But even though incurring debt is never exactly enjoyable, by arming yourself with the right information and taking a pragmatic stance on your education—this investment will pay for itself in the long run—you can avoid the all-too-common pitfalls of paying for graduate school.
There are a variety of loans and personal investment options that cater specifically to graduate students. Here is a brief list of the most popular types:
- Federal Perkins Loans. These loans are based on a student's financial need as determined by a completed FAFSA (Free Application for Federal Student Aid) with the college or institution acting as lender. Graduate students may borrow up to $6,000 per academic year.
- Federal Stafford Loans. Stafford loans can be subsidized or unsubsidized. Students may borrow up to $20,500 per graduate year, with a limit of $8,500 for subsidized loans.
- Subsidized. These loans are based on financial need. There is no interest charged to this type of loan until you finish your graduate program and begin repayment.
- Unsubsidized. Any graduate student is eligible for this type of loan since it is not based on financial need. Interest begins accruing immediately upon disbursement of the loan and doesn't stop until the amount is paid in full.
- Graduate PLUS Loans. Issued by the federal government, this is a low-interest, need-based loan which can be used to pay for any portion of graduate tuition that is leftover after aid has been awarded.
- Private lenders. While neither the most common (nor most desirable) solution for funding graduate studies, some students benefit from a relationship with private lenders who can offer lower interest rates and better repayment conditions. Also, many private lending institutions do not require verification from a borrower's school, so the student is free to spend the borrowed funds on expenses over and above educational costs. Private lenders also usually have the inside track on these alternative college savings plans:
- Home equity loans. This line of credit is based on and supported by the value of your house.
- 529 Plans. Through this unique investment plan specifically for educational costs, contributions are taxed, but holders are exempt from paying taxes on money earned through the fund.
- Education IRAs. Similar to 529 Plans, Education IRAs consist of after-tax contributions with tax-exempt earnings; however, unlike traditional IRA plans, holders may withdraw funds without suffering that standard penalty (usually at least ten percent).