Subsidized loans, a type of loan offered by the federal government, used to be available to graduate students. Unfortunately, that is no longer the case. The program that allowed graduate students to receive subsidized loans was ended in 2011 by the Budget Control Act. For now, these loans are only available for undergraduate students. However, there are other loans available to help pay for grad school. Continue reading for more information on subsidized loans and the other options available to graduate students.
What Are Subsidized Loans?
Federal student loans are offered through the U.S. Department of Education to help students cover the cost of higher education. The government helps students pay for degrees or certificates from colleges and universities, community colleges, and trade, career, or technical schools.
Direct Subsidized Loans are available to undergraduate students able to demonstrate financial need. The amount of the loan is determined by the school you are applying to.
The Department of Education pays all interest on the loans while you are in school at least half-time, during the six-month grace period after you leave school, and during periods of deferment. Outside of these periods, the borrower is responsible for making all principal and interest payments.
Subsidized vs Unsubsidized Loans
Federal Direct Unsubsidized Loans, on the other hand, are one of the student loans available to undergrads and graduate students. Students do not have to demonstrate financial need to qualify for these loans.
The loan amount is still determined by your school, and you are entirely responsible for making interest payments during all periods.
When considering subsidized vs. unsubsidized loans, it’s important to understand both are subject to loan limits. In aggregate, dependent students, except those whose parents are unable to take out PLUS loans, may borrow no more than $31,000, at a given time, of which only $23,000 may be in subsidized loans.
For undergraduates whose parents are unable to access PLUS loans, the loans limit is $57,500, with no more than $23,000 in subsidized loans.
And for graduate students, the loan limit is $138,500, of which no more than $65,500 may be in subsidized loans. What’s more, the aggregate limit also includes whatever student loans you may have from your time as an undergraduate.
When you reach the aggregate loan limit, you will not be allowed to borrow any more money in federal student loans. However, if you are able to pay off some of your loans you may be able to borrow again up to the aggregate loan limit.
Interest rates for both types of loans are set by the federal government each year. In 2022, the interest rate for undergraduate borrowers was 3.73% for Direct Subsidized Loans and Direct Unsubsidized Loans. The interest rate for graduate borrowers for Direct Unsubsidized loans is 5.28%. The interest rate is fixed over the life of the loan.
Alternatives to Subsidized Loans
In addition to unsubsidized loans, there are other loans available from the government and private sources that can help you pay for grad school.
Grad PLUS Student Loans
Grad PLUS Student loans are another federal loan available through the Department of Education. They are also known as Direct PLUS loans. Grad PLUS Loan requirements include that you must be a graduate student enrolled at least half-time at an eligible school. Your program must lead to a graduate degree, a professional degree, or a certificate. You meet the basic eligibility requirements for federal student aid and must not have an adverse credit history.
Under the Grad PLUS program you are allowed to borrow the cost of attendance less any other financial aid. And you don’t have to repay the loan until six months after you leave school or drop below half-time enrollment.
Interest rates on the loan are fixed. For 2022, any loans disbursed before July 1 carry an interest rate of 6.28%.
To apply for federal student loans, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA®) . Your school will use the information on this form to determine how much aid you are eligible to receive and present it to you in an offer letter. The offer letter will also give you information about grants and work-study programs you may be eligible for.
Recommended: Grad PLUS Loans, Explained
Private Loans
Private student loans are available through banks and credit unions and other private institutions. The individual lender will determine the amount you can borrow, terms of the loan, and interest rate based in large part on financial factors such as your income and your credit score. Many undergraduates will need a cosigner to qualify for a private student loan. Cosigners are responsible for making loan payments if you fail to do so.
Private loans may allow you to borrow beyond the federal limits imposed on federal loans, or help you pick up the slack if you didn’t qualify for enough federal funding. Though they may lack protections afforded to federal student loans, and as a result, are generally thought of as a last-resort option when paying for grad school.
Personal Loans
Personal loans are also available through private lenders. Borrowed funds can be used for practically any purpose, which means they could potentially be used to cover expenses beyond tuition, fees, room and board, such as transportation. As with private loans, the amount you can borrow will depend on your financial history or that of a cosigner.
How Much Can You Borrow for Graduate School?
The amount you can borrow for graduate school will depend on the types of loans that you use.
Grad PLUS student loans potentially allow you to borrow up to the full cost of attending your program less any other financial aid.
However, unsubsidized loans limit your aggregate borrowing to $138,500, and that’s including any federal loans that you took out as an undergraduate.
Borrowers who are enrolled in certain health profession programs may be subject to a higher aggregate limit for Direct Subsidized Loans, and should talk to their school’s financial aid office.
Private student loans may limit borrowers to the cost of attendance. Policies will likely vary by lender.
Personal loans may allow you to borrow as much as $100,000 with no limitations on how the money must be spent. Again, specific policies may vary by lender.
Recommended: What is the Maximum Amount of Student Loans for Graduate School?
The Takeaway
Federal subsidized loans are no longer available to graduate students. Though organizations like the National Association of Student Financial Aid Administrators are pushing for legislation that would reintroduce the loans. In the meantime, graduate students have other options, and may rely on federal unsubsidized loans, Grad PLUS Loans, loans from private lenders, or a combination of the above to help pay for school.
FAQ
Does the US Department of Education offer subsidized loans for graduate students as part of financial aid packages?
Federal Direct Subsidized Loans are no longer available to graduate students.
Are Grad PLUS Loans subsidized loans?
Grad PLUS Loans are not subsidized, which means that interest accrues while the student is in school.
Can you pay off subsidized loans before graduating?
You can pay off federal subsidized loans before you graduate without paying any penalty. Note that federal subsidized loans do not accrue interest while you are in school.
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