What Is A Grad Plus Loan?

Student loans have become increasingly popular in the United States as a way to finance higher education. Unfortunately, the overall amount of student loan debt in America has become a financial crisis. The cost of tuition has risen, and there is a growing expectation that everyone entering the workforce should have a Bachelor’s degree. The numbers are overwhelming. More and more Millennials and Gen Z individuals are pursuing postgraduate degrees as undergraduate degrees are becoming as common as high school diplomas used to be. Many students choose to finance their graduate education with student loans. Fortunately, there are federal funding options available for graduate studies, although they may not be as extensive as those offered to undergraduate students.

Explore Your Options for Federal Student Loans

If you’re in need of financial assistance for your education, federal student loans are an excellent choice. The federal government offers a wide range of loans to support undergraduate, graduate, and professional students. These loans provide generous benefits and flexibility. There are different types of federal student loans to choose from. Firstly, the Direct Subsidized Loans are a great option for undergraduate students. The best part is that these loans do not accumulate interest while you are enrolled at least half-time. For both graduate or professional students and undergraduates, the Direct Unsubsidized Loans and Direct PLUS Loans are available. These loans offer additional financial support to help you achieve your educational goals. If you have multiple loan obligations, you can consider a Direct Consolidation Loan, which allows you to combine all your federal student loans into one manageable monthly payment. Rest assured that with federal student loans, you can find the right option for your educational financing needs. Explore these options and make the best choice for your future!

What Is a Grad PLUS Loan?

A Grad PLUS loan, also known as a direct PLUS loan, is a type of federal student aid that is available to graduate or professional students as well as the parents of dependent undergraduate students. It is specifically used by students to pay for graduate school expenses. While Grad PLUS loans may not be as affordable or generous as some federal loans available during undergraduate studies, they are still a much better option compared to private student loans.

How Do Grad PLUS Loans Work?

A Grad PLUS loan operates differently from a standard federal direct unsubsidized loan, as it requires a credit check as part of the application process. Furthermore, unlike subsidized loans for undergraduates, Grad PLUS loans accrue interest immediately upon disbursement. The interest rate for Grad PLUS loans is fixed and determined each academic year based on the index of long-term U.S. Treasury security rates. Repayment usually begins six months after completing graduate studies or dropping below half-time enrollment.

Eligibility for Grad PLUS Loans

You can easily determine your eligibility for federal student loans by visiting the federal student aid website, which provides information on all funding options offered by the government. To be eligible for a Grad PLUS loan, you must:

• Be enrolled as a graduate or professional student at least half-time in an eligible program leading to a graduate or professional degree.
• Not have an adverse credit history, unless you meet additional eligibility requirements.
• Meet all general eligibility requirements for federal student aid, including being a U.S. citizen or eligible non-citizen with a valid Social Security number.

How to Apply for a Grad PLUS Loan

Potential graduate students can apply for a Grad PLUS loan through the federal government’s student financial aid website. The application for a direct PLUS loan is part of the Free Application for Federal Student Aid (FAFSA), which covers all federal student loan funds. Depending on your graduate school, there may be additional steps in the application process. During the approval process, a credit check will determine if you have an adverse credit history. Your school will provide you with information about the loan amount and any other financial aid offers in your financial assistance package. Remember, you are not obligated to accept all the aid offered if you don’t need it.

Important Information About Getting a Grad PLUS Loan

It’s a great idea to have a better understanding of what makes a grad PLUS loan different from other types of financial aid, such as undergraduate loans and direct unsubsidized loans. Here are three key things you should know before accepting your graduate PLUS loan offer:

1. Interest Starts Accruing Right Away

Unlike subsidized loans available to undergraduate students, all student loan options for grad students start accumulating interest from the moment the loan is disbursed. Unfortunately, this means the total amount you owe will be higher than the loan amount you received when it’s time to repay. However, similar to other federal loans, you won’t have to start making loan payments until after you graduate or drop below half-time enrollment. If you want to minimize the impact of interest accrual, you have the option to make interest-only payments while you’re still in school. By doing so, you’ll be ahead of the game when it comes to starting your repayment plan.

1. You’ll Need to Pay a Loan Origination Fee

For a federal graduate PLUS loan, borrowers are required to pay an origination fee. Typically, this fee is deducted from your student loan before it is disbursed. The specific fee amount is set when the federal student interest rate is determined by Congress. Most recently, it has been around 4% to 5% for a graduate PLUS loan. Unsubsidized loans have a lower origination fee, typically around 2%.

1. Your Creditworthiness Matters

Unlike unsubsidized loans, a direct PLUS loan requires a credit check. If your credit report has negative marks, you may still be eligible for a PLUS student loan but may need a cosigner (known as an endorser). Some find it beneficial to improve their credit before pursuing graduate or professional studies.

Federal Student Loans Vs. Private Student Loans

Thinking about the differences between a graduate PLUS loan and a private student loan? In most cases, it’s actually smarter to explore all the federal financial assistance options before turning to private loans. There are several good reasons why federal loans can save you more money and offer more flexibility. Let’s take a closer look:

Beneficial Interest Rates

One major advantage of federal loans is that they tend to come with lower interest rates compared to private loans. These interest rates are not based on individual applications, but are universally determined by the federal government each academic year. For example, a grad PLUS loan is likely to have a fixed interest rate around 5%. By having a low fixed interest rate, you can potentially save a significant amount of money on your student loan. In contrast, private student loans often have higher interest rates to account for the greater risk involved. This is similar to how financial products like payday loans for bad credit carry much higher interest rates.

Flexible Repayment Options

When it comes to repayment plans, private student loans simply don’t offer the same level of flexibility and generosity as federal loans. With federal student aid, every loan servicer provides various income-driven repayment plans, such as income-based, income-contingent, and Pay-As-You-Earn (PAYE) plans. What’s remarkable about these plans is that if you have limited income, any remaining balance after 20 to 25 years of repayment can be forgiven.

Unique Consolidation, Deferment, and Forgiveness Possibilities

The federal student aid system offers options like loan consolidation, which allows you to combine all your loans into one Direct Consolidation Loan. By consolidating with a federal loan servicer, you’ll receive much better terms compared to refinancing private student loans. If you’re facing financial hardship, federal loans also provide deferment and forbearance options to temporarily pause your monthly payments. Furthermore, there are forgiveness programs for your student loans if you pursue eligible careers in public service or education. Private student loans are unlikely to offer the same abundance of options for making your loan more affordable, unlike federal student aid.

References: Grad PLUS loans | Federal Student Aid Grad Plus Loan: 6 Things to Know Before You Apply