Student advocates say it’s important for students to have a clear, timely and actionable understanding of the costs of attending college and the options they have to pay for them, including loans.
This is especially true for graduate students considering whether to apply for federal Grad PLUS student loans, “which can become especially onerous because they have higher interest rates and students can borrow for the full cost of their attendance,” said senior director Michele Streeter College Affordability by the Institute for College Access and Success, a national nonprofit based in California and Washington, D.C.
“Students looking to take out a Graduate PLUS loan should carefully review their aid package and consider how much they will need to borrow to cover their costs and whether they will make enough money in their field to keep up with their loan payments,” she added. Students do not have to accept the full loan the university offers them. “
What is a Graduate PLUS Loan?
The Grad PLUS Loan is a federal direct PLUS loan available to eligible graduate and professional students to finance their education, including living expenses. Grad PLUS loans are designed to supplement any direct unsubsidized loans such students are eligible for.
The U.S. Department of Education provides Grad PLUS loans to eligible students through schools participating in the Federal Direct Loan Program.
It’s worth noting, Streeter and other student loan experts say, that while some graduate students may qualify for private student loans with lower interest rates than Grad PLUS loans, they should be wary: Federal student loans offer better spending than even the most generous loans protect private student loans.
How to Apply for a Graduate PLUS Loan
Before applying for a Graduate PLUS loan, you must complete the Free Application for Federal Student Aid, a federal form, also known as the FAFSA, used to determine financial need and eligibility, and institutions often require institutional aid such as scholarships.
Most schools require you to apply for Direct PLUS loans online, but some schools have a different application process.Federal Student Aid, a website operated by the U.S. Department of Education, has a school list Participate in the Federal Direct Loan Program. When you select your school from the list, the website will tell you if that school has a different application process. If so, check with your school’s financial aid office to learn how to apply for a Grad PLUS loan.
A credit check will be performed during the application process. If you have a bad credit history, you can still qualify by getting an endorser, a type of co-signer who agrees to repay the loan if you don’t.
Approved borrowers with poor credit history must complete credit counseling for PLUS loan borrowers, regardless of whether the student has an endorsement or is able to document extenuating circumstances to the satisfaction of the Department of Education.
Things to Remember About Graduate PLUS Loans
For Grad PLUS loans with first payments on or after July 1, 2022 and before July 1, 2023, the interest rate is 7.54%, up from 6.28% the previous year. This is a fixed interest rate set by the U.S. Congress for the term of a loan. The maximum Grad PLUS loan amount you can borrow is the cost of attendance (as determined by the school) minus any other financial aid you receive.
You don’t have to start repayment six months after you graduate, leave school, or fall below half-time enrollment.
Loans accrue interest for any period during which you do not have to make payments, except in special circumstances, such as the federal government’s suspension of payments and interest due to the COVID-19 pandemic.
You can pay only interest while you are in school – saving money in the long run – or allow interest to be capitalised, meaning it will be added to your principal loan balance when you start repayments.
Your assigned student loan servicer will notify you when your first and subsequent payments are due and can assist you with any questions or concerns you have during the repayment process.
Advice if you are having trouble paying off your Grad PLUS loan
Experts say it’s wise to contact your student loan servicer to learn about your options for keeping your loan in good standing. For example, you may have some options if you want to change your repayment plan to lower your monthly payment, or request a deferral or a moratorium to allow you to temporarily stop your payments.
However, keep in mind that interest will continue to accrue during these periods.
Grad PLUS loans have a downside, said Megan Walter, a policy analyst at the National Association of Student Financial Aid Administrators. This is the loan origination fee, which is a percentage of the total loan amount you are charged to process the loan.
This fee is charged on all federal direct student loans, but for Grad PLUS loans, it’s 4.228%—about four times the federal direct unsubsidized and unsubsidized student loan origination fee. This rate applies to Grad PLUS loans paid on or after October 1, 2020 and before October 1, 2023.
As a result of the origination fee, students who take out a $10,000 Grad PLUS loan will receive $9,577.20 of that, because the origination fee is deducted from the loan up front, Walter explained.
“If you happen to need the full $10,000, that means you’ll need to borrow more than you originally planned to cover the cost of the loan without a shortfall,” Walter said.
Additionally, the interest rate on a Grad PLUS loan is the same for everyone, no matter how outstanding the applicant’s credit is.
“If you’re a borrower or co-signer with a good 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 could save the life of thousands of last interest loan payments,” ‘ said Walter.
Like other federal student loans, Grad PLUS loans are extremely difficult to discharge if you file for bankruptcy. They will usually stay with you until you pay them off or die.
However, one way to eliminate some of your debt is to enroll in the Federal Public Service Loan Forgiveness Program. Your loan balance may be forgiven if you made 10 years of qualifying payments while working in qualifying employment with qualifying employers (such as some educational and nonprofit institutions or federal, state, local, or tribal governments).
Mary B. Cooper-Stewart, an independent financial aid counselor in Texas, notes that student loans from private lenders are not eligible for the PSLF program.
“There’s still a lot of new information about PLUS loans, and we’re sure there’s more to come,” she said. “I recommend checking with your loan advisor regularly for the latest information.”