What is the Difference Between a Plus Loan and a Grad Plus Loan? What is a Grad PLUS Loan?

What is the Difference Between a PLUS Loan and a Grad PLUS Loan? 

The following table presents a comprehensive comparison between two types of federal student loans: Grad PLUS loans and Parent PLUS loans. 

What is a Grad PLUS Loan?

A Grad PLUS Loan, a type of federal loan, is designed to assist graduate or professional students in covering their educational expenses when they've exhausted other financial aid options like scholarships and Direct unsubsidized loans.

These loans allow students to borrow up to the full cost of their attendance at their chosen school, which includes tuition, fees, room and board, books, and other related expenses. However, Grad PLUS Loans come with a fixed interest rate, currently set at 7.54%, and begin accruing interest immediately upon disbursement, potentially leading to significant debt burdens in the long run.

While Grad PLUS Loans can be forgiven under specific conditions, including Biden's new student loan plan, they are far from a guaranteed solution for financing graduate education. Before opting for a Grad PLUS Loan, students should explore more cost-effective alternatives, such as selecting an affordable school, applying for scholarships, or considering graduate assistantships and employer tuition assistance programs to minimize the burden of student loans and the potential for long-term debt.

What is the Grad Plus Loan Interest Rate?

Grad PLUS Loans come with a consistent fixed interest rate, which stands at 8.05% for the 2023-2024 academic year. This interest rate is determined by adding a fixed margin of 4.6% to the 10-year treasury rate. Furthermore, all Grad PLUS Loans are subject to a loan origination fee of 4.228%.

This fee is applied to the total loan amount and is meant to cover administrative costs. It's important for borrowers to be aware of these interest rates and fees, as they contribute to the overall cost of the loan.

The fixed nature of the interest rate ensures that borrowers will have a consistent repayment amount throughout the life of the loan. As with any financial decision, understanding these details can help students and families make informed choices when considering Grad PLUS Loans to fund their education.

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What is a PLUS Loan?

A PLUS loan, or Parent Loan for Undergraduate Students, is a federal loan program offered by the U.S. Department of Education to assist parents of undergraduate students and graduate or professional students in financing higher education.

These loans allow parents to borrow up to the full cost of college attendance, covering expenses like tuition, room and board, fees, books, and other related costs. PLUS loans have a fixed interest rate, and repayment options include various flexible plans to accommodate the borrower's financial situation.

What is an Unsubsidized Loan?

An unsubsidized loan, also known as a Direct Unsubsidized Loan, is a type of federal student loan offered by the U.S. Department of Education to help students finance their higher education.

Unlike subsidized loans, which are based on financial need, unsubsidized loans are available to both undergraduate and graduate students regardless of their financial needs. These loans are designed to assist students in covering their educational expenses, such as tuition, room and board, books, and other related costs.

Is Direct Graduate PLUS Loan Subsidized?

No, Direct Graduate PLUS loans are not subsidized. Direct Grad PLUS loans feature a steady fixed interest rate, currently set at 7.54%. Unlike subsidized loans, Grad PLUS loans are unsubsidized, signifying that interest starts accumulating from the moment the loan amount is disbursed.

This contrasts with subsidized loans where the government covers interest during specific periods, such as when the borrower is in school or during deferment. For Grad PLUS loans, borrowers are responsible for all accrued interest throughout the loan's lifecycle.

It's vital for borrowers to comprehend this distinction, as it influences the overall cost of the loan. Considering these factors empowers students and graduates to make informed decisions regarding their borrowing options and repayment strategies.

Grad PLUS Loan Vs Unsubsidized Loan

If you're planning to finance your graduate education, you might be considering options like Grad PLUS Loans and Unsubsidized Loans. Both of these loan types are available to graduate students, but they have different features and eligibility criteria. Let's compare Grad PLUS Loans and Unsubsidized Loans to help you make an informed decision.

Federal Direct Unsubsidized Loans (Unsubsidized Loans)

• Interest Accrual: Unsubsidized Loans are technically unsubsidized, meaning that interest begins accruing as soon as the loan is disbursed, including while you're in school, during the grace period, and during deferment periods.
• Borrowing Limit: The maximum annual borrowing limit for graduate students is $20,500, which may not cover the full cost of graduate education.
• Interest Rate: As of the 2023-24 school year, the interest rate for Unsubsidized Loans for graduate students is 7.05%.
• Loan Fees: Unsubsidized Loans have a loan fee equal to 1.072% of the principal.
• Repayment Options: They are eligible for income-driven repayment plans, and loan forgiveness programs, and have some flexibility in repayment.

Grad PLUS Loans

• Interest Accrual: Like Unsubsidized Loans, Grad PLUS Loans are technically unsubsidized, so interest begins accruing from the disbursement date.
• Borrowing Limit: Grad PLUS Loans are designed to cover the cost of attendance minus other financial aid received. They have higher borrowing limits than Unsubsidized Loans.
• Interest Rate: As of the 2023-24 school year, the interest rate for Grad PLUS Loans is 8.05% for all borrowers, which is higher than Unsubsidized Loans.
• Loan Fees: Grad PLUS Loans have a higher loan fee equal to 4.228% of the principal.
• Repayment Options: They are eligible for income-driven repayment plans, loan forgiveness, deferments, and forbearance, but they are generally more expensive compared to Unsubsidized Loans.

How to Apply for Grad PLUS Loan?

Here's how to apply for a Grad PLUS Loan in simple terms:

• School Enrollment: You need to be enrolled at least half-time in a graduate or professional degree program at a school that participates in the Direct Loan Program.
• Complete FAFSA: Fill out the Free Application for Federal Student Aid (FAFSA). This form helps determine your eligibility for federal financial aid.
• Credit Check: A credit check is required. Make sure you have a good credit history, as issues like loan defaults or bankruptcies can affect your eligibility. If your credit isn't strong enough, you may need a cosigner.
• General Eligibility: Meet the general standards for federal student aid, including being a U.S. citizen and having a Social Security number.
• Entrance Counseling: If you've never received a Grad PLUS Loan before, you may be required to complete student loan entrance counseling. This helps you understand your responsibilities as a borrower.
• Application Process: Most schools prefer that you apply for Grad PLUS loans through the Federal Student Aid website. Some schools might have their own specific application process.
• Master Promissory Note (MPN): You'll also need to sign a Master Promissory Note, which is a legally binding document where you agree to the loan terms and conditions.