What Are Grad PLUS Loans?
A Grad PLUS Loan is a federal loan that graduate or professional students can use to help pay for education expenses, like tuition, fees, living expenses, and books. These loans are part of the William D. Ford Federal Direct Loan Program.
Background of Grad PLUS Loans
Before Grad PLUS Loans, graduate students often had fewer options for financing their education beyond the subsidized and unsubsidized Direct Loans. The Grad PLUS Loan program was established to provide additional, albeit unsubsidized, borrowing capacity for these students. Unlike Parent PLUS loans, which are for parents of dependent undergraduate students, Grad PLUS loans are for the students themselves.
How Do Grad PLUS Loans Work?
- Eligibility: To qualify, you must be a graduate or professional student enrolled at least half-time in a program leading to a graduate or professional degree. You also need to meet general federal student aid eligibility requirements, such as having a valid Social Security number, being a U.S. citizen or eligible non-citizen, and not being in default on any federal student loans. A key difference from other federal loans is that a credit check is performed, though the standards are more lenient than for private loans. You can still qualify even with an adverse credit history if you have a creditworthy endorser (co-signer) or demonstrate extenuating circumstances.
- Loan Limits: The maximum amount you can borrow with a Grad PLUS Loan is the cost of attendance (as determined by your school) minus any other financial aid you’ve received, such as Pell Grants, scholarships, or Direct Subsidized and Unsubsidized Loans. There’s no annual limit other than this cost-of-attendance calculation.
- Interest Rate: Grad PLUS Loans have a fixed interest rate, which is set annually by Congress. This rate is typically higher than those for Direct Subsidized and Unsubsidized Loans. Additionally, there is an origination fee, which is a percentage of the loan amount that’s deducted from the disbursement.
- Repayment: Repayment typically begins after you graduate, leave school, or drop below half-time enrollment. You have several repayment plan options, including the standard repayment plan, graduated repayment plan, and income-contingent repayment plans. Some borrowers may also qualify for deferment or forbearance if they experience financial hardship.
Real-World Examples
Imagine Sarah is pursuing a master’s degree in social work. Her total cost of attendance for the year is $50,000. She receives a $10,000 scholarship and is eligible for the maximum Direct Unsubsidized Loan amount of $20,333. This leaves a remaining $19,667 gap. Sarah can apply for a Grad PLUS Loan to cover this remaining amount, bringing her total federal student loan funding to $40,000 ($20,333 + $19,667). She’ll need to undergo a credit check, but if approved, this loan will help her pay for her tuition, fees, and living expenses.
Who Do Grad PLUS Loans Affect?
These loans primarily affect students pursuing advanced degrees, such as master’s degrees, doctoral degrees (Ph.D.), and professional degrees (like law or medicine). They are a crucial financial tool for many graduate students who need to finance their education beyond what federal Pell Grants and Direct Unsubsidized Loans can cover.
Tips and Strategies
- Borrow Only What You Need: While the loan limit is the cost of attendance, carefully consider your budget and borrow only the amount necessary to minimize your future debt burden.
- Understand the Interest Rate and Fees: Be aware that Grad PLUS Loans generally have higher interest rates and an origination fee compared to other federal student loans. Factor these costs into your repayment planning.
- Explore Repayment Plans: Research the different repayment options available, including income-driven repayment (IDR) plans, which can make payments more manageable based on your income after graduation.
- Consider Loan Consolidation: If you accumulate multiple federal loans, you might consider consolidating them into a Direct Consolidation Loan. This can simplify your payments and may offer access to different repayment plans.
- Check for Employer Assistance: Some employers offer student loan repayment assistance programs as an employee benefit.
Common Misconceptions
- “No Credit Check”: Unlike Direct Subsidized and Unsubsidized Loans, Grad PLUS Loans do require a credit check. While the standards are more forgiving than private loans, a history of significant delinquencies or accounts in collection could be an issue.
- “Interest-Free”: Grad PLUS Loans accrue interest from the time they are disbursed until they are paid off. Interest also capitalizes (is added to the principal balance) if not paid during deferment periods.
- “Same as Parent PLUS Loans”: While both are “PLUS” loans, they are for different borrowers (graduate students vs. parents of undergraduates) and have slightly different nuances in terms of eligibility and repayment options.
Sources:
- Federal Student Aid: PLUS Loans
- Consumer Financial Protection Bureau: What is a PLUS loan?