Despite all of the conversation the student loan crisis has inspired in recent years, one important piece of the puzzle is often missing from the dialogue. While most headlines have focused on undergraduate borrowers and their student debt, the percentage of graduate student loan debt has been steadily increasing.
Today people take on a larger amount of debt for master’s, MBA, law, and medical programs than ever before. So what do borrowers need to know about the current state of graduate student loans? Here are some essentials:
The Increase in Graduate Borrowing
According to a 2018 report from the New America Foundation, debt for students who earned a range of master’s and professional degrees has surged in recent years. There isn’t one specific reason for this, of course, but one impetus for going back to school seems to be that some regard a master’s degree as the new bachelor’s degree.
It should come as no shock then that the average graduate student loan debt has skyrocketed. In the 2017 to 2018 school year, graduate school loan disbursements accounted for more than a third of the total federal loan program. In fact, more than $37 billion was disbursed to grad students that school year.
And for those pursuing professional degrees, including those studying law or medicine, the current average debt load was around $145,000 (for law) and around $196,000 per student in 2018. But the increase in graduate student debt isn’t necessarily due to a higher number of borrowers—it’s that students are borrowing more for graduate school.
And while people with graduate degrees tend to earn higher salaries and experience lower unemployment rates than their counterparts with undergraduate degrees, the earning potential for each type of degree can vary widely.
As with any investment, borrowers may want to consider their likely return on investment (in the form of future salary potential) when choosing how much debt to take on for higher education.
Grad Students Are Taking on More Debt than Undergrads
While undergrads have limits on how much they can borrow in federal loans, qualifying students pursuing graduate or professional degrees can use federal Grad PLUS loans to cover the entire cost of attendance (determined by the school), minus any other financial assistance received.
Students in professional degree programs have the “highest rates of annual borrowing, taking on an average of $40,624 from all sources for a single academic year.”
Graduate Loans Come with Higher Interest Rates
According to Sallie Mae’s report, “How America Pays for Graduate School,” 53% of graduate students borrow money to help cover graduate school costs. Graduate students have two options available to them through the federal Direct Loan program.
Graduate or professional Direct Unsubsidized loans have a 6.08% interest rate for the 2019-2020 school year. Direct PLUS loans currently available to graduate students through the federal government carry a 7.08% interest rate for the 2019-2020 school year. (There are also loan fees to factor in.)
Beyond this, some students may dip into higher-interest private loans. That’s compared with undergraduate federal loans, which are currently at 4.53% (until June 30, 2020).
The Cost of Going Back to School
Even with the staggering costs associated with graduate school, for some individuals it can be a beneficial step toward future success. Everyone’s situation is different, so whether or not you choose to pursue a graduate degree is a personal decision.
There are a number of different factors to sort through and evaluate as you determine if going back to school is worth the cost. Here are a few questions to help you navigate your decision making process.
Is the investment in this degree worth the cost?
One way to determine this is to calculate the financial return on education (ROE). An initial step might be to calculate the average lifetime earning potential for graduates in your chosen field of study.
If a graduate degree can lead to strong career growth, it can be well worth it. But that the market for graduate degrees can be inconsistent.
Programs can vary widely by cost, and schools have a lot of leeway to develop programs and price them with little oversight. So doing your due diligence on your school or schools of choice before going full steam ahead towards a graduate degree is probably wise.
Could the degree help your career path?
How will graduate school fit into your overall career goals? Sometimes it can further your current career. In other cases, a graduate degree can help you pivot into a related field.
There are a few ways to gather intel on this, such as talking to trusted friends and mentors in your desired field of study. Do they have any insight to share?
Another resource to check out is LinkedIn, where you can look at individual profiles of people who work for companies you admire. What was their career path?
While everyone’s journey is different, you may glean some valuable information about the type of experience and degrees those in positions you aspire to hold.
In some cases, a graduate degree will be required for a career in a certain field. Careers in medicine, law, and others may require some form of additional education.
Could a graduate degree improve overall life satisfaction?
If you’re interested in getting a graduate degree, you probably have some outcomes and goals in mind. Perhaps you want to improve your earning potential or get a promotion. Beyond financials, consider how an advanced degree might improve your overall happiness.
Much of what makes people happy at work is made up of intangibles—corporate culture, coworkers you enjoy, a boss you work well with and can learn from, work-life balance, and a sense of self-worth, which differs from person to person.
Will a degree move you toward a career that you’ll find more rewarding? These are all extremely personal factors that could influence your decision to pursue a graduate degree.
Financing Your Graduate Degree
If ultimately, you decide to go back to school to get a master’s or other professional degree, you’ll likely have to find a way to pay for it. Graduate degrees can be expensive—as we’ve shown above—here are a few ideas for financing your degree.
Looking for Scholarships and Grants
It may be worth searching for potential graduate school scholarships or grants available for grad students. Typically you can search by field, demographic, location, or even by school.
There are a variety of databases that aggregate scholarships online that can provide a starting point for your search. A good rule of thumb is to track your scholarship applications so you can streamline the process.
Keeping track of questions you’ve already answered so you can repurpose them for future applications may be helpful, since it could cut down the time it takes to apply. Tracking each application can help you easily keep tabs on where you’ve applied and who you’ve heard back from.
There are fewer scholarships available for graduate school than there are for undergrad degrees, covering just 15% of total grad school costs, according to Sallie Mae.
But since scholarships and grants don’t need to be repaid, even just a small sum can be helpful in making ends meet as you find a way to pay for grad school. Hey, $1,000 in scholarships is $1,000 less you’d need to borrow in loans.
Searching for Fellowships or Assistantships
Many schools offer fellowships or assistantships to graduate students. These are typically merit-based—things like a high GPA in college could help you qualify.
Graduate student assistantships are usually either research-based or teaching-based. The benefits may vary by school but could include help with tuition, a living stipend, or both. The assistantship typically requires students to work for 15 to 20 hours a week in their specified role.
Some schools also have graduate resident assistants. In this role, students generally work in an on-campus residence hall (often helping undergrads). In return, they might get free room and board or a stipend. Specifics will vary by school.
Fellowships are similar to assistantships but generally don’t require a set number of work hours on-campus.
Assistantship and fellowship opportunities vary by school and there are usually different application processes. You may want to review the websites of the schools you are planning on applying to for more information.
Taking Advantage of Employer Programs
Some employers offer education benefits to their employees. If available to you, this could be a valuable tool to help you pay for your graduate degree.
Tuition reimbursement programs will vary by lender, so you may want to check in with HR or the program administrator to get the details on the application process and how much you might qualify for.
Also, it may be worth finding out if there are any contingencies associated with the reimbursement. For example, some companies may require you to stay with the company for a certain period of time after graduation. Others may only provide assistance for select programs.
Borrowing Student Loans
When the above options aren’t enough, student loans can come into play. A good way to get started is to fill out the Free Application for Federal Student Aid (FAFSA®). This is how you can apply for federal aid including work-study and federal student loans. Federal student loans are the most common source of funding for graduate students.
In the case that federal student loans aren’t enough, private loans may be an option. Private lenders will review personal information like your credit history and more in order to determine the terms and interest rates you may qualify for. Borrowers with a strong credit history (among other financial metrics that vary by lender) could qualify for competitive rates.
How Refinancing Can Help
Many borrowers are aware that they can refinance private student loans, but it may come as a surprise to many that they may also be able to refinance federal student loans with a private lender.
Even a small change in interest rate can make a big difference in the long run. Refinancing student loans at a lower rate may allow borrowers to save money on interest or free up some cash flow by extending their loan term to lower their monthly payments.
Since federal loan benefits (like forbearance, income-driven repayment plans, and loan forgiveness) don’t transfer to private lenders, borrowers would be wise to first check to see if they’re eligible for one of the government’s loan benefits (should they want to take advantage) before deciding to refinance.
But for borrowers who are looking for a potentially lower interest rate and have improved their financial situations since leaving school, refinancing can be a great option.
For many grad school borrowers, student loans can be a powerful investment in their career and financial future. But a big loan balance means big responsibility, making it important to balance the cost of an advanced degree program with its related earning potential.
If and when the time comes, refinancing can help borrowers knock out more of their loans and move on to bigger and better things.
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If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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