The Grad PLUS Loan, also known as the Graduate PLUS Loan, is a federal student loan meant for those who are going to graduate or professional school. It has a fixed interest rate which is often higher than other loans you can get, though it has a high loan limit.
The federal government is your lender for the Graduate PLUS Loan, which is a type of Direct PLUS Loan. Your school will use this loan toward tuition, fees, room and board, and other school charges. If any amount remains, you will receive it to pay for other educated-related expenses. If you find you do not need this additional money, and it has not been disbursed, you can cancel the excess within 120 days without any interest or penalties. In fact, you can cancel the entire loan if you like.
Despite its relatively high-interest rates, there are advantages to taking out a Grad PLUS Loan. Many people take out this type of loan to fill in the gaps that their other financial aid will not cover. Let’s explore the pros and cons.
Eligibility for a Graduate PLUS Loan
To receive a Graduate PLUS Loan, you must be a graduate or professional student who is enrolled at least half-time at an eligible school in a program leading to a graduate or professional degree. You must also meet other basic requirements for federal student aid. You don’t need to show any financial need to get a Grad PLUS loan as you do with some other types of federal loans, though you do still need to file the FAFSA form (Free Application for Federal Student Aid). You also must pass credit check requirements. You normally cannot get the loan if you have what is considered adverse credit history.
“Adverse credit history” entails any of the following:
- You owe a total amount over $2,085 that is 90 or more days delinquent, is in collection or has been charged off during the two previous years
- In the five years before the credit report, you suffered a default, bankruptcy, foreclosure, repossession, a tax lien, a wage garnishment or a write-off of a federal student aid debt.
However, there’s hope even with an adverse credit history. You still have two avenues to getting a Grad PLUS Loan.
- You can get a cosigner who does not have an adverse credit history.
- You can try to document there are extenuating circumstances that caused your adverse credit history.
Interest Rates and Fees
As already mentioned, the Grad PLUS Loan tends to carry higher fixed interest rates than other student loans. The fixed interest rate was 7.0% interest rate for the 2017-2018 school year. There was also a 4.276% fee. This fee is deducted from the amount borrowed before the money is even sent to your school. Rates change according to the market every year on July 1. Fees may change also. During this same period, Direct Unsubsidized Loans had an interest rate of 6%.
|Loan Type||Interest Rate (between 7/1/2017 – 7/1/2018)||Origination (between 10/1/2017 – 10/1/2018)|
|Grad Plus Loan||7%||4.264|
Private Student Loans often offer much better interest rates and many do not have origination fees. But be aware they do not offer the same protections of a federal student loan such as forgiveness, forbearance and deferment when you are having trouble repaying your debt.
Repaying Your Graduate PLUS Loan
As long as you are enrolled half-time, you need not make any payments on your Grad PLUS Loan. It carries the usual federal student loan six-month grace period after graduation before you must begin paying. However, be aware that the interest rate starts to accrue on the date the loan is disbursed. If you don’t pay the interest while you are in school, it will be added to the amount of the loan.
The usual term of payment is 10 years. However, you may be able to get a longer period if you have over $30,000 in federal student loans with one institution or if you consolidate your loans. You have a wide choice of repayment plans with Graduate PLUS Loans. Some have specific requirements. They include:
- Standard repayment plan
- Graduated repayment plan
- Extended repayment plan (if you have over $30,000 in Direct Student Loans)
- Revised Pay as You Earn Repayment Plan
- Pay as You Earn Repayment Plan(You must be a new borrower on or after Oct. 1, 2007, and you must have received a disbursement of a Direct Loan on or after Oct. 1, 2011 and meet other criteria).
- Income-Based Repayment Plan (IBR) (You must have a high debt relative to your income.)
- Income-Contingent Repayment Plan (ICR)
- Income-Sensitive Repayment Plan
Grad PLUS Loan Limits
There is no number limit on the Grad PLUS Loan. You can borrow the annual cost of attendance minus other financial aid you receive. Cost of attendance includes tuition, fees, room, board, books, supplies and any necessary equipment. You may be able to borrow more than you really need, thereby tempting you to go into debt deeper than is necessary. According to a report from the New America Foundation, about 40% of outstanding student debt is from pursuing graduate and professional degrees. For their undergraduate and graduate studies, graduate students borrow $57,600 on average. If you are in doubt, just borrow what you really need. If you find you underestimated, you can still borrow the rest of the amount for which you are eligible later.
How to Apply for a Grad Plus Loan
Your first step in applying for a Grad PLUS Loan is to complete the FAFSA form. You will want to talk with your school’s financial aid office about their processes. You will probably need to go to StudentLoans.gov to apply for your loan. If not, your school can inform you how to request a Grad PLUS Loan.
To get your loan, you will be asked to sign a Master Promissory Note. If this is your first PLUS loan, you will be required to undergo entrance counseling to learn about the loan process, how to manage your education expenses, other available financial resources and your rights and responsibilities as a borrower.
Consider All Your Options
You will want to explore all your other options before borrowing a Grad PLUS Loan. For example, a Direct Unsubsidized Loan has a fixed interest of 6% at the time of this writing compared to the Grad PLUS Loan fixed interest of 7%. However, the Direct Unsubsidized Loan also has an annual borrowing limit of $20,500 ($40,500 for medical students). You may want to take out a Direct Unsubsidized Loan and then take out a Grad PLUS Loan for the rest of the amount you need. Also consider private student loans. Interest rates will likely be lower than Grad PLUS Loans, but you won’t have the same repayment protections and flexibility. Once you have all the information in front of you, you can make an informed decision based on your own situation.