Editors Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked and the Department of Justice has filed an appeal with the Supreme Court. While the case is being reviewed, the Biden administration is extending the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
Wondering what to do about your undergraduate school loans before starting graduate school? There are several options to consider, including deferment and refinancing college student loans.
Some grad students defer loan repayment while enrolled in school or refinance college student loans before starting a graduate program. As with your undergraduate student loans, the right choice for you will depend on a range of factors, such as whether you have federal or private student loans as well as how you plan to pay for grad school. Here’s an overview of the pros and cons of graduate school loan refinancing.
Grad School Student Loans
Before considering whether you should refinance your college student loans, it may be helpful to consider how you’ll be paying for graduate school. The average cost of public, in-state tuition for graduate school was $12,410 for the academic year 2019-2020, according to the National Center for Education Statistics. For a private institution, that number more than doubles to $26,597. In fact, graduate student loans account for 40 percent of federal student loans, according to The Center for American Progress.
You may be eligible for various types of student financial aid, including federal loans and private student loans. You’ll likely want to start by pursuing options such as grants (federal or private) that don’t need to be repaid, work-study programs, and federal loans.
Federal loans offer some benefits and protections, such as fixed interest rates, income-driven repayment plans, and access to forgiveness programs. As a grad student, you can apply for a Direct Unsubsidized Loan and Direct Grad PLUS Loan. (Direct Subsidized Loans are only an option for undergrads.) If federal options don’t cover what you’ll need to pay for grad school, private loans may be an option. Here are the most common grad school student loans.
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Direct Unsubsidized Loans
With federal Direct Unsubsidized Loans, students enrolled at least part-time can access financing at a fixed interest rate. Unlike Direct Subsidized Loans, the government doesn’t pay for accrued interest while you’re in school, during the loan’s grace period, or if a loan is in deferment. This means you’re responsible for repaying all interest charges that incur.
Although you can choose not to pay interest while you’re in school and during periods of deferment, the accumulated interest will capitalize. Capitalized interest means the unpaid interest charges are added to your principal balance, so that when you start making student loan payments, you’ll pay interest on a larger balance.
Your school will determine how much in Direct Unsubsidized Loans you can borrow each academic year, up to the maximum of $20,500. (Students enrolled in certain health profession programs may be eligible for additional loan amounts.) Any existing undergraduate federal loans you have will count toward the $138,500 aggregate federal loan limit for grad students and may affect the amount you’re able to borrow.
Direct Grad PLUS Loans
Graduate and professional students enrolled at least half-time can also look into federal fixed-rate Direct Grad PLUS Loans if they need more funding. Direct PLUS Loans are the only federal loan program that require a credit check.
Like Direct Unsubsidized Loans, you’re fully responsible for all interest charges that accrue. You also have the option to let interest charges capitalize on the account if you choose not to make interest payments while you’re in school or during deferment.
The maximum you can borrow through a Direct Grad PLUS Loan is the cost of attendance minus any existing financial aid you’ve received.
Private Student Loans
Private student loans offer non-federal funding from a private institution, like a bank, online lender, college, or credit union.
Private student loans can come with fixed or variable interest rates, and eligibility criteria and terms differ between lenders. Graduate students who’ve built a positive credit history might qualify for more competitive rates. Students with adverse credit — or those applying to grad school who haven’t graduated college yet — might require the help of a cosigner to qualify.
If you’re considering a private student loan, always compare multiple offers from different lenders to find the lowest rate for you.
Do You Have to Pay Undergraduate Loans While in Graduate School?
If you have federal student loans and you’re enrolled at least half-time at an eligible school, you can opt to defer payment on your loans while you’re in graduate school.
In-school deferment for a federal loan is typically automatic after your school reports your enrollment status. Expect to receive a notice from your loan servicer that your loans are in deferment. If your loans aren’t automatically placed on deferment, ask your school to report your enrollment status.
Keep in mind that if you defer federal loan payments while you’re in school, interest on deferred Direct Unsubsidized Loans from your undergrad years will continue to accrue and capitalize. You also won’t make any progress toward loan forgiveness, if you plan on participating in programs like Public Service Loan Forgiveness.
Choosing when to pay back student loans and whether to take advantage of federal loan deferment is a personal decision that depends on your individual financial situation.
If you borrowed private student loans while pursuing your undergraduate degree, you’ll need to contact your lenders about your options. Not all private lenders offer in-school deferment and eligibility may vary.
Recommended: Examining How Student Loan Deferment Works
Should I Refinance Before Grad School?
If you only have federal Direct Subsidized Loans, you don’t need to make payments while in school and, since interest doesn’t accrue, it won’t make sense to refinance. If you have Direct Unsubsidized or private student loans, however, refinancing college student loans might help lower your monthly obligation by extending your loan term or lowering your interest rate.
Keep in mind if you refinance a federal loan with a private lender, you’ll lose access to federal protections and benefits. And extending your term may mean that when you start making payments, you may pay more interest over the life of the loan and will be in debt longer. To find the choice that’s right for you, it’s helpful to look at the pros and cons of graduate school loan refinancing.
Refinancing College Student Loans, Explained
A student loan refinance lets you put one or multiple student loans, federal and/or private, into a new loan — ideally, with a lower interest rate. This loan is provided by a private lender, and it will pay off your original student loans in full. In turn, you’ll repay the lender under the new refinance loan which can be at a fixed or variable rate, as well as a different repayment term. As mentioned earlier, if you refinance a federal loan with a private lender, it will no longer be eligible for federal benefits and protections.
If your goal is to reduce the monthly loan payments for private and/or unsubsidized loans while you’re in grad school, for example, you might consider extending your term to make smaller payments over time.
Pros of Refinancing Before Grad School
Refinancing is a repayment strategy that offers some advantages.
Lets You Change Your Loan Term
When you refinance, you can change the specific repayment terms of your original undergraduate loan — electing, for example, a 10-year term instead of a five-year one (again, this may result in your paying more interest over the life of the loan.)
Allows for a Reallocation of Your Monthly Budget
A longer term reduces your monthly payment amount. As a grad student, freeing up money upfront can help pay for graduate school expenses, like textbooks, lab equipment, and fees.
Simplifies Repayment for Two or More Undergraduate Loans
Student loan refinancing helps simplify your repayment experience. Instead of managing payment amounts and due dates for multiple undergraduate loans, a student loan refinance results in one monthly payment and one due date to remember.
Cons of Refinancing Before Grad School
Although there are advantages to refinancing college student loans, there are downsides, too.
You may pay More Interest Over Time
Again, an extended repayment term may result in paying more interest over time, and paying more toward your education loan overall. It also prolongs the amount of time you’ll be in debt.
You’ll Lose Access to Federal Loan Forgiveness
Refinanced federal student loans won’t be eligible for forgiveness or other current or future federal loan benefits. This applies to all refinanced student loans, regardless of whether they originated as a federal loan.
Recommended: Can Refinanced Student Loans Still Be Forgiven?
Some Refinance Lenders Don’t Offer Academic Deferment
If you originally had federal loans from your undergrad, you’ll no longer receive automatic in-school deferment after refinancing. Although some lenders, like SoFi, offer eligible members in-school deferment, not all lenders do. This means you might be required to continue refinance payments while you’re studying for your grad program.
|Pros: refinancing college student loans||Cons: refinancing college student loans|
|Extending your loan term can help lower your monthly payment.||Extending your student loan term means paying more interest over time.|
|Monthly savings can be put toward graduate expenses today.||Refinancing a federal loan means losing access to student loan forgiveness programs.|
|You can simplify repayment for multiple undergraduate loans into one new loan.||Not all refinance lenders offer in-school deferment while you’re in grad school.|
Refinancing Student Loans With SoFi
If you’ve decided to refinance your student loans, comparing a few different lenders can help you find the right fit for your needs. SoFi’s student loan refinancing offers flexible terms, no fees, no prepayment penalties — and you can view your rate in 2 minutes.
Can you refinance student loans before graduation?
Yes, you can technically apply for a student loan refinance at any time. But proceed with caution when refinancing federal loans. Doing so removes you from the federal loan system and you’ll lose access to income-driven repayment plans, loan forgiveness, and other federal loan benefits and protections. Also, for Direct Unsubsidized loans, there is a six-month grace period after graduation, when payments aren’t due yet.
If I go to grad school, can I defer my loans?
Yes, you can defer federal student loans as long as you’re enrolled at least half-time in grad school. However, if your federal student loans aren’t Direct Subsidized, the interest may still accrue.
Do undergraduate loans affect grad school student loans?
Yes, for federal loans, undergraduate loans count toward the $138,500 aggregated loan limit that graduate students are allowed to borrow. Your available federal loan funds toward grad school might be limited, based on how much you borrowed as an undergraduate student.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products
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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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