Do you have financial hardships and think about graduate student loans as a solution? While there are federal and private student loans, federal loans are usually a better option as they have lower interest rates and more favorable repayment plans.

According to a 2023 National Center for Education Statistics (NCES) report, 74% of graduate students received financial aid during the 2019-2020 academic year.

In this article, we cover information about federal and private student loans, including their benefits, eligibility requirements, and how they differ from each other. Also, we discuss the repayment plans you can choose if you decide on federal student loans.

You can choose between federal and private loans if you’re seeking financial aid options as a graduate student. In the following sections, we cover the different types of each loan.

Federal Graduate Student Loans

To apply for federal student loans (and also grants and scholarships), you need to submit the FAFSA (Free Application for Federal Student Aid).

Here are the benefits of federal student loans:

• Interest rates on federal student loans are fixed and usually lower than those on loans from private lenders.
• You don’t need a credit check for direct unsubsidized loans.
• Federal student loans offer flexible income-driven repayment plans, which is good for low-income students.
• There are forgiveness programs for federal student loans that can help you with part of the debt or completely forgive the remaining loan balance.
• Borrowers facing financial hardship that prevents them from making loan payments may be eligible for deferment or forbearance, during which time payments are temporarily paused or reduced.
• Most federal student loans have a grace period, which is a period after graduation when borrowers aren’t required to make payments. This provides a transition period for borrowers to find employment and establish themselves financially.
• Federal loan consolidation allows borrowers to combine federal student loans into a single loan with one payment per month. This can simplify repayment and extend the repayment term, reducing the monthly payment amount.
• Federal student loans can be paid off early without incurring prepayment penalties, allowing borrowers to save on interest by making extra payments ahead of schedule.

Direct Unsubsidized Loans

As a graduate student, you can opt for a Direct Unsubsidized federal loan. To be eligible, you must be enrolled at least half-time in a program that will end with you earning a degree or certification.

You will not need to make payments on the loan while in school, in deferment, or during the grace period.

You can borrow up to $20,500 each year. The school's attendance cost determines the loan amount minus any other financial aid received.

The origination fee for Direct Unsubsidized loans is 1.057% and will remain unchanged until October 19, 2024.

Direct Unsubsidized Loans have favorable loan terms for graduate students compared to private student loans. The interest rate is low and fixed at 7.05% in 2023.

Repayment typically begins six months after graduation, leaving school, or dropping below half-time enrollment.

Grad PLUS Loans

A Direct PLUS Loan is another option with different eligibility requirements than Direct Loans. To be eligible, you need to be enrolled in a program (at least half-time) that will lead to a graduate degree or a certificate. Your credit score will be evaluated, and if you have an adverse credit history, you’ll need to meet additional requirements. Generally, credit requirements are less strict than with private loans.

You can use a Grad Plus loan if you cannot cover all of your tuition expenses and student fees with a Direct Unsubsidized loan, which has a borrowing limit based on the cost of attendance.

The interest rate for Direct PLUS loans disbursed on or after July 1, 2023, is 8.05%.

Private Graduate Student Loans

There are many sources of private student loans — banks, credit unions, and online lenders. Interest rates on private loans aren’t fixed, there are fewer protections for borrowers, such as forbearance or loan forgiveness programs, and you cannot change the repayment schedule.

Just like with a Direct PLUS loan, your credit score and history will be evaluated if you choose a private loan. If you have a bad credit history or low credit score, you can use a co-signer who will be responsible for the loan if you default.

Usually, borrowing limits are higher on a private loan.

The table below shows different repayment plans offered to graduate students looking for federal loans.

If you’re seeking financial aid, you have two borrowing options — federal and private student loans. To apply for federal aid, you have to fill out and submit the online Free Application for Federal Student Aid (FAFSA).

Best graduate student loans are federal because they generally have more favorable terms and conditions.

You can take two types of federal loans as a graduate student — Direct Unsubsidized and Grad PLUS loans. Direct Unsubsidized loans have a borrowing limit of $20,500 per year, while Grad PLUS loans don’t have a limit.

Federal graduate student loans offer several advantages, including fixed interest rates which are lower than with private loans, income-driven repayment plans, various loan forgiveness programs, and the option to consolidate multiple loans into a single monthly payment. Borrowers can also pay off federal loans early without facing prepayment penalties.

Private graduate student loans, offered by banks, credit unions, and online lenders, differ significantly from federal options. Private loan interest rates are not fixed, and there are fewer borrower protections. A borrower’s credit history is crucial in obtaining private loans; those with unfavorable credit may require a co-signer.

Always remember to consider your financial situation and goals carefully before taking any type of loan.