For both undergrad and graduate students looking to finance their education, loans are an option. They should be a final option — after grants, scholarships, savings, and other sources have been exhausted — but they are available to help you pay for school.

If you’re considering heading to grad school, it’s important to note that there are several key differences between graduate school loans and undergraduate loans.

Types of Student Loans for Graduate Students

Just like in undergrad, you’ll have two main types of student loans to choose from in grad school: federal loans and private loans.

For graduate students, there are two types of federal loans available:

• Stafford Loan: These unsubsidized loans pay out up to $20,500 annually. The interest rate is 6.08%, and you’ll usually be required to begin making payments six months after graduation.
• Grad PLUS Loan: Grad PLUS Loans allow you to borrow up to the cost of attendance at your school. You’ll need a good credit score to qualify. The interest rate is 7.08%, plus about 4% in fees.

Experts advise taking out federal loans before opting for private loans. Private loans can be issued by banks, credit unions, and other financial service companies. They offer both fixed and variable interest rates. With private loans, you must begin making payments while still in school.

If you have a solid credit score, however, you may be able to get a better interest rate and the ability to borrow more with a private loan.

How are grad school loans different from undergrad loans?

Now, let’s look at the key differences between graduate student loans and undergraduate student loans.

Higher Interest Rates

One significant difference is that grad students pay higher interest rates than undergrad students. Currently, graduate students pay 6.08% or 7.08%, while undergrad students pay a much lower 4.53%.

These numbers do change from year to year and are set by Congress, but you can count on paying more interest as a graduate student.

Unsubsidized Loans Only

As an undergrad, you may have received a subsidized loan. With a subsidized loan, interest doesn’t start adding up while you’re still a full-time student.

Graduate students don’t have this luxury. As soon as you receive your grad school loan, interest will start accruing. This means the longer it takes for you to finish graduate school, the more interest you’ll owe on the loan.

Ability To Borrow More Money

Graduate students can borrow more money than undergraduate students, which can be both good and bad.

Undergrad students are limited to about $5,500-$12,500 per year in federal loans, but grad students can borrow up to $20,500 per year (or, on a Grad PLUS Loan, the full cost of attendance). Additionally, undergraduate students have an aggregate (total) loan limit of $57,500 in federal loans. For grad students, this number shoots up to $138,500.

It’s helpful to be able to borrow more money, but it also means grad students can get into more trouble with their loans. The combination of larger borrowing limits and higher interest rates often results in significant debt.

Since student loan money isn’t tracked, some students are tempted to borrow extra money for living expenses, translating to even greater debt. To keep your debt as low as possible, be sure to borrow only the amount you’ll need for school.

Less Need-Based Aid

In undergrad, your parents’ finances are usually considered alongside yours to determine your family’s ability to pay for college.

As a graduate student, you’re likely to be considered an independent student. This means your parents’ finances won’t factor into your eligibility for financial aid.

However, need-based grants are much harder to come by at the graduate level. This doesn’t mean they’re nonexistent, but their availability is far more limited for grad students.

Loan Deferral

While you’re in graduate school, you can opt to defer your student loans from undergrad. If your undergrad loans were subsidized, they won’t continue collecting interest as long as you’re in grad school.

If they were unsubsidized, however, they will continue collecting interest as you pursue your graduate education. In this case, it’s a good idea to make interest payments while you’re in grad school if possible. Otherwise, your bill on both undergrad and graduate student loans will continue growing.

What do graduate student loans and undergraduate student loans have in common?

When it comes to federal student loans, several factors stay consistent:

• You don’t need to start repaying the loan until you’re no longer a full-time student. Until you drop to half-time enrollment or graduate, you won’t need to make payments on your loan. (Keep in mind, however, that interest will continue accruing in the meantime.)
• Loans are unsecured, with no credit check. You’ll simply need to fill out a FAFSA.
• You may be eligible for income-driven repayment plans if your salary makes the standard monthly payments too challenging.
• You may also be eligible for federal loan forgiveness programs if you work in certain fields. Typically, graduate students do need to make a few more qualifying payments than undergraduate students before becoming eligible.

Final Thoughts: How Grad School Loans Are Different from Undergrad Loans

Taking out a loan is a serious decision, no matter what the purpose. Compared to undergrad loans, grad school loans can be riskier. Interest rates are higher, you can borrow more money, and interest begins accruing immediately.

In addition, less need-based aid is available to grad students. On the plus side, you can defer your undergraduate loans while you’re in grad school, and all federal loans are eligible for loan forgiveness and income-driven repayment plans. You won’t need to make payments on the loan while you’re still a full-time student.

It’s best to explore other options before deciding on a loan for graduate school. If a loan is necessary, be smart about the amount you borrow, stay on top of your payments, and consider it an investment in your future.