Choosing to go to graduate school is one of the biggest decisions of your life, and if you’ve already gotten in to a school you’re happy about, congratulations are in order. But shortly after the thrill of acceptance, you may feel another, equally strong feeling: anxiety.
Believe it or not, anxiety is a good sign that you’re taking the financial burden seriously. Graduate school takes a heavy toll, and most people cannot afford to pay for it out-of-pocket. If you’re smart, you will make plans for how you’re going to find that money, and how you’re going to eventually pay it back, long before you attend school.
Because financial aid is different for graduate students than for undergrad students, however, we have endeavored to provide a complete guide here. In addition to covering the basics of what financial aid is and how to get it, we’ve also offered an overview of other sources you might draw upon to pay for grad school.
We’ll also take a look at how to manage your money intelligently, how to take advantage of available tax credits, how to ensure you keep your financial aid eligibility (because it is not a given) and how to make a smart plan for paying it back once you’ve got that diploma in hand. Ready to get started? Read on.
Making a Solid Plan
The first and most important financial step you can take when thinking about graduate school is making a plan that will keep your finances sound both while you’re in school and once you graduate.
This includes knowing all the different loan options available to you, successfully applying for and receiving aid, tracking your loans once you leave school and ensuring you are always able to make your payments so you don’t end up in deferment. If you can do all of this, you will remain financially sound both in school and after.
U.S. News & World Report recommends that you follow a financial timeline as soon as you start thinking about grad school. This includes taking more than the program itself into consideration when choosing schools: you should also weigh school costs and available financial aid as well as how likely this degree is to translate to a boost in your income (if that’s the reason you’re going back to school). About six months before your program would begin, start saving. At this time, you should also figure out your financial aid.
In order to spend as little money as possible, approach financial aid in graduated steps. First finance your schooling with scholarships and grants, which are free and do note require repayment. Next, you should earn as much money as possible on your own, either working and saving to pay for grad school beforehand, or working during the program, if that’s a possibility for you. Lastly, you should make up the difference with money you’ve borrowed from the federal government or from private institutions.
Six weeks before school begins, U.S. News says, start “living like a student.” Move into your new place, if necessary, live the lifestyle you will keep through school, and get your financial aid. But before you can, you’ll need the following handy primer in financial aid definitions and types.
Direct Versus Indirect Costs
In order to know how to properly budget, it’s important to recognize the difference between direct and indirect costs. Sallie Mae offers a handy breakdown of each. Direct costs include:
- Room and board if you live on campus (which the vast majority of grad students do not, although some do)
Indirect costs cover:
- Supplies and books
- Room and board off campus
- Personal expenses
- Computer and technology
- Special circumstances – this can include children, a disability or an unusual living situation
It will be easy to total your direct expenses, because your institution will tell you exactly what they are. Accurately tallying your indirect costs may be harder, but it is important, because it will help you decide how much financial aid to apply for and accept. Take the time to do it well in advance, and be realistic. In the next section, we’ll cover some important financial aid definitions.
Financial Aid Definitions
The following list of terms includes those you will commonly encounter in your financial aid search. Not that graduate financial aid differs slightly from that available to undergraduates.
- Subsidized Loans: Subsidized loans do not accrue interest while you are in school at least part time, because the U.S. Department of Education pays your interest for you. However, while these are available to undergraduates with financial need, do not expect to see these in graduate school.
- Unsubsidized Loans: These do accrue interest, and are the only direct loan type available to grad students. You will not be expected to pay the interest while in school; it will be added to your loan amount.
- Federal Financial Aid: This is financial aid offered by the government. You must fill out a FAFSA to receive it.
- State Financial Aid: Most states have educational agencies that will help students. Research your particular state’s financial aid programs, and apply for all applicable grants, scholarships and loans.
- Private Education Loans: If federal and state loans will not cover your school costs, you can apply for private loans from banks or other institutions. These typically do not have interest rates as low as government aid, but some do.
- Institutional Aid: This is aid available directly from your university. It can include loans, grants, scholarships or work study.
Federal Student Loan and Financial Aid Types
The following is a list of the federal student loan and financial types available to graduate students.
- Direct Unsubsidized: As explained above, these loans begin accruing interest immediately, and are capped. After you hit the limit, you can take out other loan types.
- Graduate PLUS: This will help cover out-of-pocket expenses while in school, but are subject to a credit check, so not everyone will qualify.
- Perkins: You must have a financial hardship to qualify for these, and funds are limited.
- Federal Work Study: If you qualify for this, you may work on campus or at approved off campus locations to earn money.
- TEACH Grant: These are available to people who plan to teach, and do not need to be repaid.
- Pell Grant: Outside of undergrad, only graduate students enrolled in postbaccalaureate teaching programs (which are not technically graduate degrees) can qualify for these.
Other Financial Aid Types
- Scholarships: These don’t need to be repaid, and are usually awarded on the basis of merit, though they may also be awarded based on need or some other factor, such as ethnic background.
- Tuition Reimbursement: Many employers offer tuition reimbursement if you go to school for a degree applicable to your current line of work and remain at that job for a specific amount of time afterward. Before you leave work to go to school, ask your employer about this option. Note that you may need to attend a part-time program so that you can keep working during.
- Research and Teaching Assistantships: Some students may receive money to help professors research their books or projects or teach classes of students in an assistant capacity.
- Aid from Your State’s Department of Education: Many states offer aid for students going into specific fields, who have disabilities, who are receiving vocational and technical degrees, and more.
- Public Service Loan Forgiveness: Some loans may qualify for public service loan forgiveness, which is when your loans are partially or fully wiped if you work in a service field after graduation. Although this will not make a difference to your loan amount while you’re in school, it can really help defray the costs of grad school afterward.
Lifetime Learning Tax Credit
Taking applicable tax credits can also help you save money. Many grad students are eligible for the Lifetime Learning Tax Credit, a nonrefundable credit that reduces the tax you owe dollar for dollar. This means that you can reduce the actual amount you owe on your taxes by as much as $2,000.
The credit is available to people filing singly whose modified adjusted gross income is $62,000 or less and married couples filing jointly whose income is $124,000 or less. It applies toward 20 percent of tuition and other required educational expenses, up to a maximum of $10,000.
For those unfamiliar with the intricate workings of the American tax system (so … basically everyone), this credit is not limited to while you’re in school or the year after, but may be taken indefinitely after you graduate, hence the title. Up until you hit the income cap, you can and should use it on your tax return.
The Application Process
The first step in the application process is to ensure you have completed your taxes. The loan amounts you are eligible for are drawn directly from the most recently filed tax return, so make sure your taxes are up to date before applying. If your financial situation has changed but you will not file a tax return for a few more months, go ahead and apply for financial aid anyway. Once you file your tax return later, you may be able to adjust your financial aid amount by contacting the issuing institution afterward.
Now it’s time to fill out your financial aid applications. For federal financial aid there’s the FAFSA, of course, but most institutions require their own applications for institutional aid, and you will need to fill out additional applications for private aid. Make sure you submit them in a timely fashion, as you usually cannot make up for missed deadlines.
Some students are confused when they finish filling out the FAFSA and are then asked to undergo a verification process, in which they answer many of the same questions again. If this happens to you, don’t worry: nothing is wrong. This is the federal government’s audit process, to help ensure that students are filling out questions correctly. Just go with it.
After you have filed your applications and verified, there’s nothing to do but wait for your award letter. Once you get it, you must accept your financial aid.
It is important to understand two things about acceptance. The first is that you do need to officially accept it in order to receive it. Generally this is a short form or online process, and is not time-consuming. Make sure you do so in plenty of time for the new school year. The second is that you do not need to accept all financial aid you qualify for, but may instead pick and choose which loans you’d like to accept. If you receive more funding than you really need, it is wise to accept less than that, because then you don’t have to pay as much back later. You may want to accept only the subsidized loans, but not those that are unsubsidized. Or you may accept all financial aid from the government, but take less than the maximum offered by a financial institution.
The next step after acceptance is disbursement. In order to get your funding, you may need to meet with a financial aid officer at your school. While some institutions require this, some do not. The federal government does require that you undergo entrance counseling, however, which is an online process in which you read about loan and repayment policies, then sign your agreement.
If possible, before applying for aid, it is a good idea to set up a meeting with someone in the Office of Financial Aid who can go over your options with you, point you toward applicable scholarships and grants, and give you the heads up on the best ways to apply for them. This is completely optional, but may help you make smarter decisions than simply going it alone.
Other Financial Aid Resources Offered
Although you have a billion things to do in graduate school and you’ve already “done” the whole higher education thing, you should still pay close attention to the advice offered you by school officials and departments such as the Registrar’s Office and the Financial Aid Office. Often the tutorials they offer online or the paperwork they pass out is more than busywork; it is valuable information to help you succeed in school and afterward. This includes information on:
- Repayment schedules
- Alternative repayment options
- Grace periods
- Reasons for deferment
- Good standing requirements
Any handouts you receive from loan institutions, your university or financial aid officers should be taken seriously, so read it. Many universities also offer counseling on finances and money management if you need them, so take advantage.
Graduate School Money Management
Good money management skills can make the difference between an awesome school experience and an ulcer-inducing one. Your institution disburses financial aid and uses the money to cover school costs first, then cuts you a check for the rest. This makes it incredibly important for you to budget wisely, as only you are responsible for this money and making sure it lasts the term.
Form good money management habits, such as:
- Keeping receipts
- Regularly checking your bank account
- Setting aside money at the beginning of the term that will cover rent, bills, transportation costs, food, books and school costs for the entire term before spending money on anything optional
- Save where possible, even in school
Grad School with Kiddos
Many people would like to attend graduate school but assume once they have kids that it is impossible. While it isn’t, it is certainly more difficult. Kids can challenge grad students by making studying difficult, requiring costly childcare in order to allow the parent to attend classes, and complicating the budget. U.S. News & World Report offers a great list of tips for parents hoping to attend school.
Remaining Eligible for Financial Aid
Once you receive financial aid, you must retain your eligibility. This goes for all types, including federal loans, private loans, grants and scholarships and work study: keeping them depends on you meeting certain minimum standards set by the institution funding the financial aid. The federal government requires that you maintain Satisfactory Academic Progress and refill out your FAFSA every year (applicable only to graduate programs that are two years or more).
Your institution has its own rules regarding how withdrawing from classes affects your GPA, so make sure you know what they are so you do not inadvertently bring yourself below the minimum standards. Also keep in mind that institutional aid, grants and scholarships and other types of aid have their own standards, which you must meet to keep your aid. If you need to, get academic assistance before a small issue turns into one that impacts your life.
Track Your Student Loan Debt
Tracking your student loan debt is important in two ways:
- You must know your loan balances and payments in order to effectively budget once you leave school.
- Knowing your loan totals helps you borrow correctly, both because you can match up the amount you’re receiving with the amount you need to ensure you have enough, and because there is a loan limit that you must not exceed in a calendar year and over your career as a student.
Repayment Plan Options
Although a complete discussion of repayment options is beyond the scope of this guide, note that you have many federal loan repayment options beyond simply following the 10-year standard repayment schedule after you graduate and your grace period expires. These include the Graduated Repayment Plan (where payments start lower and gradually increase over time); the Extended Repayment Plan (where you have more than 10 years); and the Income-Based, Pay As You Earn, Income-Contingent and Income-Sensitive Repayment Plans, all of which take your current finances into account to adjust payments.
Depending on your field, the job you get after graduation, how quickly you find a job, whether you have a family and other factors, you may find one of these works better for you than the Standard Repayment Plan. You may also in time be able to consolidate multiple loans into a fewer loans or a single loan.
Does Exit Counseling Really Matter?
In a word: yes. Exit counseling really does matter. Although many students choose to see it as another hurdle they must cross before graduating, taking exit counseling seriously can really help you.
Exit counseling is required by the federal government, and involves you completing a short online course in which you read about loan repayment terms and signal your understanding by checking boxes and signing with your personal information. Though it may be tempting to simply skim this information, resist the urge: the information contained within may help you understand more about your loan type, your repayment duties and your various options.
Now it’s time for you to go out into the world and conquer, my friend. With the inside track on financial aid for graduate school, you can hopefully make the best decisions about how to pay for your program, how to borrow only as much money as you need, how to budget intelligently and how to take advantage of all the potential financial opportunities out there.
More than that, however, we hope this guide has given you the confidence to feel as though you really know what your options are. In a world where school can tremendously advance your life and bad finances can wreck it, you need to feel as though you’re on top of your options and responsibilities. If you need to, read this guide again once you’ve been accepted into your program so you make sure you’re squeezing out every last drop of opportunity available to you.
You know you can succeed in school. Taking financial aid seriously can help you succeed in life. So go get ‘em, tiger.