What student loan should my debt-free daughter get to pay for her one-year master’s degree?

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Dear reliable money coach,

My daughter is due to finish her master’s degree in a year, but she needs a student loan of $ 30,000 to pay for a one-year master’s program. She doesn’t have student loans yet. She has a summer income that she sets aside for use during the school year and works four hours a week at school due to school requirements. What type of loan is best for her? – Connie, California

Hi Connie,

Kudos to your daughter for getting her master’s degree without any student loan debt!

For many students, loans are inevitable, so your daughter will be wise to seek best student loan for her needs. Before signing up for any loans, make sure your daughter checks with her school’s financial aid office to see if there are any grants or scholarships she may be eligible for.

She must start with federal student loans because they are usually easier to obtain and have lower interest rates than private student loans. Generally, federal student loans have no minimum loan, income or applicant requirements.

Three types of federal student loans available: Direct subsidized loans, Direct unsubsidized loans and Direct loans PLUS.

How Federal Student Loans Can Help Your Daughter

Because she needs to take out a loan for her master’s degree, your daughter will not be eligible for a federal direct subsidized loan. They are only available to undergraduate students with financial needs. But she could get a direct unsubsidized loan and a direct PLUS loan.

The maximum direct unsubsidized loan she could borrow is $ 20,500, which is not enough to cover the full cost of her master’s program. She can then apply for a Direct PLUS loan to cover the remaining $ 9,500. She will have two loans to look after, but she will also likely get the best student loan deal.

And when she finishes school, she will have the opportunity to combine two loans into one Direct Consolidation Loan

Your daughter will need to fill out Free Federal Student Aid App (FAFSA)and her school will use the information received to determine the student loan amount.

What You Need to Know About Private Student Loans

Another option for your daughter is to take out a private student loan to cover part or all of the $ 30,000. This approach has pros, but mostly cons. If she or her partner has good credit and income, she can qualify for a higher interest rate. She can also avoid the processing fees that apply to federal loans. And being able to track just one payment can be attractive.

Private student loans It can also be helpful when a student has reached the maximum loan amount on a federal student loan. Private loans can fill the funding gap.

But private student loans do not have the same protection and repayment flexibility as federal student loans, so we always recommend looking into federal loan options first.

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about the author

Dan Roccato

Dan Roccato is a Clinical Professor of Finance at the University of San Diego School of Business, personal finance expert at the Credible Money Coach, author, and entrepreneur. He has held senior management positions at Merrill Lynch and Morgan Stanley. He is a renowned expert in personal finance, global securities services and corporate stock options.

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