Grad PLUS Loans for Graduate Students
Summary: The Grad PLUS Loan is a federal student loan that helps pay for graduate school and professional school. The Grad PLUS Loan offers a fixed 5.30% interest rate for the 2020-2021 school year and flexible loan limits. To be eligible, students must pass a credit check and cannot have an adverse credit history. A 4.228% fee is deducted from the loan amount before the funds are sent to the school.
NOTE: If you have strong credit (or can secure a creditworthy cosigner) you may want to compare private student loan options. There could be a cost savings on both the fees (most lenders offer zero origination fees) and interest rates (starting as low as around 1.05% in today’s marketplace).
The Grad PLUS Loan, also called a Graduate PLUS Loan, is a federal student loan available to students attending graduate school and professional school. It offers a fixed interest rate and flexible loan limits.
Eligibility for the Grad PLUS Loan does not depend on demonstrated financial need, but you need to file the Free Application for Federal Student Aid (FAFSA®) to qualify. You also have to pass a simple credit check.
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The Grad PLUS Loan allows you to borrow up to the full annual cost of attendance (COA) minus other financial aid received (scholarships, fellowships, grants, federal student loans, private student loans). There is no aggregate (cumulative) loan limit.
Key benefits of the Grad PLUS Loan:
- The interest rate is fixed
- Loan payments can be deferred while you are enrolled on at least a half-time basis at an accredited graduate school or professional school
- A cosigner is not required
- Multiple repayment plans (including income-based) are available
- The interest paid on the loan may be tax deductible
Grad PLUS Loan Limit
The annual limit on a Grad PLUS Loan is equal to your school’s total cost of attendance (COA) minus any other financial aid received. There is no aggregate (cumulative) loan limit.
The cost of attendance includes:
- Tuition and fees
- Room and board
- Books
- Supplies
- Equipment
- Transportation
- Miscellaneous and personal expenses
Example:
Grad PLUS Loan Interest Rates and Fees
The interest rates on Grad PLUS Loans are fixed and do not change over the life of the loan. The interest rate for the 2020-2021 academic year is 5.30%.
Every year on July 1, interest rates are reset based on current market rates. The interest rates are based on the 10-year Treasury Note (determined each year by the final auction prior to June 1) plus a fix margin (see table).
| Loan Program | Interest Rate Formula | Interest Rate Cap | Current Interest Rate (2020-2021) |
|---|---|---|---|
| Grad PLUS Loan | 10-Year Treasury + 4.60% | 10.5% | 5.30% |
The interest on a Grad PLUS Loan starts to add up (accrue) from the date the loan is first disbursed. If you don’t pay the interest as it accrues, it will be capitalized (added to the loan balance), increasing the amount of the loan.
The current fee on Grad PLUS Loans is 4.228%. Fees are deducted from each loan disbursement. You can ask the college financial aid office to increase the loan amount to cover the fees, up to the annual loan limit.
How to Apply for a Grad PLUS Loan
The first step in the application process is to file the FAFSA or Renewal FAFSA (for returning students) at StudentAid.gov. The FAFSA is a requirement to borrow from the Grad PLUS Loan program.
To obtain a Grad PLUS Loan, you should apply for a PLUS Loan at StudentAid.gov or contact the financial aid office at your college or university. You will use the same FSA ID used to sign your FAFSA to apply for your Grad PLUS Loan.
Grad PLUS Loan Eligibility
Students enrolled in graduate school and professional school programs can take out Grad PLUS Loans.
Degree programs and common examples:
- Masters: M.A., M.S.
- Doctorate: Ph.D., Ed.D.
- Business: M.B.A.
- Law: LL.M., J.D., S.J.D.
- Medical: M.D., D.O.
- Dental: D.M.D., D.D.S.
- Nursing: M.S.N., D.N.P.
- Veterinary medicine: D.V.M.
Loan eligibility and the loan limits are not based on demonstrated financial need. Even wealthy students can borrow through the program.
Required
- Simple credit check: You can’t have an adverse credit history
- Cosigner/endorser (if you have a negative credit history)
Eligibility Not Based On
- Demonstrated financial need
- Income levels
- Debt-to-income ratios
- Credit scores (FICO scores)
Credit Requirements
To qualify for a Grad PLUS Loan, you need to pass a credit check that takes the following into account:
- No student loan defaults
- No 90+ day delinquencies on your debt
- No bankruptcies or other adverse action on any Title IV loans
- Ultimately, no adverse credit history
Note: this is a less strict standard than what is imposed by private lenders. If you were to shop for or apply for a private student loan, you (or your cosigner) would also need to pass a debt-to-income ratio and demonstrate proof of income.
What is Adverse Credit History for a Grad PLUS Loan?
- A current delinquency of 90 or more days on more than $2,085 in total debt; or
- More than $2,085 in total debt in collections or charged off in the past two years (before the date of the credit report); or
- Default, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of federal student loan debt in the past five years (before the date of the credit report)
Cosigners
Even if you have an adverse credit history, you can still qualify for a Grad PLUS Loan by getting a cosigner (called an endorser) who does not have an adverse credit history. A cosigner is a co-borrower, equally obligated to repay the debt. If you don’t have an adverse credit history, you don’t need a cosigner to apply for the loan. If you get denied for a Grad PLUS Loan, you can re-apply with a qualified cosigner. (Note: If you are denied a Grad PLUS Loan because of an adverse credit history, you don’t become eligible for higher Direct Unsubsidized Loan limits.)
How Loan Funds Are Distributed
The Direct Loan program sends the Grad PLUS Loan funds to your school to be credited to your student account. In most cases, the loan will be sent (disbursed) in at least two installments.
Loan funds are credited to your account in this order:
- Tuition and fees
- Room and board (if you are living in college-owned housing)
- Other school charges (with your permission)
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In-School Deferment and Grace Period
While you are enrolled in school at least half-time, your Grad PLUS Loan will be placed into deferment, which means you don’t have to make any payments. In addition, you don’t have to make payments during the 6-month grace period after you graduate or drop below half-time enrollment status. Just remember that interest on your loan will start to accrue (add up) as soon as all of the loan funds are sent to your school. Even though you aren’t making any payments, interest is still adding up.
Grad PLUS Loan Repayment
The standard repayment term on Grad PLUS Loans is 10 years. However, you can qualify for a longer repayment term if you consolidate the loans or have more than $30,000 in federal student loans with a single lender.
Unlike Parent PLUS Loans, Grad PLUS Loans are eligible for nearly all of the different repayment plans offered by the U.S. Department of Education.
Eligible repayment plans:
- Standard Repayment
- Extended Repayment
- Graduated Repayment
- Income-Contingent Repayment (ICR)
- Income-Based Repayment (IBR)
- Pay-As-You-Earn Repayment (PAYE)
- Revised Pay-As-You-Earn Repayment (REPAYE)
Can a Grad PLUS Loan Be Cancelled If I Change My Mind?
Yes. You can cancel the loan or reduce the loan amount by returning funds to the lender.
Your graduate school must notify you when it credits your student account with Grad PLUS Loan funds. This notification must be sent to you no earlier than 30 days before, and no later than 30 days after, the school credits your account. You may cancel all or a portion of the loan by informing the school within 14 days after the date the school sends this notice, or by the first day of the payment period, whichever is later. (The first day of the payment period is usually the first day of the term. Ask the school about the first day of the payment period.)
Comparison of Federal Student Loans for Graduate Students
| Direct Unsubsidized Loan | Grad PLUS Loan |
|---|---|
| 4.30% fixed interest rate | 5.30% fixed interest rate |
| 1.057% fee* | 4.228% fee* |
| Demonstrated financial need not required | Demonstrated financial need not required |
| Annual borrowing limit: $20,500 ($40,500 for medical students) | Annual borrowing limit: Cost of Attendance (COA) minus other financial aid received |
| You are responsible for paying all interest | You are responsible for paying all interest |
* For loans borrowed Oct. 1, 2020 through Sept. 30, 2021
Recommendations
- File the FAFSA every year to maintain eligibility for student aid.
- Take out the maximum amount of Direct Unsubsidized Loans before considering a Grad PLUS Loan.
- Compare the costs and benefits of Grad PLUS Loans and private student loans. If you have excellent credit or a strong cosigner, you may get a lower interest rate with a private student loan.
- If you are denied for a Grad PLUS Loan due to an adverse credit history, find a cosigner (also called an endorser) and reapply.
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