The Best Ways to Pay for Grad School in 2017

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Graduate school funding is a bit trickier than undergrad funding. Your options for loans and grants become more limited, and while work-study opportunities may be attainable and provide great experience, they often eat up a lot of time but offer low compensation.You do have options, though — whether you’re a grad student or a parent. This guide will take you through them all in detail.

Part I: Financing Options for Grad School

As a grad student, you have three federal student loan options: Direct Unsubsidized Loans, Direct PLUS Loans, and Perkins Loans. Each financing option looks different, and you may need a combination of these loans to fully fund your education.

Federal loan options and programs

Eligibility requirements

In order to qualify for any federal student aid, you must meet certain requirements. You must:

  • Have a high school diploma, home-school high school education, GED, or other certification of equivalency.
  • Be a U.S. citizen, national, or permanent resident.
  • Have a Social Security number. This requirement is waived if you are from the Marshall Islands, Palau, or Micronesia.
  • Register with the Selective Service if you’re a male age 18-25. If you do not do so during this time frame, it can impact your ability to access federal financial aid later in life.
  • Be enrolled or accepted into a school with the aim of obtaining a degree, certificate, or other recognized educational credential.
  • Maintain good grades. Standards for this requirement vary from school to school.
  • Certify that you aren’t currently in default on any federal student loans, that you owe money back on a grant, and that you will only use the money for educational endeavors. This certification happens on the FAFSA application.

If you meet all of these requirements, you now have to look at specific qualifications for each type of student loan.

Direct Unsubsidized Loans

In order to qualify for a Direct Unsubsidized Loan, you must be attending a participating educational institution at least half-time. You must also be enrolled at least half-time in a program that will lead to a degree or certificate. There is no need to demonstrate financial need in order to qualify for a Direct Unsubsidized Loan.

Direct PLUS Loans

Direct PLUS Loans have very specific credit standards. In order to qualify, you must meet the following requirements:

  • Must be pursuing a degree or certificate at the graduate or professional level and going to school at least half-time — or be the parent of a student who is doing so.
  • Cannot have a debt that is currently 90 days delinquent with a balance of over $2,085.
  • Cannot have an item worth over $2,085 sent to collections or written off in the two years prior to your application.
  • Cannot have any of the following appear on your credit report in the past five years: default determination, bankruptcy, foreclosure, tax lien, repossession, wage garnishment, or a write-off of other student loan debt.

These standards apply to both student and parent borrowers. If you cannot meet them, you can still borrow money by finding a co-signer who does meet these standards.

You may also be able to qualify if you can prove the blip on your credit report was caused by extenuating circumstances. In order to qualify in this way, you’ll need to complete credit counseling to the satisfaction of the PLUS program.

Perkins Loans

Perkins Loans are reserved for those with exceptional financial need. You prove this need by filling out the FAFSA as you normally would.

If you are eligible based on need, you need to get in touch with your financial aid office because your school is the actual lender. Not all schools participate, and not every school has sufficient funding for this program to offer the full $8,000 grad students may be eligible for. It’s important to fill out the FAFSA early and to approach your school about these loans as soon as you get your results.

Pros & cons of federal student loans

There are times when taking out federal loans will be advantageous to you as a grad student and times when other options may make more sense. Let’s drill down into the pros and cons.

Pros:

  • Aside from Perkins Loans, federal student loans give you access to a number of repayment options, including options that allow you to adjust monthly payments based on your current income.
  • Depending on the private lender, credit requirements are typically more lax than they will be in the private sector.
  • Interest rates on Perkins Loans are competitive — if your school participates and if your financial situation is considered dire enough to qualify.

Cons:

  • The fact that there are origination fees on Direct Unsubsidized Loans and Direct PLUS Loans is a major negative as it will cost you money to borrow the money in the first place.
  • Interest rates on Direct PLUS Loans are not competitive if you have a good credit history. You may be able to save money by moving to the private sector in specific circumstances.
  • Direct Unsubsidized Loans and Direct PLUS Loans require at least half-time enrollment. If you are pursuing a graduate-level degree while working a day job, this may present a problem depending on how many credits you are able to take on at once.

Federal grant and programs for grad school

While loans are money you will have to pay back, grants and work-study programs are sources of funding that you won’t have to repay. It’s essentially free money. At the graduate level, you have a few federal options.

TEACH Grants

The Teacher Education Assistance for College and Higher Education (TEACH) Grant is a program that pays for part of your education as long as you promise to use your degree in a high-need, low-income area for four of the eight years following the completion of your education. You can also teach at a Bureau of Indian Education school during this time period to qualify.

High-need fields include:

If your grant was disbursed today, the maximum grant amount you could qualify for would be $3,724. If it isn’t disbursed until after October 1, 2017, the maximum amount awarded jumps to a potential $3,736.

Your school will have to participate in the TEACH program, and your school will have specified which programs qualify for the grant. Get in touch with your financial aid office to find out if your program is eligible.

While you’re there, make sure you are eligible by checking your school’s academic requirements for qualification.

After you have confirmed with your school that you are enrolled in an eligible program, you will need to fill out the FAFSA. You will also need to sign a letter of agreement and complete program-specific counseling.

Pell Grants

It is extremely rare for a grad student to qualify for a Pell Grant. In fact, for eligibility purposes, you’re not allowed to be pursuing a graduate degree.

The only time Pell Grants are available after undergrad work is when you are pursuing a postbaccalaureate teaching certificate. Even then, your certificate program must meet the following requirements:

  • It does not lead to a degree.
  • It is a prerequisite in your state in order to work as a primary or secondary school teacher.
  • It comes from a school that does not offer a bachelor’s degree in education.
  • It must be a postbaccalaureate program.

For your part as a student, you must meet the following requirement as well, if you’re going to qualify:

  • Enrolled at least half-time.
  • Pursuing your initial teacher certification/licensure within your state.

For the 2017-2018 school year, the maximum award you can receive is $5,920. The amount you receive will be based on financial need.

To apply for a Pell Grant, all you have to do is fill out the FAFSA.

If a financial need is demonstrated when you fill out the FAFSA, you may be offered a work-study position. If your school participates, you’ll be given an hourly or salaried job where you are paid at least monthly. Your financial need will determine the number of hours you receive.

The kind of job you are assigned will depend largely on your school. You may find yourself in one of these fields:

  • Community service
  • Positions at your school
  • Fields relevant to your course of study

If you end up with a position on campus, you’ll likely be working for the school. If you are working off-campus, you’re more likely to be assigned to a position serving the public good or working in a position relevant to your future career.

You’ll make at least minimum wage, though as a grad student you may have some desirable skills that could land you a position with a pay boost.

Your school is obligated to issue you a paycheck at least once per month. The money will come directly to you unless you set up ACH payments, or you are applying your earnings toward tuition, fees, or room and board.

Grants are a form of financial aid that you don’t have to pay back under most circumstances. However, if you don’t hold up your end of the educational bargain, you may have to return money that was paid to your school, or money you received as a refund check from your school.

You could end up owing money back for your federal grant if:

  • You don’t meet TEACH program guidelines as outlined above.
  • You drop out of school partway through the semester.
  • You reduce the amount of credits you are taking after the grant has been issued.

If you are disappointed by your FAFSA options, you should know that there are other ways to find funding for your graduate-level education. Be sure to review theses resources prior to taking out loans.

Federal grants at the graduate level are admittedly thin. If you’re looking for other ways to pay for school that don’t involve student loans, here are some additional federal agencies outside the Department of Education. They may be able to help.

ROTC scholarships

ROTC scholarships will pay for your education. You’ll also get a stipend for the time you spend at drill on weekends and may have your books covered as well.

In exchange for all of this money, you will be obligated to serve either on active duty or in the reserves after you have completed your education. Because you have a college education, you will enter the military as an officer.

Post-9/11 GI Bill

If you served in the military for at least 36 consecutive months after September 10, 2001, or were honorably discharged due to disability after serving 30 consecutive days after the same date, the Post-9/11 GI Bill may cover your tuition and fees.

If a smaller portion of your service happened after September 10, 2001, you may be eligible for prorated benefits.

All in-state tuition and fees will be paid at public schools, and up to $22,805.34 will be paid at private schools. This number changes annually.

If you still have a gap between how much the school charges and how much the Department of Veterans Affairs (VA) will pay under the latest version of the GI Bill, check to see if your school has opted in to the Yellow Ribbon Program. Schools that do so reduce the tuition of veterans to meet the maximum VA payout, leaving you with a bill of zero dollars.

Yellow Ribbon schools may also provide funding equivalent to a Basic Allowance for Housing in addition to a stipend for books.

In certain cases, benefits may be transferrable to minors, so if you are a parent who has unused GI Bill benefits, you may be able to transfer them to your child as they enter grad school.

AmeriCorps

AmeriCorps is a volunteer opportunity with some perks for college students. When you volunteer, you earn money for school through the Segal AmeriCorps Education Award. The amount of money you earn depends on how time-intensive your service is.

For example, currently if you volunteer in an approved position for more than 1,700 hours over a 12-month period, you would qualify for an education credit worth $5,920 for the 2017-18 school year. You can only earn up to two full-time education credits. You can find further examples of how much you can earn on the Segal Award Eligibility page.

As a member of AmeriCorps, you may find yourself in one of the following positions or one like them:

  • Relief efforts after a natural disaster
  • Tutoring K-12 students
  • Building affordable housing
  • Working with local nonprofits and community groups

If you have served as an AmeriCorps member after October 1, 2009, at the age of 55+, you may have accrued educational benefits that you can pass on to your child, stepchild, or grandchildren. You can learn more program specifics here.

Other sources of federal grants for grad school

Higher education agencies in your state

Another great place to look for funding is the agency that handles higher education in your state. These state-level organizations typically offer grants. You’ll likely be prompted to visit your state’s website at the end of your FAFSA application, but if you want to learn more about available programs now, you can find yours here.

Your school’s financial aid office

Your school likely has endowments and partner employers — both of whom are likely to offer scholarship and/or grant opportunities. To find out what may be available at your school, schedule an appointment with the financial aid office.

Industry and professional organizations

Many industry and professional organizations offer some type of scholarship program for those studying in the field. Applying for these scholarships won’t just help you pay for school if you’re awarded — if you win one, it will look phenomenal on your future resume.

Some of these organizations will require membership prior to application. While membership fees can be expensive in some organizations, many provide student-level memberships at a steep discount.

Private loan options for grad school: A last resort?

Private student loans are issued directly by lending institutions without the backing of the U.S. Department of Education. You can look to banks, credit unions, or online marketplace lenders to access these loans.

Pros & cons

Pros:

  • If you have a good credit history, you may be able to obtain a loan with lower rates than those currently offered via federal programs.
  • You may be able to access more capital than you would with federal loans, depending on your credit history and the type of federal loan.
  • You can shop around for different options. Some lenders don’t charge origination fees, and some are even willing to work with you in cases of hardship.

Cons:

  • You will not have access to advantaged repayment programs like PAYE, REPAYE, IBR, ICR, and PSLF, which are all covered in sections below.
  • If you do not have a good credit score, interest rates may be higher than federal loans, or you may not be able to get a private loan at all, depending on the severity of content in your credit report.
  • You have to shop around for different options. Some lenders will not work with you in cases of hardship, and factors like variable versus fixed interest rates may throw you for a loop if you’re not careful.

Questions to ask before you borrow private loans for grad school

Before you take out any student loans, you’ll want to get answers to these questions.

This may vary, depending on your income and credit history.

This will typically be a range. If you have good credit, you may qualify for the best rates. If you don’t, you’ll be looking at the higher end of the spectrum.

Variable interest rates start out lower. They may even stay lower for a set amount of time. But after that, they adjust to the market. You may get lucky and have rates go down, but rates are already so low at the moment that you’re almost sure to see them go up instead.

Fixed rates start out higher than variable rates but stay stable throughout the course of your loan term.

Shorter loan terms sometimes mean higher monthly payments, but you’ll usually end up paying less in the long term because of the way interest accrues over time.

If you can’t afford the monthly payments, though, you could end up paying late fees or damaging your credit. Longer loan terms may mean paying more interest by the time you’re through, but they also have the potential to lower your monthly payments.

Some lenders provide payment plans that allow you to defer payments until after graduation. Other payment plans start your payments immediately. Still others require interest-only payments while you’re in school, with principal payments being added after graduation.

Common fees to take note of are:

  • Application fees
  • Origination fees
  • Late fees
  • Prepayment penalty fees

Eligibility requirements to inquire about include credit requirements, citizenship/naturalization requirements, and income requirements.

Does the lender offer any type of deferment in times of economic hardship? Some lenders will even work with you to help you find a new job or temporarily reduce monthly payments while you are in specific employment conundrums.

Compare private sector graduate school loan options here. >

Part II: Repaying Grad School Debt

There are a slew of different repayment options depending on which type of loan you take out. Whether you start repayment during your studies or after, there are some things you can do to prepare.

Federal grad school debt

Students are not required to make payments until six months after their graduation — or nine months if you have a Perkins Loan. Just because you don’t have to make payments during this time period doesn’t mean you shouldn’t.

When to start repaying your federal grad school loan debt

The types of federal loans available to you as a graduate student accrue interest while you’re in school and during your grace period/deferment. You are not required to pay that interest immediately, but the unpaid interest will be added to your principal balance.

By making interest-only payments while you’re in school, you prevent these interest rates from multiplying upon themselves, saving you money.

You can pay toward the principal while you are in school as well, if you so choose, as there is no prepayment penalty on federal student loans.

Parents who have PLUS loans are typically required to start repaying immediately after the loan is disbursed. You can, however, request a deferment for the period during which your child is in school. It would be wise to make interest-only payments during this period if you choose to go this route.

Federal loan forgiveness and repayment assistance programs

Federal loans give you access to many advantaged repayment and forgiveness programs. Keep in mind that while advantaged repayment plans are designed to make your monthly payment lower, they have the potential to cost you more over the course of your loan — especially if they don’t end in forgiveness — as interest will be charged over a longer period of time.

Income-Based Repayment (IBR)
If you took out your first student loan prior to July 1, 2014, and your student loan payments are more than 15 percent of your discretionary income, this program allows you to pay a maximum of 15 percent of your discretionary income for 25 years. After that point, your remaining debt is forgiven.

If you took out your first student loan after July 1, 2017, the capped percentage is 10 percent, and you will only have to pay it for 20 years.

Learn more about IBR here.

Income-Contingent Repayment (ICR)

If you opt into the ICR Plan, you would make payments for 25 years. After 25 years, your remaining debt would be forgiven.

Your monthly payments would be the lesser of these two options:

  • 20 percent of your discretionary income.
  • What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.

Learn more about ICR here.

Pay As You Earn (PAYE)

Take your income and subtract 150 percent of the poverty level in your state. If your monthly student loan debt payments are more than 10 percent of the difference, you may qualify for PAYE. Use this calculator to see if you qualify.

Your monthly payments will be limited to 10 percent of your income and will never exceed what you would pay on a 10-year Standard Plan. After 20 years, the remainder of your debt will be forgiven.

You only qualify for this plan if your first student loan was disbursed after October 1, 2007, and you have received at least one disbursement since October 1, 2011.

Learn more about PAYE here.

Revised Pay As You Earn (REPAYE)

REPAYE does not have the same timing restrictions of PAYE. In fact, the date you took out your loans is irrelevant. There are also no income restrictions.

However, while you will only have to pay 10 percent of your discretionary income, there is no protection stating that your payments will not exceed those of a 10-year Standard Plan. You could end up paying more with this program — especially with a higher income.

Remaining balances on graduate school loans will be forgiven after 25 years.

Learn more about REPAYE here.

Public Service Loan Forgiveness (PSLF)

The future of this program is uncertain, but it is currently still open.

Under PSLF, you make payments for 10 years while you’re working 30+ hours per week and considered a full-time employee by your employer. This job must be in a position of service, and the remainder of your loan balance will be forgiven. Your 10 years of payments should be made under IBR, ICR, PAYE, or REPAYE.

Qualifying public service jobs include positions at:

  • Governmental organizations
  • 501(c)(3) organizations
  • Non-501(c)(3) organizations providing one of these services:
    • Public or school library services
    • Emergency management
    • Service on behalf of the U.S. military
    • Public education
    • Early childhood education
    • Law enforcement
    • Public interest legal services
    • Public services for the disabled or elderly
    • Public health

Learn more about PSLF here.

State programs

States have regional needs in a number of different fields, including medicine, education, social work, veterinary sciences, law, and more. Across the country there are programs offering to pay off portions of your debt if you agree to live and work in high-need communities.

Repaying private grad school debt

Different lenders will require different repayment terms from their borrowers. Be sure to understand what is expected of you before signing on the dotted line. Ask questions like:
Will I be required to make payments while I am in school?

  • If so, are they interest-only payments?
  • Will there be a grace period after graduation?
  • Do you have any deferment options in case of economic hardship?
  • What is the maximum time allowed for deferment?

When you should start repaying private grad school debt

The sooner you can pay off debt, the better. If your loan requires you to make principal and interest payments, make them without delinquency.

Before you make any payments prior to their due date, make sure there is no prepayment penalty. Otherwise a good portion of the money you think you’re throwing at your debt could end up going toward fees instead.

Learn more: Refinancing grad school debt

If you can get a lower interest rate on your student loans by refinancing, you may be able to save money as long as you pay off your debt in the same amount of time.

In order to avoid ruining your credit score, you may also want to refinance if you cannot afford your monthly payments.

The post The Best Ways to Pay for Grad School in 2017 appeared first on MagnifyMoney.

Is Grad School Worth It?

graduateschool

Q. I’m thinking of going back to school for my Master’s, but I’m not sure my eventual higher salary will be high enough to make it worth it. How can I decide? — Potential student

A. Going beyond four years of college can be a costly endeavor, and you’re correct to view it as an investment.

Like any investment, there are risks, and you need to determine if this one is worth it.

“We find ourselves in a time when undergraduate degrees have become the equivalent of the high school diploma of the past,” said Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield, New Jersey. “It seems that graduate school has become a necessity for anyone trying to get ahead in the workplace, the problem being the cost and ultimately the return on your investment.”

In an effort to make the calculation, Gallo said you need to do some research.

Start by looking at your field of study. Compare the average salary difference between candidates with undergraduate degrees and those with a Master’s degree.

Braden Schipke, a certified financial planner with The GenWealth Group in Maplewood, New Jersey, said you should determine a reasonable salary increase after completing your degree. Then, use the salary level, along with a yearly percentage increase for annual raises, to project how much you would make each year until you retire.

“Adding all of the salary figures up will give you an idea of your future lifetime earnings potential,” Schipke said. “Now perform the same exercise using your current salary to project your future lifetime earnings without the degree. Does the difference between the two figures justify the additional cost for your added education?”

You also need to take a look at the actual tuition and associated expenses, like off-campus housing, required to obtain your Master’s degree, Gallo said.

Don’t only look at the tuition costs, but examine the cost to borrow the funds, including the interest rate. If you have the funds saved, Gallo said, you need to examine the opportunity cost of using those savings to pay for your degree rather than having the funds invested.

Gallo said you should be sure to consider the related costs such as time commitment and earnings lost due to time spent on studies and class time. This obviously would vary depending on whether you are planning on attending school on a full- or part-time basis, he said.

Once you have all this information, Gallo said, it becomes a mathematical calculation to come up with the potential return on investment (ROI).

Don’t forget to include the intangible costs involved as well, such as time away from family or friends and the ever-changing job market, Gallo said.

Finally, consider your age and how long you plan to work, Schipke said.

“Generally speaking, it pays to have more working years until retirement so you can realize a greater benefit from a salary increase,” he said.

[Editor’s Note: Remember, your credit should be be in tip-top shape before you apply for a loan, including any private student loans you may be considering. You can see where you stand by checking your two free credit scores, updated monthly, on Credit.com.]

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