How to Manage Undergraduate Student Loans Before Grad School

How to Manage Undergraduate Student Loans Before Grad School

BIG Ideas:

  • When you enroll in a graduate program at least half-time, any undergrad federal loans you have will automatically be placed in in-school deferment.
  • When your loans are in deferment, interest will accrue until after you graduate unless you have federal subsidized loans.
  • To afford the cost of grad school, you’ll want to apply for financial aid by completing the FAFSA.

Thinking about going to grad school? You’re not alone. According to the National Center for Education Statistics, there were 3 million graduate students in U.S. colleges in 2024.

It’s easy to understand the appeal.

A graduate degree can help you increase your earning potential, gain specialized knowledge and training, and increase career advancement prospects. Not bad, huh?

But graduate school can be expensive. The average cost of graduate school in 2024 was $62,820 and the average debt of a bachelor’s degree is $30,000, so managing the cost of paying back undergrad debt and new graduate school debt can be a big financial commitment.

So how will paying for graduate school impact your undergraduate student loans? Here’s some information to help you understand:

Managing Existing Undergrad Debt

If you have federal undergraduate student loans and enroll in graduate school at least half-time, your student loan payments will be automatically deferred. That means you won’t have to make payments on your undergrad loans while in grad school at least half-time.

There is a wrinkle, though. Unless you have subsidized federal loans (loans where the government pays the interest while in school), the interest on your undergrad loans will accrue during the deferment period. So, you will end up paying more in interest over your loan term.

You do have the option to pay interest only or principal and interest on your undergrad loans while you’re in grad school, which can help you reduce the overall amount you have to pay.

If you have private student loans (loans from a non-government lender like a bank, credit union, or other private lender), however, deferment is not guaranteed. It will depend on the lender’s policies.

Remember with deferments (federal or private), interest accrued during deferments will capitalize which will increase your principal balance, and you will end up paying interest on interest.

Borrowing Additional Money for Graduate School

So now that you know the impact on your existing undergrad debt, let’s look at your options for financing grad school.

You’ll want to exhaust federal loans first since they provide greater flexibility. You basically have two loan options: Direct Unsubsidized Direct Loans and Direct PLUS Loans for Graduate Students.

Unsubsidized Direct Loans offer the lowest rates. They are, however, subject to the following borrowing limits: $20,500 per academic year and an aggregate limit of $138,500 for both your graduate and undergraduate debt. Plus, no more than $65,500 of your total grad and undergrad debt can be in subsidized federal student loans (available only on undergrad loans).

With some health profession programs, however, you could borrow more than the limits outlined above.

If you have reached the borrowing limits, you do have other options. You can apply for a Direct PLUS Loan offered by the federal government. With this type of loan, you can borrow up to the cost of attendance, though you will be subject to a credit check.

You can also apply for a private loan with a private lender, which is based on your income and credit. Rates, terms, and borrowing limits vary by lender, so shop around.

Steps to Take Before You Enroll in Grad School

If you’re seriously considering grad school, there are some important things you need to do:

  • Understand the types of undergraduate loans you have and the amounts you owe.
  • If you have federal loans, check if they are unsubsidized or subsidized. Again, if they are subsidized, the government will pay the interest on your undergrad debt while you’re in grad school, saving you money in interest.
  • If you have private loans, talk to your private lender and ask if they offer in-school deferment.
  • Complete the Free Application for Federal Student Aid (FAFSA) to exhaust all federal aid first.
  • Compare financial aid packages before deciding on a school.

Choose Wisely

There’s no question, a graduate degree may open up new career opportunities and boost your earning potential, but it is a MAJOR investment. So, make sure you don’t borrow more than you can afford, which could impact your other financial goals later in life, like starting a family or buying a home.

Brazos is Here to Make Your Graduate Degree Possible

For more than 40 years, Brazos Higher Education has been helping make education more affordable for students. As a Texas non-profit, we offer great rates and no fees on private student loans to help with grad school. Contact us to learn more.