According to student representatives, it’s important that students have clear, timely, and actionable information about how much it costs to attend college and what options they have to meet those costs, including loans.
This is especially true for graduate students considering applying for a federal Grad PLUS student loan, which “can get particularly onerous because they have a higher interest rate and students can borrow up to their full cost of attendance,” says Michele Streeter, senior director of the College Affordability at the Institute for College Access & Success, a national nonprofit based in California and Washington, DC
“Students looking to take up Graduate PLUS loans should carefully consider their offer of assistance, considering how much they will need to borrow to cover their costs and whether they will earn enough in their field to keep up with their loan payments,” she adds . Students do not have to accept the full amount of credit offered to them by their college.”
What is a Grad PLUS Loan?
The Grad PLUS loan is a type of direct federal PLUS loan available to eligible college graduates and working professionals to fund their education, including living expenses. A Grad PLUS loan is intended to supplement any direct unsubsidized loans for which such students are eligible.
The US Department of Education provides Grad PLUS loans to qualifying students through schools participating in the Federal Direct Loan Program.
Streeter and other student loan experts say it’s worth noting that while some graduate students are eligible for private student loans, which have lower interest rates than the Grad PLUS loan, they should be cautious: federal student loans offer better consumer protections than even the most generous private ones student loans.
How to Apply for a Grad PLUS Loan
Before applying for a Grad PLUS loan, you must complete the Free Student Aid Application, a federal form also known as the FAFSA, which establishes financial need and eligibility that schools typically require for institutional aids such as scholarships.
Most schools will require you to apply for a Direct PLUS loan online, but some schools have different application processes. Federal Student Aid, a website operated by the US Department of Education, has a list of schools that participate in the Federal Direct Loan Program. If you select your school from the list, the website will let you know if the school has a different application process. Then check with the school’s scholarship office on how to apply for a Grad PLUS loan.
A credit check is carried out during the application process. If you have a negative credit history, you can still qualify by getting an endorser, a kind of co-signer who agrees to repay the loan if you don’t.
An eligible borrower with a negative credit history must complete a PLUS Borrower Credit Counseling whether the student has a supporter or has documented extenuating circumstances to the satisfaction of the Department of Education.
Things to Consider About Grad PLUS Loans
For Grad PLUS loans first disbursed on or after July 1, 2022 and before July 1, 2023, the interest rate is 7.54%, up from 6.28% a year earlier. This is a fixed interest rate set by the US Congress for the life of the loan. The maximum amount of Grad PLUS Loan you can borrow is equal to the cost of attendance – as determined by the school – minus any other financial assistance you may receive.
You do not have to start repaying until six months after graduation, leaving school, or falling below mid-term enrollment.
The loan will accrue interest during any period that you are not required to make any payments, except for special circumstances such as the temporary payment and interest pause granted by the federal government due to the COVID-19 pandemic.
You can make interest-only payments while you’re at school — which can save you money in the long run — or have the interest capitalized, which means it’s added to your main loan balance when you start making payments.
Your assigned student loan administrator will notify you when your first and subsequent payments are due and can assist with any questions or concerns during the repayment process.
Advice if you have problems repaying Grad PLUS loans
It’s wise to consult with your student loan administrator to understand your options for keeping your loans in good shape, experts say. For example, there may be options if you want to change your repayment schedule to lower your monthly payment, or request a deferral or forbearance that allows you to temporarily stop making payments.
However, keep in mind that interest will continue to accrue during these periods.
According to Megan Walter, a policy analyst at the National Association of Student Financial Aid Administrators, there is a downside to Grad PLUS loans. It is the lending fee, which is a percentage of your total loan amount that is charged for processing your loan.
All direct federal student loans charge this fee, but for Grad PLUS loans it’s 4.228% — about four times higher than the processing fee for directly subsidized and unsubsidized federal student loans. This rate applies to Grad PLUS loans disbursed on or after October 1, 2020 and before October 1, 2023.
Because of the processing fee, Walter explains, a student who borrows a $10,000 Grad PLUS loan receives $9,577.20 of that amount because the processing fee is deducted from the loan up front.
“If you happen to need the entire $10,000, that means you have to borrow more than what was originally budgeted to cover the rental fee without falling short,” says Walter.
Also, the interest rate on Grad PLUS loans is the same for everyone, no matter how excellent an applicant’s credit rating may be.
“If you are a borrower or co-signer with an excellent credit history, you may be able to get a personal student loan at a much lower interest rate than what the PLUS loan program offers, potentially saving thousands in interest at the end of the loan’s life,” says Walter.
Grad PLUS loans, like other federal student loans, are extremely difficult to pay off if you file for bankruptcy. They usually stay with you until you pay them off or die.
However, one way to pay off some of the debt is to participate in a federal government loan forgiveness program. The balance of your loans can be forgiven if you make qualifying payments for 10 years while working in a qualifying job with a qualifying employer, such as some educational and nonprofit organizations or a federal, state, local, or tribal government.
Mary B. Cooper-Stewart, a Texas-based independent financial aid consultant, notes that student loans from private lenders do not qualify for the PSLF program.
“There’s also a lot of new information out there about the PLUS loans, and we think there’s more to come,” she says. “I would suggest checking with a credit advisor regularly to keep up to date.”