What to Know About Grad Plus Loans Before Applying

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Jeff White, CEPF

By Jeff White, CEPF

December 7, 2022

A Grad PLUS loan is a type of federal direct PLUS loan designed for graduate and professional students. They come with flexible repayment plans and generous consumer protections, and typically have lower interest rates than private loans, though higher rates than some other types of federal loans.

We’ll take a detailed look at Grad PLUS loans, how to apply for these kinds of loans, and possible alternatives for paying for college. If you’re ready to move forward, check out the best student loans for graduate students.

What Is a Grad PLUS Loan?

The federal government offers a range of federal direct PLUS loans to help students pay for college. Grad PLUS loans are a type of federal direct PLUS loan for graduate and professional students which aims to cover their education and living expenses while they study. Although funded by the U.S. Department of Education, loans are offered to qualifying students by schools that participate in the program.

When Is a Grad PLUS Loan Used? 

A Grad PLUS loan is offered to eligible graduate and professional students who are enrolled in programs that lead to a graduate degree or a professional certificate, such as a master’s, PhD, or professional doctorate like an MD or EdD. The federal government offers these loans to graduate and professional students who are enrolled part-time or full-time.

They can be a good option if you have a good credit history and need to borrow more than you’re eligible for under a federal direct unsubsidized loan to cover your graduate studies.

With a Grad PLUS loan, you can borrow up to the total official cost of attendance for your course, less the amount of other financial assistance you receive, if any. As long as you stay in school and enrolled for at least half-time study, you won’t need to pay off your loan. You only need to start repaying it six months after graduation, or if you drop out of your course and down to less than half-time enrollment.

Grad PLUS Loan Eligibility Requirements

There are two key criteria you need to meet to be eligible for a Grad PLUS loan:

  • Be a graduate student: To qualify for a Grad PLUS loan, you’ll need to be enrolled in a graduate or professional program that leads to either a graduate degree or a professional certificate, at least part-time.
  • Have a good credit history: You won’t be eligible for a Grad PLUS loan if you have an adverse credit history, meaning that your credit report doesn’t show any student loan default, long-term delinquency, or bankruptcy.

Every college has a specific definition of what it means to be a part-time student. You can ask your school how many credit hours you need to get part-time status. There are also a couple of workarounds that can let you get a Grad PLUS loan even if you have an adverse credit history.

You could get an endorser for your loan, explain extenuating circumstances, or delay going to grad school in order to shore up your credit rating first. This would also give you more time to save for college, such as through a 529 plan.

Grad PLUS Loan Interest Rates

Each academic year, Congress fixes an interest rate for federal direct PLUS loans. For Grad PLUS loans initially disbursed between July 1, 2022, and June 30, 2023, the fixed interest rate is 7.54%. This compares to just 6.28% the previous year.

Interest will accrue from the beginning of the loan term, unless there is a special payment and interest pause, such as the one granted by the federal government during the COVID-19 pandemic. If you don’t pay off the interest while you’re studying, it will be added to your loan principal, so it can be a good idea to make interest-only repayments while you’re in school. This could greatly reduce the overall amount you need to repay in the long run.

How to Apply For a Grad PLUS Loan

There are a few things you’ll need to do to apply for a Grad PLUS Loan, but a key initial step is completing the FAFSA. This will not only make you eligible for federal direct loans, but also a range of other forms of financial aid that could help you to fund your college education.

Here’s what you need to do to apply for a Grad PLUS loan, step by step.

Step 1: Complete the FAFSA

The first thing you’ll need to do to be considered for a Grad PLUS loan is to submit the Free Application for Federal Student Aid or FAFSA. This is a form that has a range of questions about your financial situation (and your parent’s finances if you’re a dependent student) and uses this information to determine your eligibility for federal aid, including Grad PLUS loans. Many schools also use this data to offer needs-based scholarships to worthy students.

You can complete it online at fsaid.ed.gov, or via fax or mail. The form opens in October each year, and it’s a good idea to submit the FAFSA as soon as possible.

Step 2: Complete the Credit Check

Once you submit your FAFSA, the government will run a credit check and use this as one of the factors to determine whether you qualify for a Grad PLUS loan.

However, even if you have terrible credit, this doesn’t mean you’ll automatically be ineligible for federally subsidized loans. You can mitigate your poor credit history by getting an endorser, someone who will be officially liable for repaying the loan if you can’t.

You may qualify for a Grad PLUS loan with an adverse credit history even if you don’t have an endorser if you can show the Department of Education that you have extenuating circumstances. Whether or not you have an endorser for your loan, any approved PLUS loan borrower with bad credit will be required to complete credit counseling.

Step 3: Receive your loan offer

The FAFSA takes between three days and three weeks to be processed, depending on how you submit your form and whether you signed it with an FSA ID. You’ll then receive your Student Aid Report, and eventually, a financial aid award letter from any schools you’re admitted to. You’ll typically get your financial aid award letter shortly after your offer of admission, and this will detail what financial aid you’ve been offered, including a Grad PLUS loan, if any.

Once you receive your financial aid package, check it carefully and be sure to read all of the terms and conditions of the loan. You can choose to accept all or only a part of the loan amount that you’re offered. Weigh up your aid offer against how much you really need to borrow, other sources of funding you have access to, your expected future earnings, and whether this will be enough to meet your loan repayments.

Step 4: Sign a Master Promissory Note

Once you’ve decided how much you want to borrow, you’ll need to officially accept the loan by signing a Master Promissory Note (MPN), signifying that you accept the terms of the loan. You can do this by logging into the FAFSA portal, where you’ll also need to submit a copy of your driver’s license and the names and contact details of two personal referees.

Step 5: Complete Entrance Counseling

The final step to secure your Grad PLUS loan is entrance counseling. This is a mandatory process that is designed to ensure you understand the terms and conditions of not only your Grad PLUS loan but your federal student aid package overall. However, you may not have to complete the entrance counseling if you have had a federal direct unsubsidized loan or direct PLUS loan in the past.

What to Know Before Applying for a Grad PLUS Loan

Grad PLUS loans can be a great way to fund grad school, but it’s important to keep a few things in mind before you decide to apply:

  • Grad PLUS loans can be tougher to qualify for than regular federal student loans: In particular, they have tough credit requirements, and you won’t be eligible if you have an adverse credit history. You’ll also need to be at least a part-time graduate student, as defined by your school, to qualify.
  • Interest rates for Grad PLUS loans are set for the life of the loan: So, even though the set interest rate went up for 2022-2023, if your loan was first disbursed in the 2021-2022 academic year, you’ll continue to incur that year’s interest rate of 6.28%, not the new, higher rate, from 2022 and beyond.
  • Under Grad PLUS loans, you can borrow up to the total cost of attendance at your school: Although this may sound like an easy and efficient way to secure funding for college, it can saddle you with a huge amount of student debt, especially considering the interest rates associated with these kinds of loans. Remember you don’t need to accept the full loan amount that you’re offered!
  • Grad PLUS loans come with a higher loan origination fee than other federal direct loans: Like other types of federal direct loans, this processing fee is calculated as a percentage of the loan amount and is subtracted from the loan balance in advance. However, for Grad PLUS loans it is around four times higher than for federal direct subsidized and unsubsidized student loans, at 4.228% for loans disbursed between Oct 1, 2022, and Sept 30, 2023.
  • Once you begin paying off your Grad PLUS loan, you may be able to request a deferment or forbearance: You can discuss your options with your student loan servicer to make sure you’re able to meet your payments. However, keep in mind that although you won’t be required to make loan repayments during this time, you’ll continue to accrue interest on your loan.

Alternatives Ways to Pay for Graduate School

Instead of fully relying on Grad PLUS loans, you would be better off using these types of loans in combination with your savings, or alternative funding options such as 529 plans.

Here are some alternative ways to finance your college education, whether in combination with Grad PLUS loans or otherwise.

1. 529 Plans

A 529 plan is a tax-advantaged savings account where your funds are invested on your behalf. You can use a 529 plan to pay for a range of education tuition and expenses, from elementary school right through to graduate school.

This is usually a good option for those who are looking to go to school down the track: you’ll need to save in advance and make deposits into the 529 savings plan.  Furthermore, you’ll get more benefits the earlier you start your 529 accounts, as this gives your investments more time to grow. Having said that, it’s never too late to start a 529 savings plan. You could receive gifts from others to pay into the plan while you’re studying, and then withdraw the funds to 

2. Federal Unsubsidized Loans

Another option is to apply for federal unsubsidized direct loans. An advantage of these kinds of loans is that they have lower interest rates – for the 2022-23 academic year, the interest rate for federal unsubsidized loans was 6.54%, compared to 7.54% for federal loans. This could represent a huge difference in the amount you need to repay across the life of the loan.

Federal unsubsidized loans also have a much lower origination fee than Grad PLUS loans. However, unlike Grad PLUS loans, federal direct unsubsidized loans have set borrowing limits. Currently, the maximum you can borrow for graduate school is $20,500 per year, to a total lifetime limit of $138,500.

Therefore, if you already took out federal unsubsidized loans for your undergraduate degree, you may not be eligible to borrow much or may have already hit your lifetime limit. Grad PLUS loans also offer more flexible repayment plans than federal unsubsidized direct loans.

3. Private Loans

Another alternative to federal direct loans is to take out a private student loan to cover your graduate studies. However, private loans can be very expensive, especially over the long term, because of higher interest rates and less favorable loan conditions, giving you a large burden of student debt.

When comparing Grad PLUS loans and private loans, it’s important to consider a range of factors, not just the interest rate. You may be able to find a private loan that has a lower interest rate than the Grad PLUS loan you’ve been offered, especially if you have excellent credit, as private lenders consider your credit score when setting interest rates, unlike the federal government.

However, keep in mind that a private loan won’t have the generous consumer protections that come with all Federal student loans, as well as income-driven repayment and student loan forgiveness for certain people. Therefore, on balance, you may be better off going for the Grad PLUS loan even if the interest rates are higher on paper.

The Bottom Line

A Grad PLUS loan comes with a number of benefits, such as relatively-favorable interest rates, a range of consumer protections from the federal government, and the possibility of loan forgiveness. However, it can be difficult to meet the eligibility requirements, most notably the strict credit requirements.

Additionally, the interest is higher than federal unsubsidized direct loans, and it could be risky to borrow the total cost of attendance for your course. Research all of your options before applying for a Grad PLUS loan and consider combining the loan with other methods of paying for college, such as a 529 savings plan.

Frequently Asked Questions (FAQs)

What is the max grad PLUS loan amount?

There is no maximum dollar limit for Grad PLUS loan amounts. You can borrow up to the total cost of attendance for your course, less any federal financial aid you receive. For example, if your graduate course’s cost of attendance is $120,000, and you’re offered $35,000 in federal grants and scholarships, you’ll be eligible to borrow up to $85,000.

Is an unsubsidized loan better than a Grad PLUS loan?

Federal direct unsubsidized loans and Grad PLUS loans each have their own pros and cons. Federal unsubsidized loans currently have significantly lower interest as well as origination fees than Grad PLUS loans. However, they also have much stricter maximum loan amounts and less flexible repayment plans.

Can Grad PLUS loans be forgiven?

Unlike other types of federal student loans, Grad PLUS loans are very difficult to discharge, even if you file for bankruptcy. Typically, your loan balance will stay with you for life unless you pay it off.

Having said that, you may be able to have some of your loan balance forgiven under the federal Public Service Loan Forgiveness program. If you work for a qualifying employer (usually a federal, state, local, or tribal government, as well as some education and non-profit organizations) for 10 years and make qualifying payments during this time, you could have the balance of your loan forgiven.

Is it hard to qualify for a Grad PLUS loan?

Yes, you will need to meet certain requirements to be eligible for a Grad PLUS loan, and they can be harder to get than some other types of federal loans. Not only do you need to be at least a part-time graduate or professional student, but you cannot have an adverse credit history.

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