Updated 8/9/2013: This article was updated to reflect new student loan legislation enacted on Aug. 9, 2013.
As of July 1, 2012, graduate school students were no longer eligible to take subsidized Stafford loans, a popular federal loan with interest paid by the government until after graduation.
But graduate students do still have options for borrowing, including:
• Unsubsidized Stafford loans: Interest will continue to accrue through graduation, but unsubsidized Stafford loans are still a relatively safe bet for graduate students, who can borrow up to $20,500 a year, up to a maximum total debt of $138,500. The loans have a market-based interest rate, which is determined annually using the interest rate on the 10-year Treasury note. Graduate students will pay that rate plus 3.6 percent, to a cap of 9.5 percent. The interest rate for new loans is determined as of June 1 each year and locked in for the life of the loan. Graduate students with Stafford loans are still eligible for federal loan repayment plans including Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn.
[Find out how to start repaying student loans.]
• Graduate PLUS loans: If Stafford loans fail to cover all financial need, graduate students can turn to Graduate PLUS loans. The interest rates for these loans are based on that of the Treasury note plus 4.6 percent, with a cap of 10.5 percent. Students can take up to their net cost of school, including what they pay for books and living costs.
Like other federal loans, borrowers of this loan may be eligible for federal repayment plans and Public Service Loan Forgiveness, which eliminates remaining student loan debt after a decade's worth of work in the public service sector.
• Perkins loans: The one federal loan that is still subsidized for graduate students, Perkins loans are given by schools themselves to students who demonstrate exceptional financial need, as defined by your school. If you haven't received a Perkins loan in your financial aid award package, reach out to your school to see if any funds are still available, recommends Kevin Walker, CEO of financial literacy website SimpleTuition.
Depending on how much a school offers, grad students can take Perkins loans of up to $8,000. The government subsidizes Perkins loans until nine months after graduation, after which students pay the 5 percent fixed interest rate.
• Private loans with variable rates: With very low posted interest rates – sometimes as little as 2.25 percent – these private loans can look like an especially attractive option. But keep in mind that with variable rate private loans, there's no guarantee your rate won't dramatically change before you're able to pay off your burden.
"Chances are, in some number of years, interest rates will go up, and you might find yourself down the road paying interest at a higher rate," Walker says. "If you're really confident you can pay off this loan in a couple of years, then it might make sense."
[Consider when to use private student loans.]
• Fixed rate private loans: A variety of private lenders, including Chase and Wells Fargo, offer loans with rates that won't increase. Sallie Mae, another private lender, announced lower interest rates for some graduate student loans last week. Applications submitted on or after April 1 are eligible for the new rates, which may be lower than those available via federal PLUS loans for some students.
But private student loans – with a fixed or variable rate – don't come with the same repayment options and borrower protections as the government-offered counterpart, the Consumer Financial Protection Bureau noted in a study on private student loans (PSLs) released in August 2012.
"One ... critical difference between PSLs and the Stafford loans they emulate is the risk associated with future employment and the ability to repay," the Consumer Financial Protection Bureau study notes. While federal loan borrowers can opt for income-based repayment plans and forbearance, which can temporarily reduce or suspend payments for needy borrowers, private lenders tend to offer fewer flexible options.
"With the exception of short-term forbearance periods," the study notes, "PSLs generally lack similar risk mitigation tools."
Trying to fund your graduate degree? Get tips and more in the U.S. News Paying for Grad School center.