Graduate Plus Loans

Graduate Plus loans are federal loans for graduates or professionals needing financial assistance for furthering their education. Financing higher education is a challenge for many however, with the help of funding programs like government grants, scholarships, and student loans, more individuals have the opportunity to help them gain the skills they need for better-paying jobs or career advancement.

Student financing comes with pros and cons. The APR may be higher with additional fees for some loans. Also, there are requirements and specific eligibility guidelines to meet. Not everyone who applies will be approved and, as with most loans, credit history is one of the determining factors. Graduate Plus loans are a great resource for many graduate and professional students, but they aren’t for everyone.

Graduate Plus loans vs. private student loans

One of the biggest differences between a private student loan and a Graduate Plus loan is the lender. Grad Plus loans are issued by the federal government, whereas private student loans are originated through private financial institutions such as a bank, the college or university, or another lending institution.

Another big difference is in the APR. Grad Plus loans currently come with a 7.08% APR, but rates can change. Top financial institutions for private student loans have APRs starting as low as 2.31% for variable-rate loans and 3.46% for fixed-rate loans — both significantly lower than the Grad Plus loans.

The interest for some private subsidized student loans doesn’t start accruing until six months after you graduate or are no longer attending classes — whichever comes first. Like unsubsidized student loans, though, Grad Plus loans have interest that begins accruing immediately.

Finally, there is also a difference in loan limits to consider. The loan limit for private loans at the graduate or professional student level is $20,500. Grad Plus loans, however, are limited to the cost of your attendance as established by your school.

Graduate Plus loans vs. federal grants

Federal grants are considerably different from Grad Plus loans or any other student loans. All student loans are funds that are borrowed with the expectation of repayment at a later date. Often, credit history is one of the determining factors for lending, but it is certainly not the only factor.

Federal grants do not need to be repaid and are not based on creditworthiness. Instead, they are based on financial need — which includes household income, among other things. However, there is an exception concerning the repayment of grants. Certain types of grants, like teaching grants or grants for nursing or medical school, can carry additional stipulations that may include work requirements in order to maintain grant or funding status.

Certain kinds of changes may require you to repay all or part of a federal grant. This can include things like enrollment status changes, early withdrawal after funding was received or receipt of certain other types of funding.

How to apply for a Graduate Plus loan

The online application for the Graduate Plus loan is fast and easy. Plan on the application taking you about 20 minutes to complete. You’ll need to have a few things handy, like your FSA ID, in order to log in. If you don’t have an FSA ID yet, then you’ll need to set one up before you begin. Make sure to keep a record of your FSA ID somewhere safe in case you need to reference it again in the future. You’ll also need your school name, personal contact information (mailing address, phone number, e-mail, etc.) and your employer’s name and contact details.

Step 1: Fill out the FAFSA

Complete your online FAFSA application for student aid. This must be done first. If you qualify for other types of funding, like a grant or subsidized or unsubsidized student loans, these will need to be used first and may impact the amount you’re eligible to borrow under the Grad Plus loan.

Step 2: Check your credit file and lift any freezes

If you have a freeze on your credit file, you’ll need to lift the freeze from each credit reporting agency before you continue.

Step 3: Complete the Master Promissory Note

As with other student loans, the promissory note is where you agree to the terms of the loan.

Step 4: Complete the loan application

Complete the Direct Plus Loan application. During the initial questions, you’ll be asked about your school information. Some schools require a different application process or have different requirements for applying for grad plus funds. If that’s the case with your school, the online interactive application will display a message advising you of this.

Graduate Plus loan repayment options

About six months after you’re no longer attending school is when you’ll need to start officially making payments on your Grad Plus loans. Use a handy Grad Plus loan repayment calculator to get a handle on what you can expect for payments. Although standard payments are pretty straightforward, you have a lot of other options, too.

You can make the regularly scheduled payments as is over the course of 10 years — these are the standard payments. There’s also a graduated payment plan wherein payments start lower and gradually increase about every two years. If you think you’ll need more time, you can opt for the extended repayment plan which gives you either a fixed or graduated payment spread out over 25 years.

You could also work with the lender to base payments on your earnings and have them recalculated every couple of years based on income and family size. Or, payments could equal about 10% of your discretionary income. In either case, this also means that any loan forgiveness is still taxable.

There are three options left if none of the above appeals to you. The first is for those with a high debt-to-income ratio. As with the previous repayment plan, this one is income-based and recalculated each year with your updated earnings information.

The income-contingent repayment plan works similarly but is calculated based on 20% of your discretionary income or a fixed rate over 12 years — whichever is less. The last option is to set up a plan to repay the loan based on your income so long as the loan is repaid within 15 years.

The bottom line

Funding your graduate or professional education doesn’t need to be difficult. The Graduate Plus loan might be a great way to provide you with the funding you need to gain the skills for a better or more promising career. However, it’s not the only option out there and it does come with some stipulations.

It might be better to weigh all your options before deciding on the Graduate Plus loan. Review your finances and your credit history. If you’re eligible for a private student loan, particularly from a top lender, then you may be able to get a much lower APR with a lower monthly payment later. Also, paying the interest of the loan while you’re in school is to your benefit. The more you pay now, the less that compounds later.

If you opt for a Graduate Plus loan, then plan ahead for the repayment period. The sooner you make the final loan payment, the better. The longer the repayment period drags out, the more you tend to pay over the term, mostly due to the interest that continues to build. So, it’s far better to make every effort to pay loans off sooner rather than later.

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