Second Degree May Mean A Second Chance

With unemployment at record highs, finding a job is a scary prospect.

That’s why more and more people—both pending college graduates and out-of-work professionals—are considering heading back to school to delay entering (or re-entering) the work force with the hopes of being able to command a higher salary once they get back in the game.

"During market downturns nearly all graduate programs will see a rise in popularity [as people] use it as a safe haven in the bad job market," says Priya Dasgupta, director of graduate programs at Kaplan, which provides a variety of education services including test preparation courses.

Kaplan has seen a 20 percent increase in its services for law and business school programs, including free practice tests, admission seminars and sample classes. “That is a significant increase compared to a normal year,” says Dasgupta said.

While going back to school may not be an option for everyone, it could pay off significantly for those having difficulty securing a good job in the current environment.

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According to Dasgupta, there is a direct correlation between education level and a person’s ability to weather an economic downturn. Through the end of 2008, when the unemployment rate was about 8 percent nationally, she said the unemployment rate for college graduates was just about 3 percent. And for those with a higher degree, such as a masters or doctorate, that dropped to about 2 percent.

Post graduate degrees, of course, can lead to significantly higher earnings power, as well.

Dasgupta quotes studies showing that a master’s degree can bring $400,000 more than a bachelor's degree over the course of the average lifetime.

If this seems like a good option for you, but you’re worried about footing the bill—don’t.

"The perception has been that it is difficult, if not impossible, to get loans to go back to school, but that is not true for graduate students," says Kal Chany, author of "Paying for College Without Going Broke."

She says graduate and professional school students can now cover the cost of schools through government aid, without having to turn to private loans, which sometimes come with higher borrowing costs and tougher credit standards.

Federal Loans: Three Chances To Win

There are a variety of federal loan options available for prospective grad students.

One is the Perkins Loan, which is available for students with the greatest financial need. This loan, which has an interest rate of 5 percent, is capped at $6,000 per award year for graduate or professional student. The limit is $40,000 for undergraduate and graduate loans combined.

Another option is the Stafford Loan. One version is need-based and subsidized version; the borrower doesn't pay interest while in school and for six months thereafter. The non-need based, unsubsidized version allows interest to accrue, though you can defer payments while you’re in school.

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Subsidized Stafford loans are capped at $8,500 for grad students. You can, however, borrow an additional $12,000 in unsubsidized Stafford loans brining the total to $20,500. (For medical school students, the unsubsidized limit is higher.) Both subsidized and unsubsidized Stafford loans have a 6.8 percent fixed rate for graduate school programs.

Chany says it is worth mentioning to the school to which you are applying that you have been laid off and no longer have work income, as you may be eligible for a subsidized Stafford Loan based on your current income versus prior income.

In addition, he says if you have existing undergraduate debt in the form of a Perkins or Stafford Loan, you should contact your lender to explain that you’re going back to school. You may be able to defer your undergraduate payments once back in school.

A third federal loan program is the Graduate Plus Loan. Non need-based, it is designed to cover the full cost of grad school attendance, minus any other financial aid received.

For those who will not qualify for need-based loans and need funding in addition to what is offered through an unsubsidized Stafford Loan to cover the cost of school, the Graduate Plus loan is a fantastic option.

The Plus loan was originally designed for parents of undergraduate students, though it has in recent years become available to professional and graduate school students. To qualify for a Plus Loan there is a credit check. However, unlike other loans that look at your credit score to determine whether you qualify as well as what your interest rate you'll receive, this loan entails a basic check on any late payment history. The rate is fixed at 8.5 percent.

SLM, commonly known as Sallie Mae , spokesperson Patricia Nash Christel says that "while we have seen an increase in people applying for federal student loans, some good news is that the availability of student loans hasn’t changed.”

“While car loans and mortgages might be tighter,” says Christel, “the availability of student loans hasn’t changed, thanks to a solution that Congress put in place last year that ensures continued access to student loans.”

“There is a built-in stream of funding for student loans,” she adds.

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