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Graduate School Loans - Pros and Cons of Student Loan Finance Options

Written By Devi Kristanti on Friday, July 18, 2014 | 2:08 AM


Choosing the right student loan option for graduate school can be hard. There are many options available; and while some loans offer enormous benefits, they may come with a few drawbacks. Prior to applying for a graduate student loan or accepting a loan, you should research different options and ascertain the good and the bad.

Pros and Cons of Federal Student Loans

Federal student loans such as the Perkins Loan, Stafford Loan, and Direct Loan are widely used by graduate students. These loans are ideal because there is no credit check. The Federal government guarantees the funds, and students with no credit history or bad credit can qualify for these loans. Additionally, Federal loans offer rates lower than most private lenders and flexible repayment options keeps debt payments affordable.

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The downside to Federal student loans is that loan amounts are small and rarely cover the full cost of tuition. Students who need additional money have to pay the excess with credit cards or obtain a private student loan from a bank or credit union. Moreover, Federal loans cannot be used for other expenses. The school receives the distributed funds, and money is limited to tuition, books, and housing.

PLUS Loans Advantages and Disadvantages

The Federal government finances PLUS Loans, however, the requirements are somewhat different. While graduate students apply for other Federal loans, parents apply for the PLUS Loans and use the funds to pay for their child's education expenses. The advantage of PLUS Loans is that parents can borrow the entire cost of tuition. Like other Federal loan programs, borrowers receive a low interest rate and the loan offers several repayment options. Unfortunately, parents are responsible for repaying a PLUS Loan, and a credit check is required.

Private Student Loan Options

Private student loans fill in the gap by paying college expenses not covered by Federal loan programs. Many graduate students like private loans because the processing time is relatively quick and funds are distributed within three to five days. Plus, the money received from a private student loan can pay for a variety of other expenses such as computer, school supplies, transportation, etc. The major drawback to private student loans is the high interest rates and credit check. Private student loans are essentially personal loans. To qualify for a low rate, students must have satisfactory credit or a co-borrower.


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