Graduate school loans sound like a simple solution for taking the next step in your education. Before you take out graduate loans, think of a real-life situation based on your earning potential after graduate school. Say, for example, you're going to borrow $18,500 a year for resident tuition in a master's program. (In many cases, non-resident graduate students will pay up to twice that amount for tuition each term.) The repayment figure may not sound like much despite the fact that by the time you get your loans paid off, the interest will end up costing you about the same as a year's tuition.
But wait. Multiply that amount by three years, and you're looking at close to $60,000 of debt and a monthly payment of more than $600. If you expect to earn around $50,000 a year, you'll be making roughly $4,200 a month. Subtract your $600 monthly loan payment from that, and also take out money for things like rent, food, and other "living expenses." With those figures in front of you, you may want to reevaluate what you will borrow.
If graduate loans are necessary, don't borrow more than you need
According to most financial aid counselors, the total amount of your student loan debt payment should not exceed 8 to 15 percent of your expected earnings after receiving your degree. (The figures given above for a state resident come out to about 14 percent.) Before you sign on the dotted line for any graduate school loan, take the time to look at:
- Your future income
- The time it will take you to repay your student loans
- The interest rate you'll be charged
- The lifestyle you want after graduation
Also be sure to take into account the unexpected things that might occur that could affect your ability to keep up on your loan payments.
Graduate loans are not your only financial resource
Graduate students often get into the grad school loan groove and don't think about looking for assistantships and grants for graduate school. that might be available to them. You should take time to investigate what grants or scholarships you might qualify for. This could mean the difference between paying full price and getting half (or more!) of your tuition paid for, with no obligation to pay it back. This is a great idea, especially if you've done well in your career and/or done well as an undergraduate. Call the graduate program of your school and ask if they offer any scholarships or grants for graduate school.
Don't just consider the least expensive graduate program
A fundamental mistake that graduate students make all too often when looking at the cost of graduate school is to pick the cheapest program. Try not to make cost the primary decision-making factor when choosing a graduate program. In reality, the higher-priced out-of-state graduate programs at private institutions could offer you more grants and aid because they have more available.
If you need a graduate school loan: Start early, start early, start early
You heard this advice when you applied to college. The same is true for graduate school. It cannot be overstated. If you wait until the last minute, as many busy people do, all that first-come, first-serve financial aid will be gone. Even though you might be planning to enter graduate school in September, you should fill out the FAFSA and submit it as soon after January 1 as you can.
Calling the graduate programs you're interested in early to see what's available is always to your advantage. Researching financial aid in August when you want to enter graduate school in September won't leave you with many options. You will have missed out on some good opportunities for scholarships, grants, and assistantships. It can take months to fill out all the applications and information you'll need to get financial aid. Remember the old saying about the early bird catching the worm.
A grad school loan is often necessary, but it doesn't have to be a huge burden
Realistically, you will likely need to borrow to cover some of the costs of your graduate education. However, by being a smart borrower you can ensure that your graduate loans are for the right amount, and that you're prepared to enter repayment with a solid financial plan.