Paying for Grad School: Tips from an Insider

From a purely economic perspective, going to grad school is an easy decision. According to the U.S. Census Bureau, adults with a master's, doctoral, or professional degree earn an average of $79,946 a year, while those with just a bachelor's degree earn an average of $54,689. However, figuring out how to pay for that advanced degree can be difficult.

This article provides some sound advice to help you understand your options in paying for either a traditional graduate program or a professional degree program.

Unless you are one of the very few students who can just write a check to pay for your education, you should seriously consider applying for financial aid. Financial aid, even federal financial aid programs, is not solely for low-income students. Almost every student can qualify for some form of aid.

To begin the financial aid process, you should complete the Free Application for Federal Student Aid (FAFSA) form. After completing the form, you will learn your eligibility for institutional aid, grants, and federal student loans. Most schools base their aid packages on the FAFSA, so it is always a good idea to complete it. Graduate students are considered independent, so parental information is not required for federal student aid. However, some colleges do review parental information when awarding their own institutional funding.

Of course, the first avenue to explore is financial aid you don't have to pay back, namely, fellowships, grants and scholarships. For fellowship information, contact the financial aid office or the specific academic department where you'll be a student. You may also contact professional organizations for fellowship information. For example, medical students should look at the American Medical Association or the American Osteopathic Association.

Grants can be found just about anywhere, but the federal government and your state government are key sources. Usually, your school can tell you about any grants for which you are eligible. For scholarships, there are many free online search engines to help you find one (or more) you might be eligible for. Under no circumstances, never, ever pay to enter or search for a scholarship - if they ask for money, it is likely a scam.

If savings, scholarships, grants, and fellowships aren't enough to cover your education expenses, student loans are a good option. In fact, student loans are one of the most common ways to pay for graduate school. In the 2003-04 academic year, 63 % of all graduate and professional students received a student loan. However, as with all financial decisions, doing your homework may save you thousands of dollars.

Your first resource for student loans should be the federal student loan program. Federal student loans have more attractive interest rates and payment terms than private, non-federal loans or credit cards. There are three main federal loans for grad students: Perkins loans, Stafford loans, and Grad PLUS loans.

• Perkins Loans. Perkins loans are offered through your school and based largely on financial need. Schools that participate in the Perkins loan program have a limited amount of dollars to lend, so it is important to complete your FAFSA as soon as possible after January 1 of each year.

• Stafford Loans. Stafford loans come in two forms, subsidized and unsubsidized. The difference between the two is interest: for subsidized loans, the federal government pays the interest while you're a student. For unsubsidized loans, you pay the interest that accrues while attending school.

• Grad PLUS Loans. If you have maxed out your Stafford loan eligibility and still need more money for school, Grad PLUS loans are a great option. Grad PLUS loans have a capped, fixed interest rate - currently set at 8.5% for the 2007-08 academic year - and many lenders will offer discounts that effectively lower the rate. To be eligible, you must have no adverse credit; meaning you cannot be 90 days or more delinquent on any debt , be in bankruptcy, foreclosure, repossession, or have a tax lien or wage garnishment. Also, you can expect to pay a 3% origination fee for your Grad PLUS loan.

Both Stafford and Grad PLUS loan can be obtained from almost any lender, but here is where some research will pay off. Lenders offer discounts to get your business, and each lender's discounts are a little different. So be a comparison shopper and choose the most affordable loan for you.

Interestingly, there are nonprofit lenders that often have the best rates for students in particular states. For example, ALL Student Loan offers competitive rates nationwide; and for students in California, rates are even better.

Another option is a private, non-federal loan. Private loan interest rates are variable, and generally do not have a cap. Also, private loans are credit-based, which means the lender will look at your credit score and financial history. Finally, origination fees associated with private loans tend to be higher than with federal loans, sometimes as high as 10%.

Private loans aren't all bad, though. It's just that they should be used only after exhausting federal loan options. For example, ALL Student Loan offers private loans targeted specifically for students who have maxed out of federal loans. Comparison shopping for private loans is especially important because there are literally hundreds of options.

One payment method you certainly want to avoid is credit cards. Credit card interest rates tend to be high, and you generally need to start paying them off while you're still in school. And, because of higher payments with credit cards, you are at a much higher risk of ruining your credit.

Once you finish school, you cannot forget about your loans: they need to be repaid. If you've left school with a lot of debt, and from various lenders, you might want to consider loan consolidation. Loan consolidation basically lumps all of your loans into one manageable payment and works best for those who are struggling to make monthly payments. Consolidation will, however, extend the repayment time to up to 30 years.

Loan consolidation has been a popular option for the past few years. However, recent federal legislation made it harder for banks to finance consolidation loans, so not as many lenders offer them (or only offer them to borrowers with a lot of student loan debt). Thankfully, there is another option: extended repayment.

With extended repayment, the various loans remain independent, but you spread out the payments over a longer period of time, reducing your monthly payment. To see if you qualify for consolidation or extended repayment, contact your lender or call ALL Student Loan (877-255-0006) to find the best option for you.

Remember to apply for as many scholarships and fellowships as you can. If you need a loan, start with federal loans first, check out nonprofit lenders, and closely evaluate your options. Paying for graduate or professional school can be challenging, but if you do your research and become savvy, you'll see that it can be done affordably.