What Is a Grad PLUS Loan?

Definition & Examples of Grad PLUS Loans

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A grad PLUS loan is another name for a Direct PLUS Loan made to a graduate or professional student.

Understand how a grad PLUS loan works, how to get one, and its alternatives to decide if it's the right federal student loan option for your educational goals and costs.

What Is a Grad PLUS Loan?

When the federal government extends a Direct PLUS Loan to a graduate or professional student, it's known as a grad PLUS loan. This type of loan is available to eligible students through schools that take part in the Direct PLUS loan program offered by the U.S. Department of Education.

How a Grad PLUS Loan Works

Graduate school can be expensive, and many people can’t pay for it out of pocket. If you apply for financial aid through the federal government, your school may include loans as part of the financial aid offer. Under the William D. Ford Direct Loan program, you may receive four types of Direct Loans, one of which is a Direct PLUS Loan. These loans are available to graduate and professional students as well as parents of dependent undergraduate students. But when they're made to graduate or professional students, they're called grad PLUS loans.

With a grad PLUS loan, it’s possible to borrow up to the cost of attendance at your institution, minus the amount of other financial assistance you receive. And like other federal student loan programs, this type of loan has a fixed interest rate throughout the loan term that is indexed to long-term U.S. Treasury security rates. For loans disbursed from July 2020 to July 2021, that rate is 5.30%.

If you're eligible to receive a grad PLUS loan, you'll receive and repay it as follows:

  • You will fill out a Direct PLUS Loan Master Promissory Note (MPN) to formally communicate your intent to repay the loan. You'll also need to take entrance counseling about your rights and responsibilities pertaining to the loan.
  • The school will issue the loan proceeds in the form of two payments or disbursements per academic year, which are typically issued once per term. With each disbursement, it will deduct a loan origination fee amounting to a small percentage of the loan amount and apply enough funds to your school account to cover the cost of tuition, fees, and room and board, among other fees. If there any remaining funds, referred to as a "credit balance," the school will disburse them to you as a check to cover other educational expenses.
  • Six months after graduation, or when you drop down to less than half-time enrollment, you will typically start to repay the loan according to the agreed-upon repayment plan. You can choose from a number of repayment plans, including income-driven repayment. You may also be able to defer payments to postpone them or request forbearance to temporarily stop or reduce payments.

You can cancel some or all of the loan proceeds you don't need within 120 days without incurring any interest charges.

How to Get a Grad PLUS Loan

In order to obtain this type of loan, you'll need to be a student who is enrolled or has been accepted for enrollment on at least a half-time basis in a graduate or professional degree- or certificate-granting program at an eligible school. You'll also need to meet general federal student loan eligibility criteria, including having U.S. citizenship and a valid Social Security number. And, although you don't have to demonstrate financial need for this loan type, you will need to prove that there are no adverse items in your credit report, such as a default or bankruptcy within the last five years.

To determine your eligibility for federal student aid in general, first fill out the Free Application for Federal Student Aid (FAFSA). You'll then need to open the Direct PLUS Loan application to determine whether the school accepts this application or requires another application process to be awarded a grad PLUS loan.

If the school takes the Direct PLUS Loan application, complete the application. As part of the process, you’ll be asked to specify a school and loan amount and to authorize the school to carry out a credit check. Your credit report will be reviewed to find out if there are any adverse items. If there are adverse items present, you’ll need an endorser to be approved, or the ability to prove that the adverse items are incorrect or there are special circumstances that led to them.

Alternatives to a Grad PLUS Loan

If the yearly cost of your graduate or professional program is within the annual limit of a Direct Unsubsidized Loan from the federal government ($20,500), that can be another option. Interest rates (as well as loan origination fees) are lower on those loans than with the grad PLUS loan—only 4.30% for loans disbursed from July 2020 to July 2021. In addition, there's no credit check required, and your eligibility isn't based on financial need.

However, if you have excellent credit and can qualify for a private student loan, that might make an equally good choice, as you may be able to get a lower interest rate if you’re a well-qualified borrower. With private loans, you won’t have access to income-driven repayment options or loan forgiveness or discharge. But the higher earnings of some professionals and graduates might render such benefits unnecessary.

In some cases, you might be able to reduce your loan amount or altogether avoid the need for a grad PLUS loan by getting part or all of your tuition paid for by teaching classes or receiving a research fellowship.

Do I Need a Grad PLUS Loan?

For the most part, students who need funding in excess of the Direct Unsubsidized Loans for graduate or professional study can benefit from a grad PLUS loan, especially if they don’t qualify for private student loans. As long as you don’t have a blemished credit history, it should be possible to close the funding gap with the help of this loan. If your yearly educational costs fall within the Direct Unsubsidized Loan annual limit, you can snag a lower interest rate and origination fee by choosing that type of loan over a grad PLUS loan.

Carefully review your options as you determine whether a grad PLUS loan is the right choice for you. Consider alternatives, including private student loans, before making a final decision about how to finance your higher education.

Key Takeaways

  • A grad PLUS loan is a Direct PLUS Loan issued by the U.S. Department of Education to a graduate or professional student.
  • Eligible students typically must complete the FAFSA and complete a Direct PLUS Loan application for graduate or professional students.
  • The loan comes with flexible repayment plans but a higher interest rate than a Direct Unsubsidized Loan and a basic credit check.
  • It's the best option for students whose costs exceed the annual loan limit for a Direct Unsubsidized Loan or who want but can't get a private loan.

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