Student Loan Repayment Program administered by the Department of Defense
- You are affected by a local or national emergency
- You are a member of the National Guard or Reserves and are mobilized
- You reside in a designated disaster area
- You have become unemployed or partially disabled
Your interest rate may or may not be "locked," depending on the type of loan you have and when you borrowed the money.
Grad school loan consolidation
Each individual loan carries its own minimum monthly payment. If you have several loans, the payments can quickly add up; it may be easier to repay all of your loans with one monthly payment by consolidating them into one loan that can be extended up to thirty years. This may sound tempting, but keep in mind that even if your monthly payment is smaller, you may end up paying more in interest by extending the life of the loan. It hasn’t held true in recent years, but sometimes, the interest rate on a consolidation loan may be higher than the rates on your original loans. Keep an eye on what the Fed is doing with interest rates and check with a loan officer before consolidating your loans so you can be confident that consolidation would be in your best interest. Keep in mind that once your loans are consolidated, the interest rate is "fixed."
A graduate school loan offers adaptable payment schedules
Standard payment schedules are designed to make your loan payments the same every month and to pay off your loan as quickly as possible without burdening you with huge payments or a long-term debt. However, you may opt for one of these alternatives to help accommodate your particular financial situation.
- Standard Repayment Schedule: Your payments are the same each month but may be adjusted each year to reflect the variable interest rate. The term for repayment is ten years.
- Graduated Repayment Schedule: You can make smaller monthly payments early in the repayment schedule and then make larger payments later on—but the term for repayment is still ten years.
- Income-sensitive Repayment Schedule: Your loan payments are based on your monthly income. The term for repayment can be longer than ten years
Graduate loans can have flexible payment methods
In today’s world of technology, you can make your loan payments the old-fashioned way by sending a check in the mail, or you can opt for more modern means. Most lenders now have online options for making payments. You can schedule payments to be automatically deducted from your bank account each month, or you can make single payments online when the urge hits you and send checks the rest of the time. You can also make extra payments online if you find yourself with a little extra money to put toward your principal. Many lenders will reduce your interest rate if you enroll in an automatic debit program and they may reduce your interest rate further after you’ve made a certain amount of payments on time. Every little bit helps, so these are good options for helping to reduce your debt—and the amount of time it takes to pay it off.