Should You Pay Off Loans Before Grad School

This article was originally published for SoFi and is used with permission.

Continuing your education through graduate school can be an exciting decision. Grad school can mean an opportunity to further your knowledge and expertise in your chosen field, and may lead to a lucrative and fulfilling career. But all that potential often comes with a shiny price tag.

The average graduate student spent approximately $24,812 on grad school costs during the 2016-17 school year, according to the most recent “How America Pays for Graduate School” report by Sallie Mae.

In reality, the actual cost of getting a graduate degree can vary widely due to a number of different factors including the type of degree you are pursuing and enrollment status.

For example, according to the same Sallie Mae report, full-time graduate students spend nearly 50% more than part-time graduate students (nearly $29,000 and $19,500 respectively). And students pursuing a medical degree spend nearly $40,000 each year.

With such high costs, it shouldn’t come as a surprise that those with graduate degrees borrow loans at a higher rate and have a larger average debt than students with only undergraduate degrees. Those who graduate with a master’s degree carry a median debt of $57,000.

Before you take on this additional expense, you may want to weigh your personal pros and cons of attending grad school. Determining the reason you want to pursue an advanced degree may help you be more aware of how it could impact your long term plan.

While the initial sticker shock can be intimidating, the increased earning potential could make paying off any debt you take on a little more manageable. Getting a master’s degree can be a great decision to further your career, but it requires careful consideration.

If you’re planning on going to graduate school but still have undergraduate loans to pay, part of heading back to school will be figuring out how to pay off loans while in school or if another option would work better for your situation. There are a few options to consider and your personal situation will inform which option is best for you.

Paying for Student Loans Before Starting Grad School

Taking the time to work and pay off your undergraduate student loans before you start grad school can have some benefits. In addition to gaining valuable work experience, you would enter graduate school without any education debt. This could potentially make it easier to pay for your graduate degree as you take classes.

In addition, taking time off from school to pay off your student loans and working instead could also give you the opportunity to save some funds to pay for your graduate degree. Having additional money saved could allow you to reduce (or eliminate) the amount of money you borrow in student loans to cover your graduate degree.

On the other hand, delaying your grad school start date could mean holding off on following your career dreams and goals. For example, if you’re pursuing a degree in the medical field, you’ll be unable to practice legally until you complete your coursework and pass any relevant exams or state licensing exams.

If your student loan burden is small and can be paid off in a short timeframe, it could make sense to wait to attend grad school. In other cases, it might make more sense to attend grad school while also still paying off your undergraduate loans. Each decision has its own pros and cons, which will be different depending on personal circumstances.

Deferring Student Loans in Grad School

One option for those going back to school while still carrying debt from their undergraduate degree is to apply to defer your existing loans until you finish your graduate degree. This option allows you to temporarily pause payments on your student loans while you are actively enrolled in school.

Depending on the type of federal student loans you hold, you may qualify for a deferment or forbearance. During a deferment you may or may not be responsible for paying the interest that accrues, depending on the type of loan. However, if your loans are in forbearance, you will be responsible for paying the interest that accrues on the interest that accrues on the loan.

During the deferment or forbearance period, you may pay interest payments as they accrue or opt to just let the interest accrue. In the latter case, the accrued interest will be capitalized, which means the accrued interest will be added to the total balance of the loan at the end of the deferment period. This will now be the new total balance, and will accrue interest as such.

Typically, you’ll have to formally request deferment or forbearance with your loan servicer. To do this, you’ll usually have to submit a form to your loan servicer. In some cases, you may be required to submit additional documentation to prove you are eligible to receive a deferment or forbearance.

Being granted a deferment on your federal student loans while in grad school may provide some temporary relief while you’re a student and most likely not earning a lot of money. This could enable you to pause your payments without risk of defaulting on your loans.

However, deferring your federal student loan payments might not make sense for every borrower. Unsubsidized federal student loans, for example, will continue to accrue interest during forbearance. This can increase the total cost of a student’s debt over the life of the loan.

Until your deferment or forbearance request has been approved, you must continue making your student loan payment or risk defaulting on your loan.In some cases, students may benefit from making continued payments or exploring other repayment plans, like one of the income-driven repayment options available for federal student loans.

Options for private student loans will be determined by the lender. Each lender sets its own terms and may or may not have a policy in place for students who choose to go back to school.

Paying for Grad School

After you’ve developed a plan to pay off your undergraduate student loans, you may also need to figure out how you’re going to pay for your graduate degree. Depending on the path you took to grad school, you may be able to pay for your graduate degree with your savings, or you might be relying on assistance or student loans to help you pay for your education.

To start, you may want to consider filling out the FAFSA®. This free application is your entry point to forms of federal financial aid, including work-study and federal student loans. Some schools will also use the FAFSA® to determine institutional financial aid awards, too.

You might find it worth exploring grant and scholarship options as well. There are federal and state grants available for graduate students. Some universities and private organizations may offer grants, too.

By thinking outside of the box, you might find even more options to pay for grad school. You could consider taking on a part-time job or side hustle if you plan on attending school full-time.

If you’re going to be working full-time and attending school on a part time basis, it might be worth your while to investigate your employer’s tuition reimbursement program, if one is offered.

Refinancing Your Student Loans

If you plan on taking out student loans to pay for your graduate degree, refinancing your student loans might be an option worth considering. Ideally, after you’ve completed grad school, you’ve improved your earning potential and are able to secure a new higher-paying job.

These factors, in addition to your credit history and other factors, could help you qualify for a new, lower interest rate if you decide to refinance your student loans, as long as you don’t extend your loan term (a longer term usually means lower monthly payments, but more interest paid out over the life of the loan). A lower interest rate could potentially reduce the overall cost of the loan.

Refinancing could also allow you to combine your graduate and undergraduate loans into one new loan with an easy to manage monthly payment. Refinancing won’t be right for everyone, and if you have federal loans, you’ll lose out on any federal benefits like income-driven repayment, deferment, and forbearance if you refinance with a private lender.

When you refinance with SoFi there are absolutely no hidden fees and the application process can be completed online. You can even find out if you prequalify, and at what rates, in just a few minutes.