Paying for Graduate School

Free money, then federal loans, then private loans. That's the order in which you should seek graduate financial aid, just as with an undergraduate program, indicates Nancy Morgan, product manager of the Credit Union Federal Student Loan Network at CUNA Mutual Group, Madison, Wis.

That's the approach Leanna Fox, Maryland, took. [Fox was one of several What's Your Story? respondents.] First she researched graduate schools to find a respected one that offered her program of study for the lowest tuition. Then she applied for and got a research assistant position, where her academic department paid part of her tuition in return for doing research. "The position also offered a stipend [an additional amount to help cover living expenses], plus the benefit of paying the lower in-state tuition, even though I'm from out of state," Fox says. This free money didn't cover all her educational costs�she still had to use student loans�but it certainly kept her debt levels down.

Free money

Financial aid you don't have to pay back comes in several forms, such as Fox's research assistantship. Many schools offer teaching assistant positions as well, where graduate students teach classes, or assist professors as they teach, in exchange for tuition assistance and often stipends. There also are fellowships (graduate-level scholarships), usually merit-based or grants (one-time gifts used to accomplish a specific purpose, such as a particular research project). Many schools offer these types of free money, as do diverse associations, nonprofits, and businesses; they range from a few hundred dollars to covering your full tuition plus a stipend.

Schools usually offer fellowships and assistantships at the departmental level, so if you're interested in a certain college, research the appropriate department to determine how it handles financial aid. Information usually is available on departments' Web sites, but you shouldn't hesitate to contact the departments directly, according to gradschooltips.com.

The site advises to "Speak with someone in your department who's knowledgeable about what aid is available, and what your chances of securing it are. Don't be afraid to ask questions about how aid is distributed and how much; departments are used to this. They want to attract the best students possible, and they know that financial considerations are a major factor for almost all students, so they don't mind being helpful." Also ask about disbursement timing; one grad student was caught off guard when he found out, once on campus, that his stipend would be paid at the end of a semester instead of at the beginning.

Fellowships and assistantships are very competitive, so apply early, and polish up your r�sum� the best you can. Check with individual fellowships and grants for deadline dates and how far in advance you can apply. If your grades aren't stellar, highlight internships or professional experience that will help you make a valuable contribution to a school.

Diligent research will reveal many other free money opportunities. The students.gov site lists all U.S. government fellowships and grants, and sites such as fastweb.com or brokescholar.com list aid opportunities from many sources. Also check school Web sites or do a general online search for "fellowship + (your area of study)."

You'll likely find associations that award grants or fellowships to graduate students in your field, as well as other organizations or businesses that could benefit from your research or study. For example, the American Planning Association, Washington, D.C., offers several fellowships to graduate students interested in studying urban planning. The Semiconductor Research Corporation, Research Triangle Park, N.C., awards select graduate researchers full tuition plus a stipend for up to three years. And don't forget your local and state governments�they can be sources of aid too.

If you're employed, see if your company reimburses tuition. Keep in mind that you may have to pay the tuition up front and receive a check after successfully completing your courses. You also may have to remain with the employer for a period of time after receiving your degree, or else partially repay the expenses.

Federal loans

If you still need assistance after exhausting free money sources, federal student loans are the next best option. These loans have relatively low interest rates and you generally don't have to make payments while you attend school. Some loan options are the same as for undergraduate students, but the maximum amounts you can borrow are higher.

Perkins loans are need-based, and schools offer them directly. They have the lowest interest rates of all federal student loans and only are available to lower-income students.

Stafford loans can be subsidized, meaning that the government pays the interest while you're in school, or unsubsidized, meaning that you can either pay the interest while you are in school or have it accrue and capitalized (added to your loan balance once you enter repayment). The interest rates are slightly higher than for Perkins loans, but students are eligible regardless of income levels. There's no credit check required for a Stafford loan.

Grad PLUS loans have slightly higher interest rates than Stafford loans, and a credit check is required for loan approval, so you should use Stafford loans before PLUS loans. These loans are unsubsidized.

Lenders often offer multiple loan options, Stafford and Parent PLUS and Grad PLUS loans, and it's important to shop carefully before choosing one. Some offer discounts to make their loans attractive, with very different discount structures. Check first with your credit union to see what options it offers.

Private loans

If you've maxed out your federal loan options and still need assistance, you can seek private loans from various lenders. That's happening more often these days. "It used to be that people would be offered more in federal loans than they needed, but that doesn't happen any more with the quickly rising cost of education and the slowly rising federal loan limits," says Morgan. "You're more likely to have a gap, and that's where private loans are now needed."

Origination fees and interest rates for private loans vary considerably, and usually are significantly higher than for federal loans. Again, be sure to compare many lenders; you'll probably find that a credit union is your best bet.

Unfortunately, there is a flip-side to comparison shopping. While car or home loan shoppers can obtain multiple inquires in a short time period without being penalized, student loan shoppers are not granted the same deal. Each time a student or their parent sees a lender for a rate quote, this shows up as another inquiry on their credit report, which can lower their credit score. A drop in this score can yield a higher interest rate from lenders.

So why are those trying to pay for a decent education being penalized more than car and home buyers? Fair Isaac�creaters of the most widely used U.S. credit scoring system�hasn't dubbed multiple student loan inquiries "safe" partly due to its shortage of private student loan data. Private student loans are quite new compared to home or car loans.

While this policy could change in the future, for now students should check out about 3 to 4 lenders. Your credit score won't be in significant danger, and you are still likely to secure a lower interest rate than if you didn't loan shop. Ask plenty of questions to find the right fit for you.

Repaying your loans

When you determine how much you're willing to borrow for graduate school, think about how large your payments will be after you graduate. Online calculators can help you estimate your payments. If you don't get a good job as quickly as you expect, you may be able to defer payment, but you'll eventually have to pay the loans�and make payments on time�or you'll damage your credit rating.

Your loans for each year of school are separate, and one option is to consolidate them—combine them into one. The interest rate often is lower and you have only one payment to make each month. It does extend your loan period, which increases the amount of interest you'll pay over the life of the loan, but the lower monthly payments often are more manageable. As with any loan type, shop around.

If consolidation doesn't work for you, consider contacting each of your lenders (if you have more than one) to set up extended repayment options. As with consolidation, extending the loan period will cause more interest to accrue. The loans will remain separate, so you'll be making multiple payments, but the payments will be lower.

If you're uncomfortable with the amount you have to borrow, think about working for a few years first and saving more for graduate school. You might qualify for tuition reimbursement, which also helps.

But, most important, look for the free money first, or you're likely to regret it, as Kate Wolfe, New York, does. "I continued to work full-time through graduate school and had the good fortune of earning some remitted tuition to assist. Yet this didn't really put a dent in the overall cost of attendance," she says.

"So I took out Stafford loans, and before I knew it I had racked up $55,000 in loans, which I had to add to my undergraduate loans of about $20,000," Wolfe continues. "If I could do it over again I would definitely consult with a financial adviser. My advice to those pursuing graduate degrees: Negotiate and apply for scholarships; it will feel great to leave school without the burden of a $700 monthly loan payment."

It's usually worth it

Despite the financial burden, graduate school pays off for most people. In 2007 the Bureau of Labor Statistics reported that workers with a bachelor's degree earned $987 a week, on average, while those with a master's degree averaged $1,165, and those with doctoral degrees $1,497.

"Funding graduate school has been quite a challenge, especially since I'm employed and have a relatively decent paying job, so [I] don't qualify for need-based assistance," explains Angie, from Kentucky. "I knew I wanted to pursue my master's degree, but had no clue how I was going to pay for it. I was able to secure government loans, and I know it will be a challenge to pay for the loans upon graduation, yet I also know it will be so worth it.

"I definitely recommend graduate school to anyone interested," she continues. "I truly enjoy it. I just wish there was a way to attend at a lower cost."

Published September 22, 2008