If you’re looking for ways to pay for graduate school, you’ve likely come across the option of taking out a Grad PLUS loan. These federal student loans for graduate students could be a viable way to cover the costs of grad school.
But like any type of debt, it’s important to fully understand the financial implications before applying. Here are six things you should know before applying for a Graduate PLUS loan.
1. Your Grad PLUS loan is funded by the Department of Education
This means that eligibility is determined when you fill out the FAFSA. In addition, you will have access to benefits typical of federal loans, including eligibility for Income-Driven Repayment.
The borrowing process is relatively simple, and the benefits associated with federal student loans are valuable compared to many private loans. This can make Grad PLUS loans a very attractive choice.
2. You can borrow up to the full amount of cost of attendance
The maximum amount that you can borrow under the federal Direct Unsubsidized Loan program for graduate school is $20,500 a year, with a maximum lifetime limit of $138,500. But a Graduate PLUS loan allows you to borrow up to the cost of attendance, minus any other financial aid received.
It’s possible to pay for graduate school in its entirety by exclusively taking out federal loans — assuming you qualify (see below). If you’re leery of the private student loan market, this is a definite plus (no pun intended).
However, remember that anything you borrow has to be paid back. You can always decline all or part of the loan prior to disbursement if you determine that it’s unnecessary.
3. You must demonstrate creditworthiness to qualify
Unlike federal Direct Unsubsidized loans, Graduate PLUS loans require evidence that you don’t have an adverse credit history via a credit check.
If you have a poor credit history, you may be required to find an “endorser” (or cosigner) with a better credit history, or document the extenuating circumstances that resulted in your adverse credit history. Because of this, some borrowers will find that they have to turn to the private student loan market in order to obtain the money they need to attend graduate school.
Alternatively, you can take steps to improve your credit prior to attending graduate school and help ensure that you qualify for a Grad PLUS loan. Of course, delaying your decision to attend graduate school can also give you more time to save up money so that you don’t need to borrow as much.
4. Interest accrues from the moment your loan is disbursed
Although you’re not required to make payments if you’re enrolled in a graduate program at least half-time, interest on your loan begins accruing the moment your loan is disbursed.
Though other student loan options also include accruing interest, this is a good argument for borrowing as little as possible. Additionally, making interest-only payments while still in school will help to stop interest from capitalizing once you enter repayment.
5. A loan origination fee is applied
Beyond the interest that is accruing on your loan, an origination fee is deducted when your loan is disbursed.
While the amount of the fee can change, it was approximately 4.3 percent during the 2017-2018 academic year. During repayment, the origination fee counts as part of your outstanding balance.
Federal Direct Unsubsidized loans also charge a fee; however, it’s closer to 1.1 percent — a much more reasonable rate. Private lenders may or may not charge an origination fee for their loans. This means that it is worth investigating your private loan options and comparing them with Graduate PLUS loans to make sure you’re getting the best deal.
6. Currently, Graduate PLUS loans have a fixed interest rate
As of the 2017-2018 academic year, these loans had a fixed interest rate of 7.00%. As with other federal loans, the interest rate is set by Congress and can change each academic year.
What is interesting about this rate is that while you have to prove creditworthiness in order to qualify for the loan, having better credit does not improve the interest rate that you will be offered. As a result, you may want to see if you can get a better interest rate on the private market before committing to a Grad PLUS loan.
Typically, attending graduate school is much more expensive than obtaining an undergraduate degree, even if you are an in-state resident at a public institution. This means that even if you did not have to turn to loans to fund your undergraduate education, you may find yourself in the market for student loans as a graduate student.
However, many graduate degree programs can substantially increase your earning power, making finding a better job — and, therefore, affording student loan payments — easier than it would otherwise be with only a bachelor’s degree.
As with all loans, borrowing only as much is you absolutely need and having a repayment plan in place can help ensure that you do not get in over your head.
Andrew Pentis contributed to this post.
Need a student loan?Here are our top student loan lenders of 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 2/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.23% – 13.23%1||Undergraduate and Graduate|
|4.20% – 11.44%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 10.11%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|5.85% – 6.99%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|