How to Get Financial Aid for Grad School
Asking the right questions will save you money
Updated 7/1/08
A bachelor's degree is becoming passé in the job market. Those who really want to set themselves apart need a graduate degree. Unfortunately, the educational ticket to the top is expensive. Annual tuition and books alone at a run-of-the mill public university are reaching $9,000 a year. Anyone who aims at a private school should prepare to cough up $25,000 to $30,000 a year. And that's before living expenses, which usually add at least $8,000 a year to a student's budget.
Compounding the sticker shock is the dismaying reality that students can't count on the kinds of scholarships that helped them through their undergraduate years. Fewer than 4 percent of graduate students get a federal or state grant. Fewer than 20 percent get any kind of scholarship from their school. Fully 60 percent of grad students get no free money of any kind and have to borrow or otherwise raise the entire cost of their advanced degree themselves.
Luckily, a little financial help appears to be coming to students' rescue. The federal government is offering new and potentially lower-cost educational loans. A growing number of communities and government agencies are offering to repay loans for workers who agree to spend several years in lower-paying public-service jobs such as teaching. And more employers are subsidizing employees' tuition.
Most important, employers continue to reward better-educated workers with bigger paychecks, making the investment of time and money a good bet. While the average worker with a bachelor's degree makes a comfortable $42,000 a year, master's degree holders make about 25 percent more. And those with professional degrees earn, on average, more than twice the income of those who stopped at a B.A.
That's a key motivator for thousands of grad students like Doug Spencer, who is working on a Ph.D. in jurisprudence and social policy at the University of California-Berkeley. Spencer owes more than $100,000 in educational debt and says it sometimes feels like "a foot on top of my head pushing me deeper and deeper into the mud." But Spencer loves school, and as a law professor (his goal) he could start at $150,000 a year. "Maybe I'm just blindly optimistic," he says, but he's convinced that the education will pay off in a financially secure life for him, his wife, and their new child.
Of course, not all grad student optimism is blind. Financial aid for graduate students is much more decentralized, and thus more complicated, than aid for undergraduates, says Karen Klomparens, the dean of Michigan State University's Graduate School. But three types of grad students can be reasonably optimistic about getting some free money to ease school bills, she says:
- Science, math, or technology specialists can shoot for funding from foundations or government agencies, such as the National Institutes of Health.
- Very low-income students can qualify for need-based aid.
- Top students who apply to several schools can hope schools will compete for them by bidding up financial aid packages.
Extra perks. Students who aren't showered with grants can turn to one of the fastest-growing sources of free money for school: employers. Today, half of all workers are eligible for tuition benefits, up from 38 percent in 2000. And many employers focus on graduate training. Several big ones, for example, have signed on to California's new EnCorps program, which funds up to $15,000 of the educational costs for retiring workers who want to launch second careers as teachers. Even employers without formal programs can write off as a business expense any worker's tuition for a class that is job-related but doesn't qualify the worker for another job, says Bob Scharin, senior tax analyst for Thomson Tax & Accounting. It takes little more than a one-page description of an education plan for a business to take advantage of Section 127 of the IRS code and pay as much as $5,250 a year in tax-free tuition benefits for workers taking just about any course, Scharin says.
Many employers say education benefits pay corporate dividends by attracting and retaining top workers. UTC, the conglomerate that owns Sikorsky helicopters and Pratt & Whitney, has found that the workers who take advantage of its generous tuition program are retained at a 4 percent higher rate than those who don't. They also get about 4 percent more promotions than those who don't.
A growing number of students work part time while they are in grad school. Campus research jobs are ideal because students can get paid for working on their dissertations. But those plum assignments are hard to get, and many more grad students end up with teaching assistantships. Teaching can be fun, and it prepares the student for a future as a professor, but grading undergrads' finals just when grad exams loom can be stressful.
Alas, there is such a shortage of grants and high-paying campus jobs that most grad students have to borrow, often massively. Almost 60 percent of all grad students have some education debt, and the average such debt is more than $40,000. Those attending professional schools should expect to rack up far more than that. More than 90 percent of all medical and dental students borrow, and their typical debt load exceeds $90,000. Debt loads of $200,000 are not unusual.
Point shaving. With those kinds of numbers, students who shop around for loans that waive fees or knock a couple of points off the interest rate can save thousands of dollars. Grad students say one way to save big bucks is to stick with federal loans even when private loans seem to offer lower terms, since the federal loans can be deferred or even forgiven. That was a happy discovery for Cathi Blair, who started spending down her family's savings to fund her pursuit of a master's in education at Eastern Kentucky University. Blair, who has worked more than 20 years as a scientist for the state, is preparing to launch a second career as a science teacher. One of her fellow students pointed her to a program that will repay up to $17,500 worth of federal education loans for science teachers. So she borrowed to pay tuition instead, preserving the family nest egg. After five years of teaching, most of her debts will be canceled. "It would have been extremely hard on my family" to pay all the costs out of pocket, she says.
About 80 percent of schools allow students to shop around for Stafford and Grad plus loans. Many of these will steer students to loans offered by "preferred lenders." While those are no longer simply the lenders that pay the biggest kickbacks to the school, they are not necessarily the lenders that offer the best deal. Students can save money if they spend a few hours checking out nonprofit lenders, services such as Graduate Leverage, or web shopping tools like Simple Tuition. Advisors recommend students who have to borrow first max out their low-cost federal Stafford and Perkins loans. Private loans should only be a last resort for several reasons including: They tend to have variable rates, which means payments may rise in the future, and, unlike federal loans, they will generally not be forgiven for graduates who go into low-paid public service jobs.
Students who move on to low-paid or public-service professions can get many of their federal—but not private—student loans forgiven. Among the advantages of federal loans:
- Income-based repayment. Starting in 2009, graduate students who consolidate their federal loans with the federal government can apply for an income-based repayment plan that caps monthly payments at 15 percent of family income. Some borrowers can have their remaining debts canceled in as little as five years.
- Public-service forgiveness. A host of programs will repay educational loans for teachers, healthcare workers, and other public servants. Some of the programs, however, are designed with so many loopholes that most students won't get much benefit. Last year, for example, Congress congratulated itself on agreeing to repay Grad plus loans for those who work at public-service jobs of almost any type for 10 years and who make 10 years' worth of on-time payments on their plus loans. Since standard plus loans last only 10 years, students won't get any advantage from this program unless, as soon as they finish school, they apply for the federal government's 25-year income-based repayment plan.
Top dollar. Many professionals don't need these repayment programs, however, because their degrees pay off so handsomely. Although physicians these days leave medical school with about $100,000 in debt, most can easily make the monthly payments of $800 to $1,300 (the higher payments eliminate the debt within 10 years) once they start work. Likewise, Forbes magazine calculates that M.B.A. holders from the top 100 business schools typically get such big raises that they earn their grad school outlays back in just four years or so.
Of course, there are plenty of students—those in, say, social work or the humanities—for whom an investment in grad school returns little financial profit. But, says Kevin Murphy, an economics professor at the University of Chicago who has studied returns on education, money shouldn't always be the deciding factor. "I hate to see people get discouraged," says Murphy, who won a MacArthur "genius" prize in 2005. "Education gets you a lot more than earnings.... You should go for a master's in poetry if you enjoy it."
advertisement
