Before sharing the many reasons an inexpensive undergrad pairs nicely with grad school, I’ll share my bias on this topic. I borrowed very little to attend a state school before enrolling at a top law school. I don’t think this approach will work for everyone, but I do think it is a strategy that should get more serious consideration.

Your Undergraduate Degree Doesn’t Really Matter

Many high schools, families, and friends put a huge emphasis on going to a “good” college. Attending a top school sends the message that you are on your way, and the future is bright. Sadly, the people who make the decisions that impact your future won’t care about where you went for undergrad.

For starters, there is plenty of evidence to indicate that the school you attend doesn’t matter. If we take a deeper dive and look at students with graduate educations, the undergrad degree is even less important. Think about it this way: if you went to your doctor’s office, would you rather see a Yale pre-med diploma or a Yale Medical School diploma on the wall?

You might argue that even if your undergrad school doesn’t matter after graduate school, it matters when applying to graduate school. However, graduate schools are far more concerned about other factors. Schools do care about program rankings. However, the school is only concerned with how it does compared to other schools. Most colleges don’t care where a student attended undergrad.

To make sense of this distinction, let’s look at things from the perspective of a college. Schools want to rank highly on rankings such as the ones prepared in US News and World Report. A high ranking helps attract top students and helps current students land jobs. The importance of ranking well creates a huge incentive to score well according to the US News evaluation criteria. Take a look at the top business school methodology. Undergraduate grades and test scores are significant factors. Undergraduate school doesn’t enter the equation. If the school cares about US News rankings — and they do — they will be more likely to admit a student with high grades and test scores than they will someone from an elite undergrad.

Graduate School is Often Shorter

If you are getting your Ph.D., graduate school will obviously be longer. However, for those getting a Master’s or a professional degree, the graduate education takes less than four years.

Living with expensive tuition for one or two years is costly but not nearly as bad as four to five years of expensive education.

Many students and families cannot afford to attend an expensive graduate school and an expensive undergrad. If finances dictate picking one or the other, graduate school is an easy call.

Graduate Debt is Less Dangerous

Turning to the subject of student loans, if you amass a large amount of student debt, you want it to come from graduate school.

The analysis here is simple. Federal student loans are far better than private student loans. Federal loans have excellent borrower protections like income-driven repayment and a variety of student loan forgiveness programs. Private lends are far less borrower-friendly.

If you attend an expensive undergraduate school, the federal loans available are limited. Many undergrad students resort to large amounts of high-risk private loans. For graduate school, the majority of the federal limits are lifted. Most graduate students can finish school without needing any private student loans.

A Cheap Undergrad is the Smart Play

As a senior in high school, picking a college seems like a massive life decision. In the long run, it is likely insignificant.

If you are someone with aspirations of earning an advanced degree, don’t get carried away picking an undergrad school. Save some money. Focus on getting good grades, and set yourself up to reap the benefits of a prestigious education without all of the costs.

The post Pairing a Cheap Undergraduate Degree with a Top Graduate School appeared first on The Student Loan Sherpa.

Unlike graduate school, where federal loans are practically limitless, undergraduate students usually need private lenders to rack up $100,000 worth of student loans.

A large amount of private debt makes this particular challenge especially difficult. Fortunately, there are several tactics borrowers can use to keep things manageable.

Focus on Repaying the Private Loans First

Traditionally, borrowers are advised to knock out the debt with the highest interest rate. From an accounting perspective, this is usually the preferred approach.

Instead, borrowers with larger undergraduate debt should consider eliminating their private loans first. Private loans have less forgiving repayment terms than federal loans. Federal loans also include borrower protections like income-driven repayment and student loan forgiveness.

In many cases, the best strategy will be to get the lowest possible monthly payment on the federal loans and focus your efforts on the private loans.

Borrowers looking to lower their monthly federal loan payment should check out the Department of Education’s Loan Simulator. It is a great tool for exploring different federal payment options.

Use Graduate School to Convert Undergraduate Private Debt to Federal

If you are currently a graduate student, or soon-to-be a graduate student, you can get creative with your student debt.

There is no way to directly convert private student loans into federal student loans. However, there are ways to indirectly convert private debt into federal debt.

Suppose you earn some money at a job over the summer. Rather than using your income to borrow less the following year, that income can be used to pay down existing private debt. Even though your total debt stays constant, it becomes far more manageable. Essentially, you are transforming private loans into federal loans.

This strategy is one of several different tactics that can be used to convert private loans into federal loans.

Refinance the Private Loans

Student loan refinancing is a common method of making private debt more affordable.

Many borrowers face interest rates of 6-8%, while others are in double figures. These high interest rates make debt elimination a struggle.

Refinance lenders like SoFi and Laurel Road advertise rates starting at around 2%. However, these excellent rates are normally reserved for borrowers with excellent credit who are willing and able to pay off their loans in five years. A more realistic option for many borrowers might be a 20-year loan. These loans have interest rates starting in the 4-5% range and offer the most affordable monthly payments.

Sherpa Tip: Only refinance private loans as you begin repayment. Refinancing federal loans turns them into private loans. Refinancing federal loans might make sense at some point, but because there is no way to “undo” a student loan refinance, borrowers should proceed with care.

An Increased Salary is a Huge Boost

In the category of the incredibly obvious, making more money is a big help.

In practice, this might mean taking a less desirable, but higher paying job. It could also mean moving to a new city to find more income.

Some borrowers add a second job or “side hustle” to bring in extra cash.

Another option might be additional education. If your undergraduate degree doesn’t lead to the necessary jobs, a year or two of grad school could be the ticket to a more lucrative position.

Saying “earn more money” isn’t particularly insightful or compassionate to the many people doing their best to manage their debt. Unfortunately, it is a harsh reality of life with large amounts of private student loans.

Next Steps

Ultimately, repayment of massive student debt is fairly similar to the repayment of a smaller amount of debt. The strategy doesn’t change much. It is just more difficult.

However, with more debt, minor changes can make a big difference.

Borrowers should pay extra close attention to the following:

• Options for student loan forgiveness – Public Service Loan Forgiveness gets all of the attention, but there are at least a dozen different forms of student loan forgiveness.
• Lower your interest rates – Refinancing is the most common way to get a lower interest rate on student loans, but there are many ways to get a better interest rate on your debt.

The post How to Repay Massive Undergraduate Student Debt ($100,000 or more) appeared first on The Student Loan Sherpa.

The transition from undergrad to graduate school often includes attending a new school, a break between classes, and employment changes. These adjustments can make managing student loans complicated.

The good news for most grad students is that many of the essential steps happen automatically. Additionally, there are opportunities for creative grad students to address their undergrad loans during school. Smart decisions during grad school can make repayment after graduation dramatically easier.

Do I have to Make Payments on Undergrad Loans During Graduate School?

Like all other college students, grad students will qualify for in-school deferments on their loans. This deferment will also apply to loans from undergrad.

Qualifying for the in-school deferment should happen automatically for most graduate students who are enrolled at least half-time. This includes students who are attending a new school. However, Non-Degree Seeking students will not be able to qualify for additional federal aid or get an in-school deferment, absent a couple of exceptions. Additionally, PhD candidates may need to reach out to their department to file paperwork for a full-time equivalency to defer their federal loans.

If the student loan company is still trying to collect payments after school has started, students can remedy the issue by supplying the lender with documentation confirming enrollment status.

A Note on Grace Period Changes: Federal student loans and most private student loans come with a six-month grace period after students finish school.

The six-month countdown starts immediately after finishing undergrad, even for the students that start grad school in the fall. Upon finishing grad school, repayment on the undergrad loans may start before the graduate school loans because the grad school loans will have a fresh six-month clock.

Making Payments During Grad School

Borrowers on an in-school deferment are not required to make payments on their loans. However, they always have the option of making payments on the existing debt.

Those who earn an income during the year or over the summer may choose to attack any undergraduate debt that carries a high interest rate. Eliminating private loans before attacking federal debt is typically the preferred approach. Federal loans come with borrower protections such as income-driven repayment and student loan forgiveness. These protections could be incredibly valuable for the borrowers who struggle to find a job or who earn less than expected.

Cleaning Up Debt Obligations

Because private loans are far more unforgiving than federal loans, undergraduate student loan debt can be cleaned up during grad school.

Undergraduate borrowers face strict loan limits for federal borrowing, while graduate students can borrow as much as necessary in most cases. As a result, many graduate students may have both federal and private loans.

If a graduate student earns money during their summer, that money can reduce the amount they have to borrow the following year. By going this approach, new borrowing is limited, but the undergraduate debt stays the same.

However, if the proceeds from summer labor are used to pay down the existing private loans from undergrad, the student will have to borrow more money in the fall. This approach could essentially eliminate some private loans and replace them with federal loans. Even though the total student debt should be the same, the debt is more manageable because a higher percentage of the debt is federal.

Tracking Undergraduate Debt

Even though in-school deferments should be automatic, it is still a good idea for borrowers to keep close tabs on all of their existing loans. Providing lenders updated mailing addresses is important.

If the lender cannot find the borrower, it doesn’t mean the borrower will escape the debt; it just means that the borrower will generate more interest and late fees.

For borrowers entering repayment, tracking down existing student loans can be a challenge. This is especially true when lenders sell student debts to other lenders. Keeping tabs on the old loans from undergrad, and keeping contact information up to date can help borrowers avoid scams and late fees.

Consolidation and Refinancing

Federal direct consolidation and private student loan refinancing are both common strategies for borrowers once they finish school.

Federal consolidation can help borrowers qualify for preferred repayment plans and programs, but this step normally doesn’t need to be taken until after the borrower has finished school.

Similarly, refinancing student loans with a private lender is a popular way for graduates to get lower interest rates on their student loans. However, unless the graduate school student is working full-time or has a co-signer, refinancing will not be an option.

Both refinancing and consolidation are major financial decisions with significant pros and cons to each. Students in graduate school can usually delay making any such decision until after graduation.

The Most Important Borrowing Strategy for Graduate School

Grad school can be very expensive, and it is easy for students to fall into the trap of thinking: what is a few more dollars of debt at this point?

Paying down undergrad loans and/or minimizing graduate borrowing is essential. When students attend college for five to six years, or even more, the mountain of debt can be quite overwhelming, and repayment can take years or even decades.

Extended repayment makes each dollar borrowed more expensive. Borrowing an extra $1,000 at 6% today could cost nearly $3,000 in total if it takes the borrower 20 years to pay off the loan.

Grad school can open many doors, but the students who borrow too much will find that it can cause long term devastation to their finances.

The post What Happens to Undergraduate Student Loans during Grad School? appeared first on The Student Loan Sherpa.