What loan options are available for graduate or professional students?
Several loan options exist once you have obtained your first undergraduate degree. Here are the principal choices available to you:
Perkins loans
A select few students will qualify for a Perkins loan, a low interest loan (5%) offered to students demonstrating extraordinary need. The loan is guaranteed by the Federal government and is distributed from your school. If you qualify for a Perkins loan, you may only borrow up to $6,000 per semester for a total not to exceed $40,000. If you borrowed a Perkins loan as an undergraduate, the $40,000 limit includes any undergraduate loans as well. You do not have to make payments while in school. After you are no longer enrolled at least half-time, Perkins loans offer a 9 month grace period, flexible repayment options, and forbearances or deferments for students with temporary financial hardships.
Stafford Loans
Just like when you were an undergraduate student, Stafford loans are still probably one of your best bets. As a graduate/professional student, you can borrow up to $20,500 per year, depending on your school's cost of attendance. After graduation or if you drop below half-time enrollment, you will have a 6 month grace period. Stafford loans also offer a variety of repayment plans as well as forbearance and deferment for students suffering from a temporary financial hardship. Remember however, your aggregate total of loans can never be more than $138,000, unless you are a medical student. The yearly limit for medical students is $40,500 with an aggregate limit of $224,000. Both aggregate limits include undergraduate loans.
Grad PLUS loans
If you do not qualify for Stafford loans or they do not cover your cost of attendance, then you can borrow a Grad PLUS Loan. Grad PLUS loans are federally backed but do not count against your $138,000 limit. However, if you have exceeded the aggregate limit, you will not be able to borrow a Grad PLUS loan until you have reduced your Stafford loans below $138,000. Much like the Parent PLUS loan offered to the parents of undergraduates, the Grad PLUS loan allows the student to borrow up to the cost of attendance minus any other financial aid. However, the student must be a U.S. citizen and not have adverse credit history. You are considered to have an adverse credit history if you are more than 90 days delinquent on any debt, or within the last five years have been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a Federal Student Aid debt. If you have an adverse credit history, then you can use a creditworthy co-signor. One of the advantages to a Grad PLUS loan is that unlike an alternative or private loan, the student or the co-signer's FICO score or income is not taken into account when determining creditworthiness, so you or your co-signer is more likely to qualify for the loan than with a traditional private loan.
Grad PLUS loans can also be consolidated with other federally backed student loans, and often qualify for loan forgiveness programs, much like a Stafford loan or Perkins loan.
Grad PLUS loans do have some disadvantages however. The Grad PLUS loan requires that repayment begin within 60 days of disbursement, but deferments are normally available for students enrolled at least half-time. Also at the time of disbursement, a 4% origination fee will be deducted.
Private/Alternative Loans
Since you can borrow up to the cost of education with Grad PLUS loans, the need for private or alternative loans has been greatly diminished recently. However, private student loans are still available through commercial lenders for up to the cost of attendance minus other financial aid. Traditionally, you must apply for a private loan directly through the lender rather than through your school. Since the loan is not guaranteed by the federal government, the lender will run a credit check and often require income verification. Many students do not qualify for private loans without a co-signer, and if you were turned down for a Grad PLUS loan based on credit, you will probably suffer the same fate from a private or alternative loan lender.
In the past, private or alternative loans were the only option for students who could not cover the cost of education with Stafford loans. However, with the Grad PLUS loan offering the same service along with the benefits of consolidation and potential loan forgiveness, you should only use private loans if you are above the aggregate total of $138,000 for Stafford loans. If you have exceeded the Stafford loan limits, you will not be eligible to borrow a Grad PLUS loan, and you will need to look for alternative financing.
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