*Updated November 7, 2019
A Grad PLUS loan is a federal student loan that’s available only to eligible graduate and professional students. It is issued by the U.S. Department of Education through the William D. Ford Federal Direct Loan Program (Direct Loan), and is a subset of the Direct PLUS loans.
Grad PLUS loans, like other federal student loans, come with certain benefits, but the interest rate is higher than the rate of other federal loans to students.
Here’s what you need to know before you make a decision to borrow.
1. Who is your lender?
The U.S. Department of Education is your lender, but Grad PLUS loans are serviced by nine loan servicing organizations/companies assigned to help the government manage the billing and other services for your loan, like FedLoan Servicing and MOHELA. You could have more than one servicer if you have multiple federal student loans.
2. Are you eligible for Grad PLUS Loans?
To qualify, you must meet ALL of the following requirements:
First, you must be enrolled in a program that will culminate in a graduate or professional degree or certificate;
Second, you must undergo a credit check and must not have an adverse credit history. But, if you have an adverse credit history, don’t lose heart. You may still qualify under certain circumstances (explained below).
Third, you must meet these general requirements:
- be enrolled at least half-time at an eligible school.
- be a U.S. citizen or U.S. national, OR fall under one of the following categories of eligible noncitizens who have:
- A green card;
- A Form I-94, “Arrival-Departure Record,” showing “Refugee,” “Asylum Granted,” “Cuban-Haitian Entrant,” “Conditional Entrant” (valid if issued before April 1, 1980), or “Parolee”;
- A battered immigrant status, or is the child of a person with battered immigrant status; or
- A T-Visa (for victims of human trafficking).
- have a valid Social Security Number (unless you’re a citizen of the Pacific Freely Associated States — the Marshall Islands, the Federal States of Micronesia, and the Republic of Palau).
- be registered with the Selective Service, if you’re a male student between the ages of 18 and 25.
- make Satisfactory Academic Progress (SAP) by maintaining a certain grade point average (GPA), taking a minimum number of credit hours per semester, and staying on track to complete degree in an acceptable time period. SAP standards vary from school to school.
- certify on FAFSA that: (1) you are not in default on a federal student loan and do not owe money on a federal student grant, and (2) you will use federal student aid only for educational purposes.
- have a high school diploma, GED, approved homeschool education, or an eligible career pathway program.
Once you’ve received Grad PLUS loans, be sure to maintain your eligibility as long as you need the loans. If you lose eligibility, you can take steps to regain it.
3. How do you apply for Grad PLUS loans?
First, you must complete the Free Application for Federal Student Aid (FAFSA).
The FAFSA, which is free to fill out and submit, is used by current and prospective colleges to determine a student’s eligibility for various forms of financial aid. FAFSA must be filled out every year if you need financial aid or loans.
Once the FAFSA is completed, you can apply online for a Grad PLUS loan at StudentLoans.gov, where you will be asked to submit certain information, such as the school to which you are applying, and your personal and employment information. This information is sent on to the school, which will process your application and decide if you are eligible for a Grad PLUS loan.
Some schools, however, use a different application process. That information will be given to you once you select the school from the StudentLoans.gov list, in which case you should contact the school’s financial aid office to find out how to request a Grad PLUS loan.
In addition, you must complete a PLUS Master Promissory Note for the loan, which, essentially, is a legal document that evidences your promise to pay back all the Grad PLUS loans you receive, plus interest and fees.
The Grad PLUS application takes about 20 minutes, and must be completed in a single session.
4. What is the interest rate?
The interest rate is dependent on the date on which the loan is first disbursed or paid out. For loans first disbursed on or after July 1, 2018, and before July 1, 2019, the rate is 7.6%.
The interest rate is a fixed rate, meaning that the rate doesn’t change, so your monthly payments will always be the same amount. Knowing how much you need to pay each month will help you with your budget.
The interest rate is set every July 1 according to federal law.
5. Are there any other costs?
Grad PLUS loans come with a loan fee, which is a percentage of the loan amount and is dependent on the date on which the loan is first disbursed. For loans first disbursed on or after October 1, 2018, and before October 1, 2019, the percentage is 4.248%.
The loan fee is deducted from each loan disbursement, in proportion to the amount disbursed.
6. How much can you borrow?
Since Grad PLUS loans are meant to be used only for educational purposes, the maximum loan amount for an academic year is determined by the costs of your school minus other financial aid you get.
Your school will determine the actual loan amount.
7. How will you receive your loan?
The funds will go directly to your school account to be applied against tuition, fees, room and board, and other school charges. If there are extras, the school will send them to you, so you can pay other education expenses.
8. What if you have an adverse credit history?
As mentioned above, a credit check is required for Grad PLUS loans. When your credit is pulled, banks and institutions can see your credit history. While your loan approval is not contingent on your credit score, an adverse credit history could impact your application.
But, you may still qualify if you:
- Find an endorser, meaning another creditworthy individual who agrees to repay the loan if you fail to repay it; or
- Show evidence of extenuating circumstances for your adverse credit history to the Department of Education.
In addition, you must complete the PLUS Credit Counseling process, which will take about 20-30 minutes.
9. Are there any benefits to Grad PLUS loans?
Two of the most significant benefits of Grad PLUS loans are access to the Public Service Loan Forgiveness (PSLF) and the Teacher Education Assistance for College and Higher Education (TEACH) Grant programs.
In addition, if borrowers have problems making their monthly payments on their federal student loans, they have the option to apply for deferment or forbearance (explained below), or to have their monthly payment adjusted based on their discretionary income (details below).
10. When do you start paying back the loan?
You are not required to make any payments while you’re enrolled at least half-time, and for an additional 6 months after you graduate, leave school, or drop below half-time enrollment.
Remember, though, that interest will accrue during that time. If you can afford it, you should make the interest payment, so you lower your overall loan amount.
Your assigned loan servicer will contact you when your first payment is due.
11. What are your repayment options?
Grad PLUS borrowers have several repayment options.
Here are the standard repayment options:
- Standard Repayment Plan: This plan saves you the most money because it allows you to pay off your loan most quickly — within 10 years. This will be your default option if you don’t choose a repayment plan.
- Graduated Repayment Plan: With this plan, you will start with low monthly payments that will increase every two years. You pay off your loan within 10 years.
- Extended Fixed Repayment Plan: If you need to lower their monthly payments, this plan gives you the option to extend your payment period up to 25 years. You will have a fixed monthly payment. To qualify, your outstanding loan amounts must be more than $30,000.
- Extended Graduated Repayment Plan: This plan also gives you the option to extend your payment period up to 25 years, but your lower monthly payments increase over time. To qualify, your outstanding loan amounts must be more than $30,000.
Additionally, there are four income-driven repayment plans (IDR), in which payments are based on a percentage of the borrower’s discretionary income. IDR plans are good options for those seeking PSLF.
- Revised Pay As You Earn Repayment Plan (REPAYE) Income Sensitive Repayment: Your monthly payments are generally 10% of your discretionary income. If you haven’t paid back your loan after 25 years, the outstanding balance will be forgiven, but you may have to pay taxes on the amount forgiven.
- Pay As You Earn Repayment Plan (PAYE): Your monthly payments will be 10% of discretionary income, but will not exceed what you would have paid under the 10-year Standard Repayment Plan. If you haven’t paid back your loan in full after 20 years, the outstanding balance will be forgiven, but you may have to pay taxes on the amount forgiven.
- Income-Based Repayment Plan (IBR): The percentage depends on whether you’re considered a new borrower on or after July 1, 2014, or not. If you are a “new borrower,” your monthly payments are generally 10% of your discretionary income. If you’re not, your monthly payments will be 15% of your discretionary income. If you haven’t paid back your loan in full after 20 or 25 years (depending on when you receive the loan), the outstanding balance will be forgiven, but you may have to pay taxes on the amount forgiven.
- Income-Contingent Repayment Plan (ICR): Your monthly payments will be the lower of 20% of your discretionary income or the amount you would pay under a fixed repayment plan over 12 years. If you haven’t paid back your loan in full after 25 years, the outstanding balance will be forgiven, but you may have to pay taxes on the amount forgiven.
12. What if you’re having trouble paying back your loans?
Get in touch with your loan servicer right away if you’re struggling to make your monthly payments. You don’t want a situation where your loan becomes delinquent or in default, because it will affect your credit score.
An account is “delinquent” the day after a first missed payment, and is deemed “in default” when it is 270 days delinquent. So, if you miss one or two payments, your loan is delinquent. But if you miss several payments, your loan will be at risk of default.
If you have money for your monthly payments but you forget, simply change to an automatic debit method to ensure timely payments.
If you can’t afford your monthly payments, however, you need to check into lowering your monthly payments. Here are a few options:
- If you have multiple Grad PLUS loans, you can apply to consolidate some or all of the loans into a single loan through StudentLoans.gov.
- Another option is to refinance your loans through private lenders. Refinancing, like consolidation, allows you to roll multiple loans into one loan. Your interest rate is typically determined by your credit score. The caveat: You would lose access to the ICR plan that may qualify you for loan forgiveness after 25 years of payments.
If you’re in a situation where you need to postpone your monthly payments temporarily, you have two options: deferment or forbearance. Both programs, however, could have a major impact on the amount you have to pay back. Neither program is ideal, particularly if you’re working towards loan forgiveness, as it may delay the time it takes to qualify for loan forgiveness. A better option may be to apply for IDR plans instead.
13. Are there other student loan options for you?
In terms of federal student loans, graduate and professional students have another option — the Direct Unsubsidized Loans — which carry a lower interest rate than Grad PLUS loans (6.6% vs. 7.6% for loans first disbursed on or after July 1, 2018, and before July 1, 2019.
In addition, there are private student loans. Like Grad PLUS loans, you will be required to go through a credit check to borrow from private lenders. Unlike Grad PLUS loans, however, your interest rate will vary based on your creditworthiness. You also have the option, generally, for a fixed or variable rate.
So, if you have a great credit history and you can get interest rates lower than the current Grad PLUS rate, you should look into private student loans. Note, though, that you would lose access to the benefits of federal student loans, including PSLF and TEACH Grants.
It is crucial that you learn all about private student loans before you tap this source, and don’t borrow more than what you need.
The bottom line
Try to borrow as little as possible. You should explore other options to pay for your graduate or professional degree, including grants and scholarships, before you take out federal or private student loans. If you decide that you need to borrow, though, act responsibly and make sure that you comply with the terms of the loans.
Susan Chu is a writer and editor who likes to write about trends in higher education.