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What Happens to Undergraduate Student Loans during Grad School?

Graduate students should pay close attention to their undergrad loans. Grad school presents several opportunities to improve your debt situation.

Written By: Michael P. Lux, Esq.

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Dealing with undergraduate student loans can be tricky during grad school.

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.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

3 thoughts on “What Happens to Undergraduate Student Loans during Grad School?”

  1. Graduate students must be enrolled at least half-time in a degree seeking program to keep loans in deferment. You can’t be taking classes as a non-degree seeking student. As a graduate advisor I saw students sign up for a full load as NDS and not find out until after the end of add/drop that they were ineligible for new loans and deferment of existing loans.

    Additionally, PhD students who’ve advanced to candidacy can request that their departments file a full-time equivalency form with the department of financial aid at their school. Such students can’t take out new loans but are considered full-time at 1 credit hour for the purpose of deferring federal loans.


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