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by Access Group | March 10, 2009

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Wondering how you're going to pay for graduate school? The three-step program outlined here will help you figure out where the money will come from, how much you need to borrow, and how to make your money last once you have it. We've thrown in some tips on recordkeeping, too. Read on!

1. INVESTIGATE YOUR FUNDING OPTIONS

First, review possible sources of money. You may be able to use your own savings or get help from your family. Your school may offer institutional support such as scholarships, grants, fellowships, and assistantships, there are federal and private student loan programs, and you may qualify for funding from other sources.

Institutional Support. Institutional funds are provided by schools themselves in the form of part-time work; scholarships and grants, which do not have to be repaid; and institutional loans, which do have to be repaid. Not all schools offer these options, and you may have to demonstrate financial need to be eligible for them.

In addition, many graduate programs offer graduate students assistantships or fellowships that can provide worthwhile experience in their field of study. A typical assistantship requires up to a half-time work commitment (20 hours per week) and may include a stipend for living expenses and/or tuition waivers or discounts. In some disciplines, paid internships may be available.

Federal Programs. Student loans provided by the U.S. government have low interest rates and do not require credit checks or collateral; however, there are limits on how much you can borrow per academic year. To determine your eligibility, you must complete the financial aid process established by the government and the school you plan to attend. The following federal student aid programs are the ones most commonly offered to graduate students. You must demonstrate financial need to be eligible for starred items.

  • *Federal Subsidized Stafford Loan
  • Federal Unsubsidized Stafford Loan
  • *Federal Perkins Loan (if available at the school)
  • *Federal Work-Study Program (if available at the school)

Private Loans. Private student loans are designed to help bridge the gap between your total cost of attendance (COA), as established by the school you are attending, and any institutional and federal aid you receive. Eligibility varies by lender and loan type, but you will have to pass a credit check for almost all of them, so make sure your credit record is clean. Private loans are available through a number of banks, lending agencies, and nonprofit organizations, but differences in interest rates, fees, repayment options, and payment incentives can add up to higher costs, so compare them carefully. You should also check with your financial aid administrator; your school may have a list of preferred lenders.

Other (Non-Loan) Financing Options. You should consider all sources of financial assistance before deciding to borrow. The more common non-loan options include:

  • Installment or tuition prepayment plans available through the institution.
  • Tuition remission, if you or your parents work full-time at the institution you plan to attend
  • Employer benefits, if you work while attending school. You should determine whether you qualify; what is required to maintain your eligibility, such as a minimum grade point average; and how the benefit will affect your income tax status.
  • Veterans benefits, if you are a veteran and have completed at least one year of active service. For more information, check with the Veterans Affairs Department at (202) 233-4000.

2. DETERMINE HOW MUCH YOU SHOULD BORROW

How much you should borrow depends on:

  • your monthly in-school budget,
  • the maximum COA allowed by your school,
  • the borrowing limits on your loans,
  • your current financial status, and
  • your projected future earnings.

Your In-School Budget. Create a monthly budget customized to accurately reflect your personal expenses--but be realistic. You may have to cut your expenses to ensure that your funds will last for the whole academic term. You should live below your means as a student, so you don't end up taking on a larger debt burden than you can afford to repay.

Cost of Attendance. By law, you can borrow up to your schools COA, minus other aid you might receive, such as scholarships, grants, or work-study funds. The COA typically includes tuition, fees, books, room and board, and other miscellaneous personal expenses. Keep in mind that your schools COA figures are meant to apply to a very diverse group of students, so you may not need to borrow as much as your school allows. If so, try to borrow less. However, if you find that you need more than the school has allotted and you have not reached the maximum amount allowed, you have the right to appeal to the financial aid staff.

Loan Limits. The federal government and other lenders place annual and aggregate loan limits on individual student borrowers. The aggregate limit is the amount you cannot exceed over the span of your education. Check the annual and aggregate loan limits of each loan you plan to borrow.

Your Current Financial Status. Carefully and honestly assess your current financial status: your debts and any financial commitments youve already made. Typically, undergraduate student loans will not have to be repaid while you're in school, but they will factor into your aggregate borrowing limit, so keep in mind the total dollar amount owed and the interest that has accrued. Also consider consumer debt, such as auto loans or credit cards, which you must continue to pay while you're in school. Student loans are not meant to cover these prior obligations.

Future Earnings. Remember that you will have to use your future income to pay for your education, so research the job market and starting salaries in the field you plan to pursue to make a realistic determination of your probable starting salary. Make sure that you'll be able to afford to pay both your monthly student loan payments and your future living expenses.

3. MAKE YOUR MONEY LAST

Your financial aid disbursements are calculated to cover your education and living expenses while you're in school. It's very hard to make that money last, especially since financial aid funds are typically disbursed only once per term, at or near the beginning of each term. It's your responsibility to plan your spending so that your money lasts until your next disbursement. If your money runs out, you may not be able to borrow any more. And even though it may seem difficult, you can stretch your funds, from the first day of classes right through the end of final exams. One of the best ways is to set up a Holding Account just for your financial aid funds. Here's what to do:

Step 1.Instead of keeping all your money in your checking account, open a separate savings account, to reserve your financial aid funds until you need them.

Step 2. Refer to your in-school budget to know how much you can afford to spend each month. This amount will be your monthly 'allowance.'

Step 3. Ask your savings institution to automatically transfer your budgeted 'allowance' from your Holding Account to your checking account each month.

It's best to avoid getting an ATM card for your savings/holding account, so you won't be tempted to withdraw funds ahead of schedule. Having to go to the bank in person instead of just stopping at the nearest ATM should force you to consider whether the extra withdrawal is really worth it. Drawing from your holding account before the automatic transfer occurs indicates that you're probably exceeding your budget, and you might run out of funds before the end of the term.

Recordkeeping

Once you've gotten your student loans, it's really important to keep track of them. Saving all of your student loan documents and correspondence means you'll know exactly what you've agreed to, how much you've borrowed, and what's expected from you as a borrower. This may not seem important at the beginning of the student loan process, but once you're closer to repayment, you may need to refer to some or all of these documents.

Start by setting up an easy-to-use filing system to store all of your student-loan-related documents and correspondence. Plan to maintain these records until the loans are fully repaid, and keep them somewhere secure from theft or fire. Whether you use file folders, portfolios, binders, or envelopes, it's a good idea to use one folder for each type of loan or account. What should you keep?

  • Loan applications, promissory notes, disbursement statements, disclosure statements, and repayment schedules.
  • Income tax returns and supporting documents.
  • Correspondence between you and your lender(s), loan holder, and/or servicer(s) and your school's financial aid office.

Maintain up-to-date addresses and telephone numbers for your lender, loan holder, and/or loan servicer. If your lender or servicer changes, keep the letter notifying you of the change. When speaking with anyone regarding your student loans, be sure to jot down his/her name, the date and time of the conversation, and a summary of what you discussed for future reference or clarification. If it's e-mail communication, keep a copy of the e-mail.

Where to go for more information

Your best source of information on paying for your education is the financial aid staff at the schools you're considering or the school you're planning to attend. You can also do a lot of research online; a good starting point is accessgroup.org. There you'll find overviews of available student loans, both federal and private, as well as lots of helpful information on budgeting and money management in general, including interactive budget and loan repayment calculators.

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