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Banks: Your Private Source of Graduate School Loans

graduate school loans

If you're ineligible for federal loans, or have borrowed the maximum amount, you can turn to banks for private graduate school loans. These loans carry higher fees and interest rates than federal loans, so you shouldn't tap them until you've exhausted all sources of federal funding. If you do have to borrow privately, though, the process is fairly simple. The bank will conduct a credit check to determine your eligibility and, assuming you're creditworthy, quote you an interest rate. The interest rate you'll be charged depends on factors like your income, credit amount, credit usage, and on-time payment history. Basically, as long as you've behaved, you'll get your money.

Unlike federal loans, there are dozens of private money lenders. So It's a good idea to shop around for the lowest fees and interest rates, and (if you can) pit lenders against each other. We recommend that you visit loan search engines like EduLender, and look into Sallie Mae, a national bank that was under federal charter until 2004 and specializes in graduate student loans.

Once you find a bank you like, completing the paperwork and receiving disbursement of the loan occurs relatively quickly (within weeks). During the application process, you'll run into a lot of jargon, and you should ask lots of questions. To help you get started, we've compiled a list of key terms to interpret your loan package.

lending terms Key Lending Terms


Term: The length of time you wish to borrow money.


Principal: The amount you want to borrow, which gets disbursed to you on the first day.


Interest Rate: The cost of borrowing above and beyond repayment of principal, typically expressed as an annual rate. Some loans accrue interest at different rates if you're in school versus out of school.


Grace Period: The time period after graduation (usually 6-9 months) during which you do not have to make any payments of principal or interest. Interest will usually accrue (build up) during this time.


Origination Fees: The one-time fee charged by banks to issue the loan, expressed as a percentage of the principal amount.


Co-Signer: You can apply for a loan by yourself or with a co-signer. A co-signer simply guarantees to repay the loan if you don't. This is a good option if your credit history is not strong or established.


Tax Deductible: Interest payments on your student loan are tax deductible. This means that any income that you make while you're paying interest is offset (reduced) by the amount of interest you pay, resulting in a lower tax bill.


Prepayment Penalty: Some banks charge a fee if you repay your graduate schools loans early, usually expressed as a percentage of your outstanding principal.





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