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Grad PLUS loans versus private student loans

    If you’re pursuing graduate school, you may quickly realize the significant costs that can be associated with certain programs. As you determine the best way to finance graduate school, in this article, we’ll compare federal Direct PLUS loans — also known as Grad PLUS loans — with private student loans so you can understand the differences between the two and what option may work best for you.

    What’s a Grad PLUS loan?

    The U.S. Department of Education offers Grad PLUS loans, and eligible graduate or professional students may be able to receive these loans if their school participates in the federal student loan program.

    Unlike subsidized loans, with a Grad PLUS loan, interest accrues regardless of the loan status, even when you’re not required to start making payments.

    Who’s eligible for a Grad PLUS loan?

    To receive a Grad PLUS loan, you must meet all three of these requirements:

    • Be a graduate or professional student working towards a graduate or professional degree or certificate who’s enrolled at least half-time at an eligible school
    • Maintain a positive credit history (or meet specific other eligibility requirements)
    • Satisfy the complete list of general eligibility requirements for federal student aid

    How much can you borrow with a Grad PLUS loan?

    With this loan, the maximum amount you can borrow is your school's cost of attendance minus any other financial assistance you receive, like grants and scholarships.

    What’s the current interest rate for a Grad PLUS loan?

    The interest rate for Direct PLUS loans (including Grad PLUS loans) first disbursed on or after July 1, 2023, and before July 1, 2024, is 8.05%. This is a fixed interest rate for the life of the loan.

    Other than interest, Grad PLUS loans also have a fee involved, which is a percentage of the loan amount. This loan fee will be proportionately deducted from each loan disbursement.

    How can I apply for a Grad PLUS loan?

    Before applying for a Grad PLUS loan, you must complete the Free Application for Federal Student Aid (FAFSA®). From there, go to the online Direct PLUS Loan application for graduate or professional students to apply for a Grad PLUS loan.

    Most schools require you to apply for these loans online, but some schools have different application processes.

    What’s a private student loan for graduate school?

    Private student loans can be made by banks, credit unions, and other lenders. Private student loans come with various interest rates and terms, so it’s important to shop around carefully if you’re considering private student loans to help pay for graduate or professional school.

    It’s usually recommended that students max out on loans made available by the federal government to pay for school and to then turn to private loans for any additional funds needed to fill the gaps.

    Grad PLUS loans versus private student loans: what are the similarities and differences

    • A credit check is required for both Grad PLUS loans and private student loans.
    • For both Grad PLUS loans and private loans you must be working toward a degree or certificate.
    • For Grad PLUS loans, you must be enrolled at least half-time. While that’s largely true for private student loans, it isn’t always true.
    • To apply for a Grad PLUS loan, you must submit the FAFSA®, but for a private loan, the FAFSA® isn’t involved.
    • For a Grad PLUS loan, no co-signer is required if you have a good enough credit score, but a credit co-signer can be used if you have adverse credit. For private loans, a co-signer is usually not required, but having a co-signer can sometimes decrease your loan's interest rate.
    • Grad PLUS loans have fixed interest rates based on their first disbursement. For private loans, the rates may be fixed or variable. Rates can vary by lender and your creditworthiness. Having a good credit score or having a co-signer with a good credit score may decrease your loan’s interest rate.
    • For both of these types of loans, interest begins accruing upon the first disbursement. For Grad PLUS loans, you may allow the interest to be capitalized upon repayment. For private loans, it can vary by lender. Some lenders capitalize interest monthly or quarterly.
    • Grad PLUS loans have an origination fee based on their first disbursement. Private loans can involve fees, like origination fees, but not necessarily.
    • Both loans can cover the cost of attendance minus other financial aid (grants, scholarships, and federal work-study) that gets awarded.
    • For Grad PLUS loans, various repayment plans are available, including multiple income-driven repayment plans. For private loans, repayment plans can vary. Most lenders don’t offer income-driven repayment plans.
    • Grad PLUS loans can be eligible for Public Student Loan Forgiveness, while private loans aren’t.

    Common FAQs

    When does loan repayment begin?

    According to Federal Student Aid, Grad PLUS loan repayment begins either six months after you graduate, if you leave school, or if you drop below half-time enrollment. During the time you’re in school or aren’t required to make any payments, interest does accrue on your loan.

    During that time, you may pay the accrued interest or allow the interest to be capitalized (added to your loan principal balance) until you must start making payments. You'll be notified by your loan servicer when your first payment is due. Loan repayment for private student loans will vary based on the lender.

    What happens if I have an adverse credit history when applying for a loan for graduate school?

    A credit check will be performed during the Grad PLUS loan application process. If you have an adverse credit history, you may still be eligible for a Grad PLUS loan through one of the below options:

    • Obtaining an endorser who doesn’t have an adverse credit history. The endorser will agree to repay the Grad PLUS loan if you fail to do so
    • Chronicle (to the satisfaction of the U.S. Department of Education) the extenuating circumstances that resulted in your adverse credit history

    Of note, with either option, you must also complete credit counseling.

    Regarding private student loans, approval will be based on the lender.

    Final thoughts

    We know that understanding student loans can be challenging. Deciding which loan to choose can be even more difficult. Make this decision carefully and weigh all the options to pick something that works best for you.