Any decision to pursue a graduate degree is packed with considerations – financial and otherwise. Will the degree improve your career outlook? Will it be worth the money? Should you enroll in a full-time or part-time program?
These are important questions to mull over, especially for those with existing student debt. In 2016, average student loan debt for indebted undergraduate students topped $30,000 — a hefty load that could swell significantly with an advanced degree. According to Peterson's, the average annual graduate tuition was $30,000 for public schools, and $40,000 for private schools in the same year.
If you have undergraduate loans and you're thinking of applying to grad school, you have options when it comes to managing your existing debt. Here are some questions that can help you choose the right path financially.
Take a look at your undergraduate loans to see what your monthly payment might be during grad school. If you have multiple payments to juggle or your loans have high interest rates, you might consider consolidating your loans into a new loan product with a better interest rate and loan terms (more on this below).
If you're worried about affording student loan payments outright, you have several options. One is to make interest-only payments on your undergraduate loans. Interest-only payments are more affordable and keep your principal balance steady, but paying only interest will inevitably lengthen the life of your loan.
Another option that allows you to continue to pay down your loans at minimal cost is to apply for a graduated or extended repayment plan. By spreading your monthly payments beyond the standard 10-year plan to 20-25 years, you can ensure you're paying at least something toward your loans while you finish graduate school.
Lastly, graduate students can also apply for federally-sponsored income-driven repayment plans. These programs, which include Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income Contingent Repayment (ICR) let you pay a small percentage of your discretionary income on your federal student loans for 20-25 years before remaining loan balances are forgiven. Keep in mind that even if you are approved for an income-driven plan, your payments can increase or decrease from year to year based on changes in income and/or family size.
Full-time graduate students may be able to defer repayment on their student loans. To qualify for deferment, you must apply during a period of study in an approved graduate fellowship program. The federal government may even pay interest on your loans if you have Direct Subsidized Loans, FFEL Loans, or Perkins Loans.
It's important to note, however, that not all loans qualify for subsidized deferment. If you don't qualify and your loans continue accruing interest throughout deferment, those charges could be costly. For example, if you have $35,000 in student loans with a 5.7% APR and you defer for just 12 months, you'll rack up $1,995 in interest charges during that time. For specifics on your own situation you can run calculations for your current student loans here.
You also have the option to refinance all or a portion of your student loans. A loan refinance can consolidate all of your loans into a new loan product with a better interest rate and more generous loan terms. Before you consider this option, however, you should compare interest rates and total loan costs with a student loan calculator, and familiarize yourself with the differences between private and federal student loans.
One last factor to consider when borrowing for graduate school is that interest starts accruing on graduate school loans right away — even while you're still in school. So the longer you spend in graduate school, the more interest charges you'll have waiting for you when repayment comes due.
This is as good a reason as any to keep borrowing at a minimum during grad school. You may want to consider, for example, working a part-time job and paying part of your grad school expenses as you go.
Of course, financial concerns should not be the only factor influencing your decision to pursue an advanced degree. It's just as important to think about the impact on your career, your family, and other areas of your personal life. But for those who decide to pursue grad studies in spite of existing student debt, there are plenty of options that can lessen the burden of undergraduate loans.
Check out our other resources for more information about paying for college, or call 877-452-4147 to speak to a Student Lending Specialist.