Federal Student Loans for Graduate Students

Summary: Students attending graduate school or professional school can take out federal student loans from the Direct Loans program. Direct Unsubsidized Loans, sometimes called Unsubsidized Stafford Loans, offer a fixed interest rate and flexible repayment terms. Financial need is not required to qualify. Students are responsible for paying all of the interest that adds up, until the loan balance is paid off.

Direct Unsubsidized Loans (sometimes called Unsubsidized Stafford Loans) are low-cost, fixed-rate federal student loans available to graduate students, not just undergraduate students. Direct Unsubsidized Loans are the most common — and among the lowest-cost — ways to pay for graduate school and professional school.

As of July 1, 2012, graduate students can only borrow Direct Unsubsidized Loans. However, Direct Subsidized Loans are still available to undergraduate students.

Key loan benefits for students attending graduate school or professional school:

  • Fixed interest rate of 5.31% (unsubsidized) for the 2016-2017 academic year
  • Borrow up to $20,500 per year ($40,500 for medical school)
  • No payments while enrolled in school
  • Eligibility not based on credit

How to Apply for a Direct Unsubsidized Loan

You need to file the FAFSA (Free Application for Federal Student Aid) before you can take out federal student loans from the Direct Loans program.

  1. Complete the FAFSA or Renewal FAFSA (for returning students) at FAFSA.ed.gov.
  2. Receive a financial aid award letter by mail or email from your school's financial aid office. This letter will summarize your available financial aid.
  3. Contact your school’s financial aid office to accept the financial aid and student loans.
  4. Sign any associated paperwork such as the Master Promissory Note (MPN).

Eligibility

Direct Unsubsidized Loans are available to students attending graduate school and professional school.

Degree programs and common examples:

  • Masters: M.A., M.S.
  • Doctorate: Ph.D., Ed.D.
  • Business: M.B.A.
  • Law: LL.M., J.D., S.J.D.
  • Medical: M.D., D.O.
  • Dental: D.M.D., D.D.S.
  • Nursing: M.S.N., D.N.P.
  • Veterinary medicine: D.V.M.

Loan eligibility and the loan limits are not based on demonstrated financial need. Even wealthy students can borrow through the program.

Interest Rates and Fees

The interest rates on Direct Unsubsidized Loans for graduate students are fixed and do not change over the life of the loan. The interest rate for the 2015-2016 academic year is 5.31%. This is less expensive than the 6.31% interest rate on Grad PLUS Loans.

Every year on July 1, interest rates are reset based on current market rates. The interest rates are based on the 10-year Treasury rate (determined each year by the final auction prior to June 1) plus a fix margin (see table).

Loan Program Interest Rate Formula Interest Rate Cap Current Interest Rate (2016-2017)
Direct Unsubsidized Loan (for Graduate Students) 10-Year Treasury + 3.6% 9.5% 5.31%

The interest on a Direct Unsubsidized Loan starts to add up (accrue) from the date the loan is first disbursed. If you don’t pay the interest as it accrues, it will be capitalized (added to the loan balance), increasing the size of the loan.

Interest rates: Fixed, 2006-2007 to present

Academic Year Graduate School and
Professional School
2016-2017  5.31%
2015-2016  5.84%
2014-2015 6.21%
2013-2014 5.41%
2012-2013 6.80%
2011-2012 6.80%
2010-2011 6.80%
2009-2010 6.80%
2008-2009 6.80%
2007-2008 6.80%
2006-2007 6.80%

Interest rates: Variable, prior to 2006-2007

Before 2006-2007, interest rates on Stafford Loans (now known as Direct Loans) were variable, with different rates, depending on whether the borrower was in school, in the 6-month grace period after leaving school, or in the repayment period. (In 1993-1994 and earlier award years, the interest rates were the same for the in-school, grace, and repayment periods.) Interest rates during the repayment period were 0.60% higher (see table).

At that time, borrowers could lock in their interest rate (rounded to the nearest 1/8th of a percentage point) by consolidating the loans. Rates were the same for undergraduate, graduate, and professional students. Interest rates were also the same for subsidized and unsubsidized Stafford Loans.

Academic Year In-School and Grace Periods Repayment Period
2005-2006 4.70% 5.30%
2004-2005 2.77% 3.37%
2003-2004 2.82% 3.42%
2002-2003 3.46% 4.06%
2001-2002 5.39% 5.99%
2000-2001 7.59% 8.19%
1999-2000 6.32% 6.92%
1998-1999 6.86% 7.46%
1997-1998 7.65% 8.25%
1996-1997 7.65% 8.25%
1995-1996 8.25% 8.25%
1994-1995 7.43% 7.43%
1993-1994 6.22% 6.22%
1992-1993 6.94% 6.94%

Fees on Direct Unsubsidized Loans

The current fee on the Direct Unsubsidized Loan for graduate students is 1.068%. This is less expensive than the 4.272% fee on Grad PLUS Loans.

Year
Total Loan Fees
2015-2016 (10/1/15 - 9/30/16)  1.068%
2014-2015 (10/1/14 - 9/30/15)  1.073%
2014-2015 (7/1/14 - 9/30/14) 1.072%
2013-2014 (12/1/13 - 6/30/14) 1.072%
2013-2014 (7/1/13 - 11/30/13) 1.051%
2012-2013 1.0%
2011-2012 1.0%
2010-2011 1.0%
2009-2010 1.5%
2008-2009 2.0%
2007-2008 2.5%
2006-2007 3.0%
2005-2006 and before 4.0%

How fees affect the total loan cost

Loan fees are basically a form of up-front interest. For example, if your loan has a 10-year repayment term, a 4% fee is the about the same as an increase of about .875% to 1% in the interest rate. If your loan has a 30-year repayment term, a 4% fee is the same as an increase of about .334% to .5% in the interest rate.

Loan Limits: How Much You Can Borrow

Students attending graduate school or professional school can borrow up to $20,500 per year in Direct Unsubsidized Loans. The aggregate (cumulative) loan limit is $138,500, including undergraduate debt (and no more than $65,500 in Direct Subsidized Loans).

Medical school and health professions students may borrow up to $40,500 per year and have an aggregate loan limit of up to $224,000. (Learn more about the borrowing limits for various medical fields of study.)

Direct Unsubsidized Loans for Graduate Students — Borrowing Limits

View larger version of Direct Unsubsidized Loans for Graduate Students Borrowing Limits chart.

Direct Unsubsidized Loans for Graduate Students Borrowing Limits Bar Chart

Students attending graduate school or professional school who have exhausted eligibility for the Direct Unsubsidized Loan can take out a Grad PLUS Loan, another low-cost, fixed-rate federal student loan.

How Loan Funds are Distributed

The U.S. Department of Education sends the Direct Loan funds to your school to be credited to your account. In most cases, the loan will be sent (disbursed) in at least two installments.

Loan funds are credited to your account in this order:

  1. Tuition and fees
  2. Room and board (if you are living in college-owned student housing)
  3. Other school charges (with your permission)

If any loan funds remain in your account, the credit balance will be refunded to you by check, cash, debit card, or electronic funds transfer (EFT) to your bank account. Remember, the refund must be used to pay for your education expenses, such as textbooks, supplies, and equipment.

In-School Deferment and Grace Period

While you are enrolled in school at least half-time, your Direct Loan will be placed into deferment, which means you don’t have to make any payments. In addition, you don’t have to make payments during the 6-month grace period after you graduate or drop below half-time enrollment status. Just remember that interest on your loan will start to accrue (add up) as soon as all of the loan funds are sent to your school. Even though you aren’t making any payments, interest is still adding up.

Repayment

The standard repayment term on Direct Loans is 10 years. However, you can qualify for a longer repayment term if you consolidate the loans or have more than $30,000 in federal student loans with a single lender.

Graduate students who borrow Direct Unsubsidized Loans are generally eligible for all of the different repayment plans offered by the U.S. Department of Education.

Eligible repayment plans:

Comparison of Federal Student Loans for Graduate Students

Student with Briefcase Icon

Direct Unsubsidized Loan

  • 5.31% fixed interest rate
  • 1.068% fee
  • Demonstrated financial need not required
  • Annual borrowing limit: $20,500 ($40,500 for medical students)
  • You are responsible for paying all interest

Perkins Loan

  • 5% fixed interest rate
  • No fee
  • Exceptional financial need required
  • Annual borrowing limit: Up to $8,000
  • Federal government pays the interest while you are in school, during the grace period, and during periods of authorized deferment.

Grad PLUS Loan

  • 6.31% fixed interest rate
  • 4.272% fee
  • Demonstrated financial need not required
  • Annual borrowing limit: Cost of Attendance (COA) minus other financial aid received
  • You are responsible for paying all interest

 Recommendations

  1. File the FAFSA every year to maintain eligibility for student aid.
  2. Take out the maximum amount of Direct Unsubsidized Loans and Perkins Loans (if eligible) before considering a Grad PLUS Loan.
  3. Compare the costs and benefits of Grad PLUS Loans and private student loans. If you have excellent credit or a strong cosigner, you may get a lower interest rate with a private student loan.
  4. If you are denied for a Grad PLUS Loan due to an adverse credit history, find a cosigner (also called an endorser) and reapply.
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