It’s important for students to have clear, timely and actionable information about how much it costs to attend college and what options they have to cover those expenses, including loans, according to student advocates.
That’s especially true for graduate students considering whether to apply for federal Grad PLUS student loans, which ”can become particularly burdensome because they have a higher interest rate and because students can borrow up to their full cost of attendance,” says Michele Streeter, senior director of college affordability at the Institute for College Access & Success, a national nonprofit based in California and Washington, D.C.
“Students looking to take out Graduate PLUS loans should carefully review their aid offer and consider how much they 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 don’t have to accept the full loan amount offered to them by their college.”
What Is a Grad PLUS Loan?
The Grad PLUS loan is a type of federal direct PLUS loan available to eligible graduate and professional students to finance their education, including living expenses. A Grad PLUS loan is intended to supplement any direct unsubsidized loans for which such students are eligible.
The U.S. Department of Education makes Grad PLUS loans to qualified 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 may qualify for private student loans that have lower interest rates than the Grad PLUS loan, they should be wary: Federal student loans come with better consumer protections than even the most generous private student loans.
How to Apply for a Grad PLUS Loan
Before applying for a grad PLUS loan, you must complete the Free Application for Federal Student Aid, a federal form also known as the FAFSA that determines financial need and eligibility and that schools typically require for institutional aid like scholarships.
Most schools 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 U.S. Department of Education, has a list of schools that participate in the federal direct loan program. When selecting your school from the list, the site will tell you if the school has a different application process. If so, check with the school’s financial aid office to find out how to apply for a Grad PLUS loan.
A credit check will be performed during the application process. If you have an adverse credit history, you may still qualify by obtaining an endorser, a type of co-signer who agrees to repay the loan if you fail to do so.
An approved borrower with an adverse credit history must complete credit counseling for PLUS loan borrowers whether the student has an endorser or was able to document extenuating circumstances to the satisfaction of the Education Department.
Things to Remember 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% the prior year. This is a fixed interest rate, set by the U.S. Congress, for the life of the loan. The maximum Grad PLUS loan amount you can borrow is the cost of attendance – which is determined by the school – minus any other financial assistance you receive.
You don’t have to begin repayment until six months after you graduate, leave school or drop below half-time enrollment.
Interest will accrue on the loan during any period when you are not required to make payments, except for special circumstances such as the temporary payment and interest pause granted by the federal government because of the COVID-19 pandemic.
You can make interest-only payments while in school – which can save money in the long run – or allow the interest to be capitalized, which means it will be added to your principal loan balance when you start making payments.
The student loan servicer assigned to you will notify you about when your first and subsequent payments are due and can help with any questions or concerns you have during the repayment process.
Advice if You Have Trouble Repaying Grad PLUS Loans
It’s wise to contact your student loan servicer to understand your options for keeping your loans in good standing, experts say. For example, there may be options if you want to change your repayment plan to lower your monthly payment, or request a deferment or forbearance that allows you to temporarily stop making payments.
However, remember that interest will continue to accrue during those periods.
There is a drawback attached to Grad PLUS loans, according to Megan Walter, a policy analyst at the National Association of Student Financial Aid Administrators. It is the loan origination fee, which is a percentage of your total loan amount charged to process your loan.
All federal direct student loans charge this fee, but for Grad PLUS loans it is 4.228% – about four times higher than the origination fee for federal direct subsidized and unsubsidized student loans. That rate is for Grad PLUS loans disbursed on or after Oct. 1, 2020 and before Oct. 1, 2023.
As a result of the origination fee, Walter explains, a student who borrows a $10,000 Grad PLUS loan will receive $9,577.20 of that amount, since the origination fee is subtracted from the loan in advance.
“If you happen to need the whole $10,000, that means you’ll need to borrow more than originally intended to cover the loan fee, without coming up short,” Walter says.
Also, the interest rate on Grad PLUS loans is the same for everyone, regardless of how excellent an applicant’s credit may be.
‘If you are a borrower or co-signer with an excellent credit score, you may be able to get a private student loan at a much lower interest rate than what the PLUS loan program offers, which can save thousands in interest paid at the end of the loan’s life,” Walter says.
Grad PLUS loans, like other federal student loans, are extremely difficult to discharge if you file for bankruptcy. They typically stay with you until you pay them off or die.
However, one way to erase some of the debt is by participating in a federal Public Service Loan Forgiveness program. The balance of your loans can be forgiven if you make 10 years of qualifying payments while working in a qualifying job at a qualifying employer such as some educational and not-for-profit institutions or a federal, state, local or tribal government.
Mary B. Cooper-Stewart, a Texas-based independent financial aid counselor, notes that student loans from private lenders don’t qualify for the PSLF program.
“There’s also a lot of new information out as it pertains to the PLUS loans, and we believe more is to come,” she says. “I would suggest checking periodically with a loan counselor to keep up with the latest.”