“Ava Williams” is your typical Psi Chi undergraduate student*. She’s spent the last several years working hard, studying, and earning good grades. Ava, like the average student, will graduate with $31,200 worth of debt (McFarland, 2019). She is a first-generation college student who dreams of going to graduate school but has no idea how to pay for it. Her parents have cautioned her against putting herself into too much debt. She is torn between following her dream and her fear of spending the rest of her life in debt.
On average, students graduating from master’s programs owe $66,000, while those completing research doctorates owe $108,400, and those completing professional degrees owe $186,600 (National Center for Education Statistics, 2018). Although there are many similarities between the financial aid process for undergraduate and graduate students, there are opportunities and considerations that uniquely affect graduate students. Follow us as we guide you through the financial aid process to financial stability. This information applies to U.S. citizens applying in the United States; international graduate students can learn more at https://psichi.com/WhereToStudy.
Free Application for Federal Student Aid (FAFSA)
There are two types of financial aid (those that do and do not have to be repaid) for both undergraduate and graduate students, but there are some differences you should know. You should begin researching graduate schools and financial aid options much earlier than you did for undergraduate because programs are more competitive and may have different deadlines and requirements.
When applying for graduate school, you become eligible for more federal financial aid, but you also encumber all the debt. You are automatically classified as independent on the FAFSA, meaning you no longer need to include parental data, though married students must report household income and assets. Plan on submitting it as early as possible at https://studentaid.ed.gov/sa/fafsa.
Sources of Aid That Don’t Need to Be Repaid
Financial aid can come from multiple sources such as agencies (public and private), organizations, the school/institute, department, or individual programs, but it is not available until after acceptance to a program (https://psichi.com/Differences, https://studentaid.ed.gov/sa/types/work-study).
Grants. Grants are typically awarded for a specific project or purpose. You qualify based on financial need (as determined from your FAFSA), merit, or other eligibility criteria.
Scholarships. Scholarships are typically based on merit, financial need, or other qualifying requirements. You can have more than one, but make sure you understand each scholarships’ eligibility requirements. Check here for scholarship opportunities:
Fellowships. Fellowships are more likely to include an obligation to belong to certain organizations or to pursue or participate in a specialized career path, and meet specific criteria related to experience, geography, or demographics. Fellowships are often competitive, involve extensive preparation, and can range from short-term to multiyear commitments. Planning is a must.
Assistantships. Graduate assistants typically work at their institution as an employee for a specified number of hours per week and in return may receive a full or partial tuition waiver or a monthly living stipend. The application process and requirements vary by school. Normally, assistantships need to be supplemented with additional income or financial aid.
Federal work-study. Federal work-study jobs are available to students based on financial need. More information is available at https://studentaid.ed.gov/sa/types/work-study.
Student worker. If you are not eligible for federal work-study, you can apply for jobs that are funded by various departments and offices across campus. These positions may offer scheduling flexibility and allow you to work without leaving campus, saving time and costs associated with transportation.
Employment. You may choose to seek traditional employment, and employers may subsidize some costs associated with graduate school. Be aware that some programs, particularly those that provide financial assistance, may not allow you to work, so carefully review the programs policies.
Sources of Aid That Do Need to Be Repaid
Federal loans. Federal loans are funded through the Federal Direct Loan Program (FDLP) and repaid with interest set by the federal government. These loans are easier to obtain if basic eligibility requirements established by the U.S. Department of Education are met. Federal loans can be subsidized (the federal government pays the interest while you are in school) or unsubsidized (interest begins accruing as soon as the loan is disbursed).
You are eligible for the full amount required to cover your academic expenses minus any grants, scholarships, and work-study awards. This includes Perkins, Stafford, and GradPLUS loans. The amount you can borrow for GradPLUS loans is based on your credit score (https://www.nelnet.com/types-of-student-loans). You can review this information on your total debt anytime by logging into studentloans.gov. Borrow the minimum you need to get by to reduce future monthly payments and loan repayment time.
Repayment plans. Federal loans offer various options for repayment. You can find more information at https://www.nelnet.com/repayment-plans.
- Standard repayment plans (most cost effective but highest monthly payment) allow you to pay back your loans plus interest with equal payments spread over 10 years.
- Graduated repayment plans allow you to make lower payments initially, and then the payment increases every 2 years until the loan is paid in full.
- Extended repayment plans allow you to spread the loan repayment time up to 25 years, with either standard or graduated payments.
- Income-sensitive repayment plans allow you to make payments for up to the first 5 years based on your income, and then switch to standard or graduated repayment plans.
- Income-driven plans set monthly payments annually based on your income and family size. After you have made a set number of payments, your remaining balance is forgiven.
Grace period, deferment, and forbearance. When you apply for a loan, you have the option to defer payment on the loan for 6 to 9 months after you graduate, leave school, or drop below half-time enrollment. Deferment postpones your payment and stops interest from accruing, in many cases. You may be eligible for a temporary deferment if you are experiencing a financial hardship, are in a position of unemployment, are on active military duty, or go back to school. If you do not qualify for a deferment, you may still be able to qualify for a forbearance. With a forbearance, you can lower or stop your payments, but interest will continue to accrue. If possible, you should continue to pay the interest because it will be added to your principle, which will further increase the amount of interest accrued.
Loan delinquency vs. default. If you are unable to pay on your student loan, contact your provider immediately to request assistance to keep your account current. Loan Servicers, such as Nelnet, report your payment history and other information to credit agencies. Once you are 90 days past due, your account is reported as delinquent; your loan is considered in default once you are 270 days delinquent. Defaulting on your federal student loans has severe, long-lasting effects on your credit and ability to make future purchases.
Consequences include the inability to obtain future federal loans, legal fees, wage garnishments, restrictions on your ability to buy and sell assets, or holds on your academic transcript while your loan is in default, swallowing your options for the future (https://studentaid.ed.gov/sa/repay-loans/default#consequences).
Private student loans. Lenders determine eligibility, the amount you can borrow, the terms of the loan, and the interest rate. Completing a FAFSA is not required, but you may need a cosigner. These are often hard to get. After graduation, you can refinance your student loans only once in order to lower monthly payments, but you may lose federal benefits so make sure this is the best option for you.
Tips for Financial Health
Manage your expectations. One common mistake made by young adults is attempting to maintain the standard of living that they were accustomed to when they lived at home while failing to realize that their parents “worked up” to that point in the years prior. Live simply and within your means, not your parent’s means. Make plans and work toward them a step at a time. Be proud of your ability to do more with less.
Track your money. One of the best ways to develop a plan for managing your money is to know what you are spending it on. Keep track of what you have coming in and where you are spending it. Small purchases may not seem important at the time, but they can add up quickly. Look for ways to cut back now so that you can decrease the stress over the long haul. Differentiate between needs and wants. Internet is probably a need for graduate school; eating out every night is not.
Establish and maintain credit. Experian suggests several ways to build your credit score on their website: https://psichi.com/Experian.
Pay down debt. If you are already in a tight spot, develop a plan to pay down your debt. For example, pay minimum payments on everything except the account with the lowest balance. When that debt is paid, add that amount to the minimum payment of your next lowest balance. By “snowballing” your payments, and not creating new debts, you will be able to eliminate your debt over time, which will allow you to save for larger expenses and experiences. For more information go to https://psichi.com/DaveRamsey.
Plan. Plan for major expenses rather than charging them. Before you make a big purchase, “make payments” to yourself for the amount the purchase would cost you. This lets you save some money toward a down payment and “try out” this change to your budget without the risk of being locked into a purchase before you know how it will affect you. Plan for retirement early. Time goes by faster than you expect. For more information on planning for retirement, go to https://psichi.com/AmericanFunds.
Save. It can be a challenge when you are feelings stressed about money to think beyond just making it from paycheck to paycheck, but the sooner you begin saving, the bigger safety net you will have to help you weather the unexpected. Have money directly deposited into an account to which you do not have easy access, so you are less tempted to spend it.
Attending graduate school is an exciting yet scary time. Being accepted into a graduate program is your reward for the hours spent learning, challenging yourself, and growing throughout your undergraduate years, and you may just want to be able to focus on your studies without the nagging worry of debt, yet stress related to finances and debt were reported by 64% of graduate students (https://www.apa.org/gradpsych/2012/09/stressors). As the costs of education continue to rise and the value of higher education is questioned, students like Ava are facing additional pressure as they pursue graduate education. When comparing themselves to their peers who have joined the ranks of the employed after college or entered a technical degree field and are already earning an income, they may feel compelled to justify attending graduate school while struggling with the fear that they will never be able to pay off the debt they will incur. There is hope! Making careful financial choices now is crucial to setting you on the right path. By following this guide, you can emerge financially secure and prepared to make a difference in the world! Best of luck!
McFarland, J., Hussar, B., Zhang, J., Wang, X., Wang, K., Hein, S., Diliberti, M., Forrest Cataldi, E., Bullock Mann, F., and Barmer, A. (2019). The condition of education 2019 (NCES 2019-144). U.S. Department of Education. Washington, DC: National Center for Education Statistics. Retrieved from https://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2019144
National Center for Education Statistics. (2018). Trends in student loan debt for graduate school completers [Spotlights from The Condition of Education]. Retrieved from https://nces.ed.gov/programs/coe/pdf/coe_tub.pdf