Do You Have to Pay Back Undergraduate Loans While in Grad School?
Find out how your undergraduate student loans are handled when you enroll in graduate school. Explore options for managing your debt during and after your studies.
Individuals pursuing advanced degrees often wonder about their undergraduate student loan obligations. The transition from undergraduate to graduate studies often brings questions regarding whether loan payments are still required. Fortunately, several options exist to manage these loans, providing flexibility to students during their graduate education. These options aim to alleviate immediate financial burdens, allowing students to focus on their studies. Understanding these avenues is important for financial planning during graduate school.
Automatic Deferment for Graduate Students
Federal student loans offer automatic in-school deferment for graduate students. This deferment pauses loan payments while a student is enrolled at least half-time in a college or career school. The school reports enrollment information directly to the loan servicer, triggering this automatic deferment. If automatic deferment does not occur, students can contact their school to report their enrollment status or submit an in-school deferment form certified by their school to their loan servicer.
The distinction between subsidized and unsubsidized federal loans is important during deferment. For Direct Subsidized Loans, interest does not accrue during deferment; the government covers this interest. However, interest continues to accrue on Direct Unsubsidized Loans and Direct PLUS Loans during deferment, and this unpaid interest will be added to the principal balance (capitalized) when the deferment ends. This capitalization increases the total loan cost. Private student loans have varying deferment policies; automatic deferment is less common, and borrowers usually need to request it directly from their servicer.
Other Repayment Options During Graduate School
Beyond automatic deferment, other strategies can manage undergraduate loan payments during graduate school. Income-Driven Repayment (IDR) plans are an alternative for federal loans, basing monthly payments on the borrower’s income and family size. Payments under an IDR plan can be as low as $0 per month, which can be beneficial for students with limited income during their studies. To apply for an IDR plan, borrowers can use the online application on StudentAid.gov or submit a paper form to their loan servicer, by providing consent for direct access to federal tax information.
Forbearance allows a temporary suspension or reduction of loan payments due to financial hardship or other circumstances. Unlike some deferments, interest accrues on all loan types during forbearance, including subsidized loans. This accrued interest can be capitalized, increasing the total amount owed. Borrowers can request a general forbearance for reasons such as financial difficulties, medical expenses, or changes in employment, for up to 12 months, with a maximum of three years over the life of the loan. To request forbearance, borrowers must submit a form and supporting documentation to their loan servicer.
Even when not required, making payments during graduate school is advantageous, especially on unsubsidized loans where interest accrues. Paying down interest as it accrues can prevent it from capitalizing, reducing the overall cost of the loan. This approach can lead to savings over the loan’s lifetime. Students can choose to make interest-only payments or even partial principal payments, depending on their financial capacity, to mitigate loan growth.
Loan Repayment After Graduate School
Upon completing graduate school, leaving, or dropping below half-time enrollment, federal student loans enter a grace period before repayment begins. For most federal loans, this grace period is six months. During this time, payments are not required, but interest accrues on unsubsidized loans. Direct PLUS Loans for graduate students also receive an automatic six-month deferment after enrollment ceases.
As the grace period approaches its end, confirm loan servicer details, as this is the company that handles billing and repayment. Borrowers can find their loan servicer information by logging into their Federal Student Aid account dashboard or by contacting the Federal Student Aid Information Center. Understanding the specific types of loans held and their terms is also important, as this affects available repayment plans and interest accrual.
Before the grace period concludes, borrowers should select a repayment plan. If no action is taken, federal loans default to the Standard Repayment Plan, which has fixed monthly payments over a 10-year period. Other options include extended repayment plans or income-driven repayment plans, which adjust payments based on income and family size. Choosing a plan that aligns with post-graduation financial circumstances helps manage student loan debt.