If you’re considering heading to grad school or you’re already working on your graduate degree, Grad PLUS Loans can help you cover the cost of your education.
Before you apply, however, it’s important to know what you’re getting yourself into and what alternatives are available.
Graduate PLUS Loans, also called federal Direct Grad PLUS Loans, are provided by the U.S. Department of Education.
You’re eligible for a Grad PLUS Loan if you’re a graduate or professional student enrolled at least half time at an eligible school and working on a degree or certificate, you meet the general eligibility requirements for federal student aid, and don’t have certain negative items on your credit report in the past five years.
If you don’t meet the Department of Education’s credit requirements, you can apply with a cosigner.
Before you can apply for a Grad PLUS Loan, you’ll need to complete the Free Application for Federal Student Aid (FAFSA) form. Then you can fill out and submit a Grad PLUS Loan application at StudentLoans.gov.
If you’re approved, you can borrow as much as you need to cover the cost of attendance at your school, less any other financial assistance you receive.
The Grad PLUS Loan interest rate is the same for all borrowers who get approved and can change each school year for new loans. Through June 30, 2019, for instance, the interest rate is 7.60%. Once you’ve been approved for a loan, however, the rate remains the same for the life of the loan.
You won’t need to start making payments on the loan until six months after you graduate, leave school, or drop below half-time status. That said, interest will accrue while you’re in school and is capitalized to increase how much you owe once the grace period is over.
Grad PLUS Loans also have an upfront loan fee that’s deducted from your loan disbursement. Through September 30, 2019, that fee is 4.248%.
One of the benefits of getting a federal Direct PLUS Loan is that you gain access to certain benefits, including:
If you think you might need access to any of these, Grad PLUS Loans are worth considering.
Before you move forward with a Grad PLUS Loan, it’s important to know what other options you might have. One is a Direct Unsubsidized Loan, and the other is a private student loan. Here’s what you need to know about each.
These loans are also provided by the Department of Education but have a few differences to keep in mind. For starters, the maximum you can borrow with a Direct Unsubsidized Loan is $20,500 per year and $138,500 total.
That said, the interest rate is slightly lower at 6.6% through June 30, 2019, and the loan fee is much lower at 1.062% through September 30, 2019. Also, Direct Unsubsidized Loans don’t require a credit check of any kind.
While it’s typically better for undergraduate students with no credit history to get student loans from the federal government, that’s not always the case with graduate students.
If you have a strong credit history, you may be able to qualify for a lower interest rate than what the Department of Education offers. If you’re not eligible for the lowest rates on your own, you can typically have a co-signer apply with you to improve your chances.
There are several private student lenders that offer both variable and fixed interest rates, and many of them start lower than the Direct Unsubsidized and Grad PLUS Loan interest rates. Also, most private lenders don’t charge any upfront fees.
Keep in mind, though, that private student lenders don’t offer all of the same benefits the federal government provides. Most private lenders, for instance, don’t offer income-driven repayment plans and forgiveness programs. And while some may offer deferment and forbearance, they may not be as lenient as the federal government.
Finally, private lenders typically have a maximum amount you can borrow each year and overall.
If you need financing for your graduate or professional degree, it’s a good idea to compare several options to make sure you get the best solution for you. As you’re considering these three options, here’s a summary of the benefits and drawbacks of each.
If your credit isn’t in great shape, but you still qualify for Grad PLUS Loans, the lack of a fixed loan limit and access to federal benefits make this option appealing.
If your credit is in bad shape and you don’t have a co-signer, or you don’t need more than $20,500 per year in student loans, it may be worth it to consider Direct Unsubsidized Loans.
If you have a strong credit history or a co-signer with one, you could potentially save money with private student loans. Avoid this option, however, if you want the protections the federal government offers.
As you take the time to consider which loan is right for you, do your best to compare each loan option in its entirety. While private student loan interest rates aren’t the same for everyone who qualifies, you can compare interest rates and find the best lender for you with Purefy’s rate comparison tool.
As you compare these terms with what the federal government has to offer, you’ll have a better idea of which option will suit your needs.