This summer, Pennywise is tackling the financial questions involved in going back to school. In June, we helped you plan your grad school budget , and in July, we shared the finance options you don’t have to pay back . Today, we’re getting into the nitty-gritty of applying for grad school loans.
Headed to grad school? Chances are, you’ll be taking out at least some loans to cover the costs of tuition, rent, groceries, and the other expenses you’ll be responsible for while earning your degree.
And because you have more exciting things to do than spend your pre-class free time applying for loans, we’re bringing you a handy guide to the application process to help you get through it more quickly.
Decide How Much You Need
Before applying for a loan, determine how much of your education you’ll need to finance. Here’s where that budget you made comes in handy: How much do you need for this coming year once you subtract any grants, scholarships, or income you’ll be receiving?
You'll want to reevaluate your budget and financing needs each year, as you may be eligible for additional grants or assistantships that can reduce your need for student loans (or face tuition increases and need to take out more).
Once you know how much you need, decide what type of loans to take out. (Want to learn more about your options? Check out our guide to student loan types .)
Because of their fixed interest rates and flexible repayment options, federal loans tend to be the loan of choice for most students.
There are two main types of federal loans: Stafford and Grad PLUS. Since Stafford loans, currently at 6.8%, have the lowest interest rate of federal student loan options ( with the exception of Perkins loans , which are specifically for low-income students), you’ll want to max out those loans before considering Grad PLUS loans, currently at 7.9%. Graduate students attending at least half-time can borrow up to $20,500 a year in Stafford loans, and up to $138,500 total.
In order to qualify for federal loans, you will need to complete the Free Application for Federal Student Aid (FAFSA) . While filing your FAFSA, you’ll want to have your most recently completed tax return handy to fill out your income information. You’ll also want to have current bank statements, investment records, business records (if you have a business), and grant and scholarship awards handy, as applicable.
The FAFSA takes longest to fill out if you haven’t filed your taxes yet or if you’re a dependent student. The good news? Now that you’re working on your master’s or doctorate, you’re considered an independent student, so you don’t need to include your parents’ financial information. The bad news? If you want to submit your FAFSA before filing your taxes (if you’re applying for limited funds, like Perkins loans, you’ll especially want to get your FAFSA in early), you’ll have to estimate your numbers for the FAFSA and correct them after you file. Don’t want the hassle? File those taxes extra early this year!
Be sure to check the FAFSA website or ask your school for deadline information, as it varies by state.
The good news: Qualifying for student loans isn’t like qualifying for a car loan, mortgage, or other loan type. If you’re applying for Stafford loans (the most common federal loan), you won’t be subject to a regular credit check. As long as you haven’t defaulted on other federal education loans before, you won’t be disqualified because of adverse credit.
Get more Stafford Loan FAQs from U.S. News.
The requirements for Grad PLUS loans are a bit more stringent than those for Stafford loans, and you’ll be subject to a credit check when you apply. For the purposes of your Grad PLUS loan application, you’re considered to have an adverse credit history if you are 90 or more days delinquent on any loan payments, or have gone through bankruptcy, foreclosure, or repossession or defaulted on previous federal student loans within the past five years. If your credit history is poor, that doesn’t mean you can’t qualify, but it does mean you’ll need a co-signer, like a spouse, parent, or other family member.
If this is the case, keep in mind that any delinquency in your payments will also affect your co-signer's credit—and that unlike other loan debt, student loans cannot be dismissed in bankruptcy filings. Don’t take choosing a co-signer lightly. (And more importantly, if you’re approached to co-sign a loan for a friend or family member, don’t hesitate to say no if you’re at all uncomfortable with the thought.)
Get more Grad PLUS loan FAQs from U.S. News .
Getting Your Loan Money
Once you’ve been approved for federal loans, you will be prompted to complete an online financial counseling session and electronically sign your Master Promissory Note . Your school will disburse your loan funds by first crediting your school account for tuition and other fees. Any extra—think money that you’ve taken out for living expenses—will then be paid to you. Typically, these disbursements are made at the beginning of each semester.
Private loans—or student loans that you secure through a private bank or lending company in place of or in addition to federal loans—are a different ball game. Each lender will have its own requirements for qualifying and applying for loans, which usually includes submitting an application detailing your financial history and information. Ask your lender for details.
Private loan rates, which can start as low as 3%, can depend on various factors, but primarily your credit score. If your score isn’t within the range to qualify for the best rates, you may be able to reduce your rate by adding a co-signer with a strong credit history. But beware of variable rates. Though they’re low at the moment, they could go up dramatically over the term of the loan—a risk you won’t take with a federal loan.
Now that you know what’s expected of you—get your FAFSA in! It should take all of 17 minutes , so you can get back to enjoying your summer in no time.
Photo of man doing finances courtesy of Shutterstock .
TopicsTools & Skills , Money , Lifestyle , Personal Finance , Grad School , Syndication , Pennywise by Emily Nickerson , Negotiation & Money
Little brings Emily more of a thrill than taking a so-so sentence and making it shine or giving an alright paragraph more of a punch. She’s a self proclaimed word-nerd whose penchant for language took her from barista-ing in a bookstore café during college to serving as a Fulbright English Teaching Assistant in a high school just outside of Madrid after graduating with a double major in English and Spanish. Since returning to the States over a year ago, Emily has worked as Associate Editor for The Daily Muse and established a Spanish language social media presence for one of Southwest Michigan’s leading credit unions. Recently married, she, her hubby, and their crazy cat, Angel, call the shores of Lake Michigan home.More from this Author