If you're researching a Grad PLUS Loan (Graduate Student PLUS Loan), chances are you know the major change that occurred recently: students themselves are now eligible for the loan which previously was available only to parents of undergraduate students.
The Grad PLUS Loan helps to bridge the gap between financial aid awarded to a student and outstanding costs of attendance he or she might have. Though it's available directly to the student borrower now, it's only awarded to graduate and professional school students.
Many people find their costs can be fully covered by Federal Stafford Loans and/or Perkins Loans, and indeed a candidate must accept all other federal loans for which he or she is eligible before borrowing under the Grad PLUS program. The loan amount cap for a Grad PLUS is the annual cost of the educational finances needed, determined by a student's financial aid office, minus whatever other financial assistance has already been awarded.
Picking up the remainder of costs not covered by Federal loans is obviously a top reason for obtaining a Grad Plus Loan, but what are some of the benefits of choosing this over a private loan to fill the gap?
Depends on your situation and tolerance for the basic terms and conditions of each.
A big point to consider is interest rates. The Grad Plus Loan has a fixed interest rate of 8.25 percent and some purveyors of the loan offer reductions in that interest rate in return for repayment incentives such as consistent, debited payments. Private loans might offer a lower interest rate, but they can be varied and commensurate with credit scores.
It should be noted that the Grad Plus Loan has to charge a three percent origination fee. Also, unlike the federal Stafford and Perkins loans, the Grad PLUS requires stringent credit approval. This might be a drawback for some, but might be a fair trade for others when considering that a GPL can be consolidated with other federal loans upon graduation for a single payment — private loans cannot be consolidated with the federals.
Other big points to consider are payment deferment and forbearance options that accompany a Grad Plus Loan. Generally, it has the same options as, say, the federal Stafford Loan. For example, the Stafford will charge the first payment within 60 days after the final loan is disbursed for the enrollment period for which it's borrowed. This assumes the student has graduated, or dropped below attending school at least halftime.
As with the other federal loans, students may be eligible for up to three years forbearance or deferment on these loans due to economic hardship. These federal guidelines are a bit more lenient than most private loans, which usually only offer one year of forbearance.
So when comparing and contrasting interest rates, the amount needed to bridge any financial gaps, consolidation techniques and tolerance for deferment and forbearance options, weigh the above considerations. Read loan materials very carefully, consult with your school loan officer — all of these can help you decide if a Grad PLUS Loan is for you!