FINANCIAL AID
Paying for Grad School
by Catherine Siskos

It's likely you will have to foot a bigger share of the bill in graduate school because there are fewer sources of financial assistance -- mostly loans and direct aid from schools, such as assistantships.

Although graduate students are not eligible for the Hope tax credit, they do qualify for the lifetime learning credit of 20% of the first $10,000 in qualified tuition and fees (not room and board), for a maximum credit of $2,000 a year. The credit gradually disappears as adjusted gross income rises to between $83,000 and $103,000 on a joint return and between $41,000 and $51,000 on a single return. As an alternative, grad students can deduct up to $3,000 of tuition and school fees this year if their adjusted gross income is less than $65,000 for single filers or $130,000 for married couples. You can't claim the deduction and the lifetime learning credit in the same year.

Because of their greater earning potential, students in professional schools have fewer financing options than master's and PhD candidates. "For professionals, the number-one source of funding is loans," says Constance Rhind, an executive with Sallie Mae, which purchases student loans from banks and other lenders. The average law-school student in the class of 2001 graduated with $86,100 in debt. For nonprofessional students, the primary source of funding is a teaching or research assistantship.

On your own

When you apply for financial assistance as a graduate student, you'll recognize the Free Application for Federal Student Aid (FAFSA) as the same form you (or your parents) filled out to qualify for undergraduate financial aid. As with undergraduate students, the FAFSA uses your financial information to estimate how much you can contribute to your education. After considering what you can afford to pay, the school offers a financial-aid package that may include grants, scholarships and campus work.

But there are important differences in the financial-aid process for graduate school. Except for some private aid distributed through schools, parents aren't in the picture; graduate students are considered independent students, so your parents' income and assets aren't a factor in determining how much you can contribute to your graduate education. On the FAFSA, only your income (and that of a spouse) matters, as do certain assets such as bank savings accounts and investments.

If you have been working, the federal government assumes that you will continue to do so. If that is not the case, you need to contact financial-aid officers at your school after your job status changes and ask them to recalculate how much you can afford to pay.

You have until June 30 of the year in which you start classes to submit a FAFSA, but some states set earlier deadlines for their schools. Filing closer to January 1 "puts you in the queue sooner for any aid that the schools dole out," says Rhind. In fact, funding is limited, competitive and increasingly merit-based, so it pays to focus on financial aid a full year in advance. Before you even apply, zero in on schools that are likely to find you an attractive student. Ask financial-aid officers what type of aid is available, and how likely you are to get it in successive years. "Think about how you'll pay the total bill for your education, not just the cost of the first semester," says Ruth Lammert-Reeves, assistant dean for financial aid at Georgetown University's school of law.

Teach or borrow?

Assistantships defray some or all of your tuition, and pay a modest stipend of between $6,000 and $15,000 per year for part-time work in the classroom or on a research project. An assistantship is awarded through your prospective department or academic adviser, and you apply for it separately from the FAFSA. To better your chances, contact the department head directly, using your connections and old-fashioned lobbying. Availability depends on department funding and how many lecture-course sections need teaching assistants.

Graduate students are permitted to borrow up to $18,500 a year in federal Stafford loans, based on need. (Your need is the cost of your education minus your expected contribution and any grants or other aid you receive.) The first $8,500 is subsidized by the federal government, which pays the interest on that amount while you're in school. Some professional students, such as those in medicine and dentistry, can borrow an additional $20,000 annually in unsubsidized loans. The total for graduate and undergraduate loans for any student (except for certain medical students) cannot exceed $138,500, and no more than $65,500 of that may be subsidized.

Interest on unsubsidized loans accrues while you're a student and is added to the total loan amount that you repay after leaving school. Currently, the in-school rate, which changes each July, is 3.46%, a record low. Federal student loans charge up to an additional 4% in origination and loan fees.

Additional help

If you have borrowed the maximum in Stafford loans and still haven't covered your costs, you may qualify for federal Perkins loans, which schools disburse to their neediest students. Because there is limited federal aid at the graduate level, most schools earmark a substantial portion of their Perkins-loan dollars for grad students. The loans have no fees, a fixed interest rate of 5% and liberal forgiveness policies. Students can borrow up to $6,000 per year, to a maximum of $40,000 for their undergraduate and graduate education.

You also can seek outside assistance through private loans (contact your school for a list of sources) and fellowships (see FastWeb.com and SRNexpress.com). If your degree is job-related, ask your employer for tuition assistance. In 2002 graduate students are not taxed on the first $5,250 of employer assistance, if the money is used to pay for tuition, books and school fees.