Undergrad vs. grad school student loans: What’s the difference?

By Sasha Bulatskaya | Published on October 21, 2025

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Enrolling in graduate school can be a big step personally and professionally. Many employers reward advanced degrees with promotions and the higher salaries that come with them. The average American with a Master’s degree earned an annual salary of $90,324 in 2023 compared to the average Bachelor’s degree holder earning $77,636 per year. With these numbers, an advanced degree can be a smart investment in your future, but it also comes with added costs.

If you’re thinking about going to grad school, it’s important to understand the differences between undergraduate and graduate student loans. The U.S. Department of Education supports both programs, but the loans and repayment¹ terms might look different for grad students vs. undergraduates.

Let’s take a look at what you need to know about undergraduate vs. graduate student loans.

Are graduate student loans different from undergraduate student loans?

Both federal grad school loans and undergraduate loans help cover the cost of attendance, but they are distinct from one another. Federal graduate loans are unsubsidized, meaning interest will be collected as soon as you take out the loan. Subsidized undergraduate loans are more forgiving because they don’t start to collect interest until after graduation.

A quick look at what they have in common:

• Both come with federal protections and benefits, like income-driven repayment plans*, federal deferment, forbearance, and student loan forgiveness programs

*As a result of ongoing court actions, the terms of some Income-Driven Repayment (IDR) plans, including the SAVE plan, may be subject to change. Please refer to studentaid.gov for the current status of these plans.

Federal grad school loans have a higher price tag

• Some (but not all) undergrad loans don’t collect interest while you’re in school

• All grad school loans collect interest while you’re in school, making them more expensive overall

• Undergraduate federal student loans have lower borrowing limits and lower interest rates

• You can borrow more money when taking out graduate loans, especially Grad PLUS loans, but interest rates on those loans tend to be much higher

What are the different types of federal undergraduate student loans?

When it comes to federal student loans, you or your parent can take out these loan types:

• Direct Subsidized Loans: These loans are also known as Subsidized Stafford Loans and are available only to students who demonstrate a financial need. The government covers the interest on these loans while you’re in school.

• Direct Unsubsidized Loans: These loans are not based on financial need and are available to undergraduates, graduate, and professional students. You’re responsible for paying all of the interest on these loans, including interest collected while you’re in school.

• Parent Plus Loans: These are a type of Direct PLUS Loan available to parents of dependent undergraduate students who want to help their children pay for college.

What are the different types of federal graduate student loans?

If you need help paying for a graduate program, the federal government offers these types of loans:

• Direct Unsubsidized Loans: These student loans are available to grads, undergrads, and doctoral students. They are not based on financial need and collect interest right away. There is also a borrowing limit of $20,500.

• Grad PLUS Loans: These types of loans are only available to graduate and professional students. They don’t have a borrowing limit, meaning you can borrow up to the full cost of attendance minus any other financial assistance you get. These loans tend to have higher interest rates than other federal student loan types.

Private student loans are available to both grads and undergrads

Most students turn to funding from private lenders when they’ve run out of free federal financial aid, scholarships, grants, and federal student loans. Undergraduate federal loans have low rates and come with federal protections such as loan forgiveness, so it makes sense to look at those before private loans².

The decision can get more complicated if you’re looking at grad school loans. Although all federal loans are backed by federal benefits, many have high interest rates.

Sometimes, a private loan may offer a lower interest rate than a GradPLUS loan. If your priority is keeping your rates low and you’re comfortable with not having access to federal protections, a private loan may be a better fit for your needs.

Does Earnest offer grad and undergrad loans?

At Earnest, we support both undergraduate and graduate students on their college journeys. Before you come to Earnest or any other private lender, take advantage of all free federal student aid and scholarships. If you have any leftover bills, we can help you cover up to 100% of college costs if you’re approved.

How to apply for an Earnest loan:

• You can get a rate estimate without a hard credit pull. This is especially helpful for graduate students who are comparison shopping for good interest rates.

• If you’re happy with your rate, you can apply on your own or with a cosigner. We’ll do a hard credit check at this stage and show you your final interest rate.

• If your application is approved, you’ll select your interest rate, payment, and loan term with our payment planning tool. You can toggle between different options to get a loan that works with your goals.

Look at the big picture when choosing a loan

Before taking out a student loan, it’s a good idea to educate yourself about its specifics. Learn about interest rates and federal benefits such as income-driven repayment plans or student loan consolidation. Consider what’s important to you and make sure any loan you take out doesn’t contain any unpleasant surprises. By staying informed, you’ll have better control of your debt and peace of mind about your financial situation.

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About the Author

Sasha Bulatskaya

Sasha is the Senior Manager of Brand and Content at Earnest. She has been writing for ten years and has been focused on educational finance and financial aid for over three. Her passion for mission-driven companies brought her to Earnest in 2020, and she's been helping make student finance more accessible ever since. She strives to demystify personal finance and student loans to help borrowers make the best decisions for their financial situation.

Disclaimer

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 As was announced by the U.S. Department of Education (ED), federal student loans have resumed accruing interest starting September 1, 2023, and federal student loan payments were reinstated starting in October. Please note that you may lose benefits associated with your underlying federal loans, such as federal Income-driven Repayment Plans (an example of which is the SAVE plan), Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options, if you refinance into a private loan. If you file for bankruptcy, you may still be required to pay back this loan. See https://studentaid.gov/ for more information.

2 Before applying for private student loans, it’s best to maximize your other sources of financial aid first. It’s recommended to use a 3-step approach to assembling the funds you need: 1) Look for funds you don’t have to pay back, like scholarships, grants, and work-study opportunities. 2) Next, fill out a FAFSA(R) form to apply for federal student loans. Federal Direct subsidized and unsubsidized loans, excluding PLUS Loan for Parents and PLUS Loan for Graduate and Professional Students which require a credit check and a credit worthy endorser if the parent or graduate or professional student has adverse credit, do not require a credit check or cosigner, and offer various protections if you're struggling with your payments. 3) Finally, consider a private student loan to cover any difference between your total cost of attendance and the amount not covered in steps 1 and 2. For more information, visit the Department of Education website at https://studentaid.gov/.