Now that you’ve decided to go to graduate school, you may be researching how you will pay for tuition and other expenses. You have another decision to make as well – what to do about any undergraduate student loan debt you may have.
If you attend graduate school at least half-time, your loans can be deferred so you won’t be required to make payments. Although that will provide immediate relief, there are other long-term financial implications to consider. It’s important to look at the kind of undergraduate loans you have before determining how to proceed.
Federal Subsidized Loans – With these loans, the federal government pays the interest while you are in school at least half-time. You may want to take advantage of an in-school deferment on subsidized loans, and move into repayment after you leave school.
Federal Unsubsidized Loans – Some or all of your federal loans may be unsubsidized, which basically means that you are responsible for the interest, even while in school. You can still defer your payments if you attend at least half-time, but the interest will continue to build and will be capitalized at repayment. Capitalization is unpaid interest that has been added to the principal balance of a loan. Future interest then accrues on the larger balance. That can add up.
Private Loans – These loans are taken out from banks, credit bureaus, and other lending organizations. You can generally defer private loan payments while in school at least half-time, but interest will accrue and capitalize at repayment as well. More information about private loans is located in U-fi's Frequently Asked Questions.
Tip: If you are able to pay any of the interest on private loans or unsubsidized loans each month while in graduate school, it can amount to significant savings in the long run.
You can go to the National Student Loan Database (NSLDS) to obtain information about your federal loans. There you will see the types of loans you have and the terms of each. You can also see the federal loan servicer(s) to whom your loans have been assigned. To find out about your private loans and servicers, check with your lender. Federal and private loan servicers are responsible for working with you during school and for billing, collection, and information services provided throughout your loan repayment period.
You may wonder how servicers will know that you are in school and eligible for deferment. Your federal servicer(s) will receive notification of your in-school status when your school reports enrollment information as part of their regular administrative procedures. Federal servicers will automatically place you in deferment status and will notify you. To be sure your private loan servicers know you are in school, contact them and submit any required information, if needed.
Tip: Your servicers can advise you about the best in-school payment options. For example, working at a non-profit organization or at certain income levels may put you on a different repayment track for federal loans. It’s wise to take advantage of your servicers’ individualized counseling before making any decisions about how to handle your loans before, during, or after graduate school.
If you took out private loans as an undergraduate, you may want to explore whether refinancing your loans into one new private loan is a viable option before entering graduate school. If your undergraduate private loans have higher interest rates than those currently available, or if you would like to combine multiple loans into one loan, refinancing may be a good choice for you. Private refinance loans are based on credit and you may need a cosigner to get the best rate. Refinance loans usually offer in-school deferment options if you attend school at least half-time. Interest accrues and will be capitalized at repayment.
Be cautious about including federal loans in a refinance loan. Even if the rate is lower, you will lose loan forgiveness, income-driven repayment options, and some other features available only in federal programs.
Since subsidized federal loans are not available to graduate students, both federal and private loans will accrue interest while you are in school. If you are unable to make interest payments on all of your loans while in graduate school, consider paying interest on the highest rate loan(s) first. Any progress you can make on paying interest will put you in a better position when you move into loan repayment.
Talking with your federal and private loans servicers can help you determine the best options in your specific situation. Education loan management can be complicated. Your servicers can look at your accounts and provide information about the best choices for you.