Loans for Grad School Get Pricier

published 13 July 2012

When Rachel Geylin decided to go back to school, the 25-year-old kicked into high gear, working two jobs before enrolling in Yale's School of Nursing in August. "I'm trying to cover as much as I can without loans," she says.

SEE ALSO: 5 Grad Degrees Worth the Debt

Geylin's strategy is timely. As of July 1, graduate and professional students are no longer eligible for need-based, subsidized federal Stafford loans. The loans, still available to undergrads, are one of the best deals around. Interest on subsidized loans does not usually start to accrue until six months after students graduate or leave school; interest on unsubsidized Staffords, still available to grad students, accrues immediately. That difference is enough to add about 6% to the average grad-school debt, says Mark Kantrowitz, publisher of Finaid.org (Read more from Kantrowitz about the value – and shortcomings – of colleges’ financial-aid calculators here).

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There are still federal loans worth exploring. Grad students who can demonstrate exceptional need may borrow up to $8,000 per year in Perkins loans, with a fixed rate of 5%. Unsubsidized Staffords let grad students borrow up to $20,500 per year at 6.8%. Grad PLUS loans, at 7.9%, will cover the remaining cost for students with clean credit histories.

Private student loans come with caveats. You must have pristine credit to nab the lowest rates. And private loans lack the repayment flexibility of federal loans, which give those in need the option of income-based repayment plans or loan forgiveness for public service.

This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.

John Miley is a Senior Associate Editor at The Kiplinger Letter. He mainly covers technology, telecom and education, but will jump on other important business topics as needed. In his role, he provides timely forecasts about emerging technologies, business trends and government regulations. He also edits stories for the weekly publication and has written and edited e-mail newsletters.

He joined Kiplinger in August 2010 as a reporter for Kiplinger's Personal Finance magazine, where he wrote stories, fact-checked articles and researched investing data. After two years at the magazine, he moved to the Letter, where he has been for the last decade. He holds a BA from Bates College and a master’s degree in magazine journalism from Northwestern University, where he specialized in business reporting. An avid runner and a former decathlete, he has written about fitness and competed in triathlons.