Paying for Graduate School

Graduate school costs can be challenging. While the bank of Mom and Dad may have helped fund an undergraduate education, students considering graduate school are more likely to be on their own financially. Unless you are independently wealthy, here are some suggestions for obtaining financial help.

Loans, Loans, Loans
According to the College Board, the average graduate student funds 69% of his or her education costs with loans. Students common borrow funds from private lenders or the federal government. Uncle Sam’s three major loan programs–all available to graduate students–are the subsidized and unsubsidized Stafford loan, the subsidized Perkins loan, and the unsubsidized PLUS loan. “Subsidized” means the government pays the accruing interest during school and deferment (loan postponement) periods. Stafford and Perkins loans are only available to students who demonstrate financial need.

In 2007, graduate students may be eligible to borrow up to $8,500 in subsidized Stafford loans, up to $12,000 in unsubsidized Stafford loans, and up to $6,000 in Perkins loans. Currently, the interest rate on new Stafford loans is fixed at 6.8% and 5% for Perkins loans. And under the PLUS loan program, graduate students can borrow up to the full cost of their education (minus any other financial aid received) at a current fixed interest rate of 8.5%. To be eligible for federal student loans, you must be attending graduate school on at least a half-time basis. Then you must file the government’s aid application, called the Free Application for Federal Student Aid. You can file it online at www.fafsa.ed.gov.

Students can also obtain loans from banks or other private lenders, though such loans typically carry higher, variable rates of interest.

Scholarships and Grants
Most scholarship and grant aid at the graduate level comes from the school itself. However, this aid is often awarded on the basis of merit rather than need. To investigate, contact the university’s financial aid office as well as the specific office of the graduate program you will be entering. Many scholarships and grants (like teaching fellowships or research grants) are awarded at the departmental level, so your chances may heavily depend on what subject area you’ll be studying.

Employer Educational Assistance
Some companies offer tuition reimbursement, which can be a great source of “free money.” But there are often strings attached, like maintaining a certain grade point average or staying with the company for a number of years. The first $5,250 of employer-provided tuition benefits is exempt from federal income tax.

Education Tax Benefits
Three federal education tax benefits might help defray your expenses in 2007:

The Lifetime Learning credit is worth up to $2,000 for tuition and fees. To qualify, your income must be below $57,000 (single) or $114,000 (married filing jointly).

The deduction for qualified higher education expenses lets you deduct $4,000 for tuition and fees if your income is below $65,000 (single) or $130,000 (married filing jointly). If your income is more than that but less than $80,000 (single) or $160,000 (married filing jointly), you can deduct $2,000. This deduction is only available for 2007, and it can’t be taken in the same year as the Lifetime credit.

The student loan interest deduction lets you deduct up to $2,500 of student loan interest each year. To qualify, your income must be below $70,000 (single) or $140,000 (married filing jointly).