Grad PLUS Loans: What You Should Know Before Applying
Grad PLUS loans are one way to fund grad school. This article breaks down how you can qualify for one and what the next steps are.
As the cost of attending a graduate or professional program rises, many students need to borrow more than permitted with a Direct Unsubsidized Loan. Is it best to make up the difference with a grad PLUS loan?
The answer depends on a variety of factors, such as your credit score and your desired repayment plan. Let’s look at the seven most important things to know about grad PLUS loans before you start an application. Then you can make an informed decision about whether to apply for a grad PLUS loan or a private graduate loan to finance the costs of your education.
Apply for a grad PLUS loan through FAFSA
You may already be familiar with the Free Application for Federal Student Aid from your undergraduate education. If so, you can expect a similar process when applying for a graduate plus loan. You’ll be asked to provide basic information, including your name, address and Social Security number.
The main difference in applying for a grad PLUS loan is the credit check requirement. If you’ve placed a security freeze on your credit file, you’ll need to lift it before applying.
While completing your application, you can authorize your school to use part of your loan for other educational charges. You also can change your loan amount. Once you’re finished, your application will be sent to your school, along with the results of your credit check, so it can determine eligibility and process your loan if approved.
Grad PLUS loan borrowers need a good credit history
To get a direct PLUS loan, you cannot have an adverse credit history, which is defined as either of the following:
- Debt totaling at least $2,085 that is 90 or more days delinquent, in collections or charged off within the last two years.
- Your credit history in the past five years shows a default determination, bankruptcy, foreclosure, repossession, tax lien, wage garnishment or write-off of federal student loans.
Obtain a free copy of your credit report before applying. It’s a good habit in general to review your credit report on a regular basis so you can correct any errors or catch signs of fraud early.
If you do have an adverse credit history, there are still options:
- Get a co-signer, such as a parent or grandparent, with a good credit history.
- Appeal to the U.S. Department of Education that your adverse credit history is due to extenuating circumstances.
Additionally, you could defer your graduate school admission by a year and work on improving your credit by demonstrating an on-time payment history, paying down credit card balances, etc.
Borrow up to the full cost of attendance
Unlike Direct Unsubsidized Loans, which have a $20,500 annual limit for graduate and professional students and an aggregate limit of $138,500 (minus any federal loans received for undergraduate study) grad PLUS loans don’t have predetermined limits. Instead, the amount you can borrow is the cost of attendance (minus any financial assistance you receive). So, you can borrow up to the full cost of attendance at your graduate or professional program.
Of course, the amount you borrow will have to be paid back with interest after you graduate, so try to limit your loan amounts to what you really need. For example, can you cover your living costs with a part-time job or teaching assistantship? Keep your overhead costs as low as possible to avoid taking on more debt than you can comfortably repay.
Expect to pay a loan origination fee
All direct PLUS loans include a fee of 4.228% of the disbursement amount, which is deducted from the total amount of your loan.
As an alternative, Juno’s lending partners do not charge origination fees on grad school loans. Depending on how much you plan to borrow, that could save you a few thousand dollars.
Graduate PLUS loans have a fixed interest rate
Grad PLUS loans have a fixed interest rate of 5.28% for the life of the loan. That rate is the same for all borrowers, regardless of creditworthiness.
That’s why it’s a good idea to see if you can get a lower interest rate in the private market, as the lower your rate, the more money you’ll save on interest throughout the life of the loan. Check out the graduate loan rates we negotiated!
Grad PLUS loans begin to accrue interest immediately
Interest on your graduate PLUS loan begins to accrue after the loan is disbursed, even while you are still in school and not required to make payments.
Interest is calculated daily as a percentage of your unpaid principal amount, and if you choose not to pay your monthly interest charges, the unpaid interest will be added to the principal amount of your loan, a process called capitalization.
Capitalization means that you can end up owing more after graduation than you originally borrowed, with interest accruing on that higher principal amount.
So, it’s a smart financial move to pay your accrued interest while in school, even though it’s not a requirement. It’s also wise to see if you can get a better deal from us on your graduate loan rate.
You can consolidate your grad PLUS loans
When it’s time to start paying off your grad PLUS loan, you can choose from several repayment plans. Federal grad loans also can be consolidated with any other federal student loans you have, such as from undergrad.
Grad PLUS loans also can be refinanced through a new private student loan, such as the ones we offer, though you’ll want to consider whether it’s worth giving up certain benefits that come with federal loans, including income-driven repayment plans and economic hardship deferment.
Get the lowest private student loan interest rate with Juno!
Juno can help you find the lowest interest rates on graduate student loans. Juno negotiates on behalf of borrowers with partner lenders to help each student qualify for the best possible rates given their financial situation and credit worthiness.
Join Juno today to compare grad loan options. It is free, takes less than one minute and doesn’t require a credit check to view our negotiated deals.
Elizabeth Helen Spencer is a personal finance and travel writer based in the Philadelphia area. She holds an MFA in Creative Writing and has been featured in Money Under 30 and HuffPost.
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