The Hunt For Money

A Look At Some Of The Best Ways To Scrounge Up Money For Grad School

(U.S. News & World Report)  With average graduate school costs for tuition and living expenses topping $31,000 a year, it can be tough to assemble a patchwork of loans, grants, work, and other resources to get the bills paid. For students who can't pay out of pocket or use parental support, here are the top four ways to scramble together the money:

Snag A Fellowship Or Assistantship

This is where the money is for many graduate students, especially those seeking Ph.D.'s. While undergraduates generally receive grants based on need, at the graduate level such awards are usually merit based. At wealthy institutions like Cornell and Yale, virtually all Ph.D. candidates are awarded a fellowship or assistantship that covers tuition and fees, pays a stipend, and provides health insurance coverage. (Fellowships usually have no work requirement, while graduate assistants typically work up to 15 hours a week teaching, grading papers, leading discussion groups, supervising lab courses, or assisting faculty with research.) At other schools, top students are awarded funding when admitted, but the rest need to knock on doors to line up an assistantship and may not secure a position until the second semester or second year. How much fellowship and assistantship aid is available varies widely depending on the field of study chosen. In engineering, computer science, and math, 82 percent of full-time Ph.D. candidates and 55 percent of master's degree students are awarded assistantships, many funded with federal and corporate dollars. Fellowships are also more plentiful in engineering and the sciences — and often more generous than in other fields. In the humanities, only about half of full-time Ph.D. students and 40 percent of full-time master's degree students have assistantships, and stipends are usually lower.

Comparatively few assistantships and fellowships are available for those studying law, medicine, and business, which explains why so many professional-school students borrow heavily. Master's degree candidates in education also tend to finance their degrees with savings or loans, because most earn their degrees part time while continuing to work full time, which makes assistantships impractical (and also typically disqualifies them for subsidized student loans).

The first step toward getting a fellowship or assistantship is to indicate on your admissions application that you want to be considered for all forms of financial aid. The choicest awards are often made by departmental committees on the basis of application materials and sometimes supplemental recommendations. To find other awards or assistantships, check with your school's financial aid office, graduate school office, and fellowship coordinator (if there is one), or seek out faculty members in your department who are directing research funded by outside grants. Several government agencies and private organizations also sponsor outside fellowships that students can apply for on their own. Some of the more prestigious (and competitive) programs include National Science Foundation fellowships in the sciences, social sciences, and engineering; Ford Foundation Diversity fellowships for minorities (blacks, Hispanics, and American Indians); and American Association of University Women fellowships and grants for women. Two good online resources are Cornell University's free Graduate School Fellowship Database and the listing of grants on Michigan State University's website.

Borrow Wisely

While six-figure debt is more typical of law and medical students, 69 percent of full-time master's degree students and 88 percent of full-time professional students find they need to borrow to cover their expenses, according to the National Center for Education Statistics. Average debt, including undergraduate loans, tops $32,500 for master's students and $93,000 for students seeking professional degrees.
Subsidized Stafford loans are generally the cheapest way to go. Rates currently are 5.3 percent, and you can borrow up to $8,500 per year ($65,500 overall). The federal government pays the interest on your loan while you're in school and for six months after you graduate or drop below half-time status. Even if interest rates rise significantly by the time you need to repay, they can't exceed 8.25 percent.

Students qualify based on financial need, so it's necessary to file federal aid forms (the FAFSA, or Free Application for Federal Student Aid) to get subsidized loans. If your need is high, you may also be offered a subsidized Perkins loan, with an interest rate of 5 percent. You can borrow an additional $10,000 a year in unsubsidized Stafford loans (and up to $138,500 in Stafford loans overall). Rates are the same as for the subsidized Stafford, and you can defer making payments, but interest begins accruing right away.

If your school participates in the Federal Direct Student Loan program, you'll borrow directly from the federal government. Otherwise, you can choose your own lender. Rates are usually the same no matter where you go, but some lenders waive upfront fees or offer attractive repayment incentives that make loans even cheaper. Student loan giant Sallie Mae, for instance, rebates 3.3 percent of your loan amount after you make 33 on-time payments.
For students who own a home, a home-equity loan or line of credit is another choice. Many banks were recently offering lines of credit at 6 percent or less, and the interest you pay is generally tax deductible. (So is up to $2,500 a year in student loan interest if you earn less than $50,000 as a single taxpayer and $105,000 if you file a joint return. A lesser amount of interest is deductible if you earn up to $65,000 or $135,000, respectively.)
If those options don't give you enough borrowing power, private lenders typically offer higher loan ceilings, at rates only slightly higher than those for Stafford loans. Sallie Mae, Access Group, Citibank, and KeyBank, for instance, all offer specialized loans for graduate students. And don't forget, some doctors, lawyers, and teachers may be able to have their debt forgiven (see box at left).

Let Your Employer Pick Up The Tab

Don't overlook your employer as a source of tuition funds. About 49 percent of employees at private firms have a benefit that helps finance job-related educational expenses, and 14 percent can tap their employer's pocket for courses that aren't job related. The percentages are significantly higher for professional and technical employees and for employees of large and medium-sized firms. (This is an especially popular way to fund an M.B.A.: Forty-three percent of M.B.A. students receive some kind of employer aid.) At FedEx Express, for instance, about 5 percent of employees take advantage of tuition reimbursement of up to $3,000 a year for work-related courses. Such employer-provided tuition reimbursement is tax free up to $5,250 per year.

Naturally, colleges and universities tend to offer the most generous tuition benefits for employees — so much so that some prospective grad students seek out university employment to help fund their degrees. Tuition remission attracts many employees to Southern Methodist University in Dallas, says Robert Bobo, assistant director of news and communications at SMU, where full-time employees can take up to 18 hours of coursework a year in any field at no cost. Some schools restrict the benefit to job-related courses or career-related degree programs.

Don't Miss This Tax Break

Students paying out of pocket for tuition and fees can take advantage of the federal Lifetime Learning tax credit, worth up to $2,000. The credit equals 20 percent of the first $10,000 you spend in tuition and fees each year.

If you file a single return, you're eligible for the full tax credit if your income is $45,000 or less and for a partial credit with income up to $55,000. For married couples filing jointly, the tax credit is fully available with income up to $90,000 and partially available up to $110,000. You can use the credit even if you don't itemize deductions, and it reduces your tax bill dollar for dollar.