What Are Graduate Loans and How Do They Work?

Graduate loans provide financial resources for individuals pursuing education beyond a bachelor’s degree, such as master’s degrees, doctorates, or professional programs. These loans are specifically designed to help students cover tuition, living expenses, and other educational costs associated with advanced studies. They represent a distinct category of financial aid, differing in structure and terms from loans typically available to undergraduate students.

Characteristics of Graduate Loans

Graduate loans possess several defining characteristics that differentiate them from undergraduate borrowing options. Federal graduate loans are generally unsubsidized, meaning interest begins to accrue on the loan principal immediately after the funds are disbursed, even while the student is still enrolled. This differs from subsidized loans, where the government pays interest during certain periods. Borrowers typically have higher loan limits for graduate studies compared to undergraduate programs, reflecting the often higher costs associated with advanced degrees.

Federal Grad PLUS loans and private loans often involve a credit check as part of the application process. Interest rates for federal graduate loans are set annually by the government and are fixed for the life of the loan. Conversely, private loan interest rates are determined by individual lenders based on market conditions and the borrower’s creditworthiness, and can be either fixed or variable. Loan funds are typically disbursed directly to the educational institution to cover approved costs.

Types of Graduate Loans

Graduate students primarily access two main categories of loans: federal and private.

Federal Graduate Loans

Federal graduate loans are offered through the U.S. Department of Education and include Direct Unsubsidized Loans and Direct PLUS Loans (Grad PLUS Loans). Direct Unsubsidized Loans are available to graduate students regardless of financial need, with interest accruing from the time of disbursement. For the 2025-2026 academic year, graduate students can borrow up to $20,500 annually, with a cumulative limit of $138,500, including any undergraduate federal loans. These loans have fixed interest rates determined each academic year.

Grad PLUS Loans are another federal option designed to cover educational costs beyond the limits of Direct Unsubsidized Loans. These loans require a credit check, and eligibility can be affected by an adverse credit history. Grad PLUS Loans allow borrowing up to the full cost of attendance, minus any other financial aid received. Legislative changes effective July 1, 2026, are set to eliminate the Grad PLUS program and introduce new aggregate borrowing caps for graduate students.

Private Graduate Loans

Private graduate loans are provided by banks, credit unions, and other financial institutions. These loans typically require a credit check, and borrowers with limited credit history may need a creditworthy co-signer to qualify or secure more favorable terms. Private lenders offer both fixed and variable interest rates, with variable rates potentially fluctuating based on market conditions. Unlike federal loans, private loans generally lack the same borrower protections and flexible repayment options, such as income-driven repayment plans or opportunities for loan forgiveness.

Meeting Eligibility Requirements

To meet eligibility requirements for federal student loans, you must be enrolled or accepted into an eligible graduate program, maintain satisfactory academic progress, and be a U.S. citizen or eligible non-citizen. You must also not be in default on any other federal student loans or owe a refund on previous federal financial aid.

The initial step for federal loan eligibility involves completing the Free Application for Federal Student Aid (FAFSA). Graduate students are typically considered independent and provide their own personal and financial details. This includes information such as Social Security numbers, tax returns, bank statements, investments, and any untaxed income. The FAFSA data is used by the U.S. Department of Education and schools to determine aid eligibility.

For credit-based loans like federal Grad PLUS Loans and private loans, a credit check is a fundamental eligibility requirement. An adverse credit history, which can include significant delinquencies on debts, bankruptcies, foreclosures, or tax liens, may affect eligibility. Borrowers with adverse credit may still qualify for a Grad PLUS Loan by obtaining an endorser or demonstrating extenuating circumstances. Private lenders also assess creditworthiness, often looking for a good credit score (typically 670 or higher) from the applicant or a co-signer.

The Graduate Loan Application Process

The application process for graduate loans differs for federal and private options.

Federal Loan Application

After the FAFSA is submitted, the school’s financial aid office provides an award letter. Students then accept the offered federal loans through their institution’s financial aid portal. Following acceptance, federal borrowers must complete Entrance Counseling, which educates them on their rights and responsibilities, and sign a Master Promissory Note (MPN). The MPN is a legal document promising to repay the loan. Loan funds are then disbursed directly to the educational institution, generally around the start of the academic term.

Private Loan Application

Applying for private graduate loans involves a direct application to individual lenders. This process typically requires providing personal and financial information, including income details and sometimes a co-signer’s information. The lender will conduct a credit check to assess creditworthiness. If approved, the applicant receives loan terms to review and signs a loan agreement. Funds for private loans are usually disbursed directly to the school after all documentation is completed and certified by the institution.

Understanding Repayment Plans

Federal student loans typically enter repayment six months after a student graduates, leaves school, or drops below half-time enrollment. Federal loans offer more flexible repayment options than private alternatives.

Federal Repayment Plans

The standard repayment plan for federal loans involves fixed monthly payments designed to repay the loan within 10 years. This plan generally results in the lowest total interest paid.

For borrowers needing lower monthly payments, the Extended Repayment Plan allows for payments over up to 25 years. This plan can offer fixed or gradually increasing payments, but typically results in paying more interest over the loan’s lifetime. To qualify, borrowers must generally have more than $30,000 in federal student loan debt.

Income-Driven Repayment (IDR) plans adjust monthly payments based on the borrower’s income and family size. These plans can significantly reduce monthly payments, potentially to zero, if income is sufficiently low. Common IDR plans include:
Income-Based Repayment (IBR)
Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)
Income-Contingent Repayment (ICR)

These plans extend the repayment period, often to 20 or 25 years, with any remaining balance potentially forgiven at the end of the term. This forgiven amount may be considered taxable income. New federal borrowers as of July 1, 2026, will have access to a modified Standard Repayment Plan and a new Repayment Assistance Plan (RAP), while certain existing IDR plans are slated for elimination by July 1, 2028.

Private Loan Repayment

Private loan repayment terms are determined by the individual lender and are generally less flexible than federal options. Repayment periods for private loans can range from 10 to 25 years, with terms often set at loan origination. While some private lenders may offer limited deferment or forbearance options, these are typically less comprehensive than federal programs. The primary method for adjusting private loan payments often involves refinancing the loan, which depends on the borrower’s creditworthiness.