Five Ways to Pay for Grad School

My oldest daughter is in her last year of undergraduate studies and is looking ahead to graduate school. My youngest has been accepted to a number of undergraduate schools and is already thinking ahead to graduate studies. So, this topic is very close to my heart. I hope you find some value in it.
Rich Arzaga, CFP®

Courtesy of The Wall Street Journal
By Cheryl Winokur Munk

We hear a lot about college students’ loans. But graduate students build up debt, too.

Many students seeking graduate degrees need help footing the bill. But they often don’t know where to turn.

The bill can be hefty: The average cost of a year of graduate school (tuition and related expenses) was close to $25,000 during the 2016-17 academic year, according to a report from Sallie Mae, one of the nation’s largest private student lenders.

While some graduate students may have money left over in a “529” college-savings plan to pay for that advanced degree and a select few others will get the golden ticket—a tuition waiver plus a stipend for expenses, in exchange for teaching or researching at the school—many more won’t.

Here, then, is a look at a range of funding options for students planning to go to graduate school:

1. Grants/scholarships
To minimize what they need to borrow, grad students should explore any federal, state, school-based or organizational grants they might be able to use to defray the cost of their studies.

First, students must complete the Free Application for Federal Student Aid, or FAFSA—the government form for financial aid consideration. Certain graduate schools require that students also complete the College Board’s CSS Profile to be considered for aid from the university. (Graduate students generally are considered independent for financial aid purposes, meaning they won’t need to include their parents’ financial information.)

While federal grants generally are need-based, some may be available to students who are studying to fill a special need or discipline, according to Sallie Mae.

Sallie Mae offers an online search tool that gives students free access to 850,000 need- and merit-based graduate scholarships worth up to $1 billion. To register and receive alerts about scholarships that match their profile, students should visit the Sallie Mae site’s “Find graduate school scholarships” page.

2. Fellowships
Fellowships, available in many fields to help defray education costs, are generally based on academic achievement. There are different types of fellowship programs, but some include an internship or other service commitment. Fellowships are extremely competitive to get, but the benefits can include practical experience and professional development, as well as different types of financial support, such as tuition waivers, a stipend or housing assistance.

Students interested in exploring fellowship options should speak to their program chair. They also can contact professional associations and nonprofit research organizations within their field that fund fellowships.

It is a good idea for students to start looking for fellowship opportunities as soon as they decide to apply to graduate school so they don’t accidentally miss out on programs with early deadlines.

3. Assistantships/work study
Students pursuing advanced degrees may have opportunities to earn tuition waivers or cash (or both) by working as research and teaching assistants. During the 2015-16 academic year, students working as graduate assistants while pursuing master’s degrees earned an average of $10,500, while those pursuing research doctorates averaged $18,500, according to a report from the National Center for Education Statistics.

Graduate students also may find work through the federal work-study program. To be considered, they need to submit the FAFSA and indicate their interest in work-study.

4. Student loans
Grad students can borrow up to $20,500 a year in direct, unsubsidized federal student loans, with an aggregate limit of $138,500, including all federal loans received for undergraduate study. (Medical students have a higher yearly maximum borrowing limit of $40,500 and an aggregate limit, including undergraduate borrowing, of $224,000.)

Once students hit these limits, they can take out another type of federal loan, known as Direct Plus, up to their total cost of attendance.

To get a federal loan, students must first submit the FAFSA. Both types of federal loans offer certain favorable protections to graduate and professional students, such as income-driven repayment. But the interest rates on Plus loans are higher than direct unsubsidized loans and even some private loans, and they usually come with a higher loan fee. (The interest rate on Direct Plus Loans disbursed from July 1, 2018, to June 30, 2019, is 7.6% versus 6.6% for graduate or professional direct unsubsidized loans.)

Grad students also can borrow money from private student-loan companies, as well as nonprofit and state-based higher-education finance organizations, but they should be aware that these loans usually don’t come with benefits such as income-driven repayment.

Students, of course, should be careful about how much debt they take on. One rule of thumb is to take on no more debt than your expected annual salary, says Stephen Dash, chief executive of Credible, an online loan marketplace.

Students also should try to pay some of the interest on their loans while they are still in grad school, rather than waiting until they finish their degree. “Anything you can pay down while you’re studying is helpful because it will reduce the overall debt that you owe,” Mr. Dash says.

5. Employer reimbursement
Some people may be able to pursue a graduate degree while working full time, depending on the industry they work in, the particulars of their job and the degree they are seeking. Many graduate programs cater to working people by offering online and evening classes.

Even better, some employers offer tuition-reimbursement programs to help defray the cost of graduate school for employees. Students pursuing master’s degrees received an average of $6,200 in employer aid during the 2015-16 academic year, according to the National Center for Education Statistics.

Corporate tuition-reimbursement programs often come with restrictions, however. For example, some programs may require employees to work for the company for a certain amount of time or achieve certain grades.

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