Grad PLUS loans vs. private loans: which is right for your graduate education?

Bottom line: Grad PLUS Loans offer essential federal protections—including income-driven repayment and Public Service Loan Forgiveness (PSLF)—at a fixed 9.08% interest rate with a 4.228% origination fee. In contrast, private loans may offer lower interest rates for borrowers with excellent credit but generally lack these robust safety nets.

For many families and students, the gap between federal Direct Loan limits and the total cost of a graduate degree can be substantial. Choosing how to fill that gap is a critical financial decision that balances immediate costs against long-term flexibility. In this guide, you’ll learn how to compare eligibility requirements, calculate true costs beyond just the interest rate, and evaluate which repayment protections align with your career goals.

Whether you are a parent helping to finance a child’s advanced degree or a prospective graduate student managing your own portfolio, this article provides the data and decision frameworks needed to choose confidently. We will break down the specific trade-offs between federal Grad PLUS loans and private lending options, ensuring you understand not just the numbers, but what they mean for your financial future.

Context: understanding graduate student loan options

Before diving into the direct comparison, it is important to understand why graduate students face this specific choice. Unlike undergraduate students, graduate and professional students do not have access to Subsidized Direct Loans, where the government pays interest while you are in school. Instead, the primary federal option is the Unsubsidized Direct Loan.

However, there is a catch: according to StudentAid.gov, the annual limit for Unsubsidized Direct Loans for graduate students is $20,500 for most programs. With tuition, fees, and living expenses often exceeding this amount, most students face a funding gap. This is where the choice between Grad PLUS Loans and private student loans becomes necessary.

Grad PLUS Loans are federal loans designed specifically for graduate or professional students to cover the remaining cost of attendance. Private graduate loans are offered by banks, credit unions, and online lenders. The “right” choice isn’t the same for everyone; it depends heavily on your credit profile, your intended career path, and your tolerance for risk. Understanding this landscape is the first step toward building a funding strategy that supports your educational goals without compromising your financial stability. Learn more about graduate student loan options.

Grad PLUS vs. private loans: quick comparison table

To help you make an informed decision quickly, we have compiled the key differences between these two loan types. This table highlights the trade-offs between the standardized terms of federal loans and the credit-based terms of private lenders.

Source: StudentAid.gov (rates and fees for 2024-2025 academic year); Private rates based on typical market ranges as of October 2024.

Eligibility requirements: who qualifies for each loan type

Determining which loans you are actually eligible for is the next practical step. The criteria for these two loan types are fundamentally different, reflecting their different sources of funding.

Grad PLUS loans are relatively easier to qualify for regarding income and credit score, but they do have strict rules. To qualify, you must:

• Be a U.S. citizen or eligible noncitizen.
• Be enrolled at least half-time in an eligible graduate or professional program.
• Complete the Free Application for Federal Student Aid (FAFSA).
• Pass a credit check that looks for “adverse credit history.”

It is important to note that “adverse credit history” is not a credit score. Instead, the Department of Education looks for specific negative marks, such as accounts 90 days delinquent, bankruptcy, foreclosure, or tax liens within the last five years. If you have adverse credit, you may still qualify by obtaining an endorser (similar to a co-signer) or documenting extenuating circumstances.

Private lenders operate like traditional banks. They assess your ability to repay the loan based on your financial health. Typical requirements include:

• A credit score of roughly 670 or higher (scores of 740+ usually secure the best rates).
• Proof of steady income or a creditworthy co-signer.
• U.S. citizenship or permanent residency (though some lenders work with international students).
• Enrollment in an eligible degree program.

Because graduate students often have limited income while in school, qualifying alone can be difficult. According to Mark Kantrowitz, financial aid expert, “Most students will need a cosigner to qualify for a private student loan.” This is a standard part of the process, allowing students to leverage a parent or guardian’s credit history to secure funding.

True cost comparison: interest rates, fees, and total repayment

When comparing costs, look beyond just the interest rate. The “true cost” of a loan includes origination fees and the impact of compounding interest over time.

According to StudentAid.gov, for the 2024-2025 academic year, Grad PLUS loans carry a fixed interest rate of 9.08%. Additionally, they charge a 4.228% origination fee for loans disbursed between October 1, 2024, and September 30, 2025. This fee is deducted from the loan proceeds before they are sent to your school. For example, if you borrow $10,000, the school receives approximately $9,577, but you are responsible for repaying the full $10,000 plus interest.

Private loans typically do not charge origination fees. Interest rates can be fixed or variable. According to Bankrate’s analysis as of October 2024, private student loan rates for graduate students typically range from roughly 5% to 15%. A borrower with excellent credit might secure a fixed rate of 6-7%, which is significantly lower than the federal option.

Let’s compare the cost of borrowing $30,000 over a standard 10-year term:

• Grad PLUS (9.08% rate + 4.228% fee): You would need to borrow roughly $31,324 to receive $30,000 after fees. Over 10 years, your total repayment would be approximately $47,800.
• Private Loan (7.00% rate + 0% fee): You borrow exactly $30,000. Over 10 years, your total repayment would be approximately $41,800.

In this scenario, the private loan saves about $6,000. However, this savings depends entirely on qualifying for that lower rate. If your credit profile only qualifies you for a 10% private loan rate, the Grad PLUS loan becomes the cheaper option.

Repayment options and flexibility

While private loans can be cheaper, federal loans offer superior flexibility. This is often the deciding factor for students who anticipate variable income or are entering lower-paying fields.

Grad PLUS loans are eligible for practically all federal repayment plans, including:

• Standard Repayment: Fixed payments over 10 years.
• Graduated Repayment: Payments start low and increase every two years.
• Extended Repayment: Lower payments over 25 years.
• Income-Driven Repayment (IDR): Plans like SAVE, PAYE, and IBR cap your monthly payments at a percentage of your discretionary income (often 10%). If your income is low, your payment could be $0.

Federal loans also offer generous deferment and forbearance options. If you lose your job or face economic hardship, you can pause payments without penalty. According to Jason Delisle, higher education policy expert, “Federal loans are more lenient … no late fees, unlike private loans.” This leniency acts as a safety valve during financial crises.

Private lenders generally offer less flexibility. Most require you to choose a repayment term (e.g., 5, 10, 15, or 20 years) when you apply. While some lenders offer deferment if you return to graduate school, hardship forbearance is typically limited—often capped at 12 months over the entire life of the loan. Private loans do not offer income-driven repayment plans; you owe the fixed monthly amount regardless of your salary. Learn more about income-driven repayment options.

Loan forgiveness eligibility: the PSLF factor

For many graduate students, Public Service Loan Forgiveness (PSLF) is the single most important factor in the borrowing decision. This program is exclusive to federal loans, including Grad PLUS loans.

How PSLF Works:
If you work full-time for a qualifying employer (government organizations, 501(c)(3) nonprofits, and certain other public service entities) and make 120 qualifying monthly payments, the remaining balance of your federal loans is forgiven tax-free. Read our complete guide to PSLF.

Why It Matters for Graduate Students:
Graduate degrees often come with high price tags. A social worker, public defender, or teacher might graduate with $80,000 in debt but start with a salary of $50,000. Under an IDR plan, their monthly payments would be manageable, and after 10 years, a significant portion of that $80,000 (plus interest) could be forgiven.

The Private Loan Reality:
Private student loans are never eligible for PSLF or federal income-driven forgiveness. If you refinance federal loans into a private loan, you permanently lose access to these programs. If there is any chance you will work in public service, keeping your loans federal is usually the safest financial strategy.

Borrower protections: what happens if things go wrong

Life is unpredictable. Federal and private loans handle worst-case scenarios differently, providing varying levels of protection for borrowers and their families.

Grad PLUS loans come with standardized protections mandated by law. These include:

• Death and Disability Discharge: If the borrower dies or becomes totally and permanently disabled, the loan is discharged.
• Unemployment Deferment: You can pause payments for up to three years if you are unemployed and seeking work.
• No Prepayment Penalties: You can pay off the loan early without any fees.

Protections vary significantly by lender. While most reputable lenders now offer death and disability discharges, policies regarding co-signers differ. In some cases, if a co-signer dies or files for bankruptcy, the loan could technically be placed in default, though this practice is becoming less common. Learn more about loan discharge options.

A unique feature of some private loans is co-signer release. This allows a borrower to remove their co-signer from the loan after making a set number of on-time payments (typically 12 to 48 months) and meeting credit requirements. This can be a valuable way to protect a parent’s credit in the long run.

When to choose Grad PLUS loans

For many students, the federal route remains the gold standard due to its safety nets. You should prioritize Grad PLUS loans if:

• You plan to work in public service: PSLF eligibility can be worth tens of thousands of dollars.
• You have a thin credit file or adverse credit: Federal loans do not require a specific credit score, making them more accessible.
• You anticipate variable or low starting income: Income-driven repayment plans ensure your monthly bill is always affordable relative to your paycheck.
• You are risk-averse: If the idea of limited forbearance or variable interest rates keeps you up at night, the predictability of federal loans is valuable.
• You do not have a creditworthy co-signer: You can qualify for Grad PLUS on your own as long as you don’t have adverse credit history.

When private graduate loans are the better choice

Private loans are powerful financial tools when used by the right borrower in the right situation. They can be the superior choice if:

• You have excellent credit (or a strong co-signer): If you qualify for a rate significantly lower than the Grad PLUS rate (9.08% as of the 2024-2025 academic year), the interest savings can be substantial.
• You are entering a high-income field: If you expect a high salary immediately after graduation (e.g., MBA, certain law or medical specialties) and plan to pay off the debt aggressively, you may not need income-driven repayment options.
• You are ineligible for federal aid: International students or those who have reached aggregate federal loan limits may need private loans to finish their degree.
• You want to avoid origination fees: Saving ~4% upfront on a large loan balance keeps more money in your pocket for school expenses.

As student loan expert Betsy Mayotte notes, “Private loans can make sense for students who have strong credit or a creditworthy cosigner.” If you fit this profile and are confident in your career trajectory, the math often favors the private market.

Ready to see what rates you qualify for? Compare offers from multiple private lenders to find your best option. Compare rates from 8+ lenders (Pre-qualification won’t affect your credit score).

How to compare private loan offers against Grad PLUS

If you have decided to explore private loans, do not just take the first offer you see. Use this framework to compare private offers directly against the federal benchmark.

1. Get Pre-Qualified: Most lenders allow you to check rates with a soft credit pull, which does not impact your credit score. Get quotes from at least 3-4 lenders.
2. Compare APR, Not Just Interest Rate: The Annual Percentage Rate (APR) accounts for any fees or costs. Since Grad PLUS has a high origination fee, its effective APR is higher than its stated interest rate.
3. Check the Spread: Is the private loan APR at least 1-2% lower than the Grad PLUS APR? If the difference is smaller, the loss of federal protections might not be worth the meager savings.
4. Review Hardship Policies: Read the fine print. Does the lender offer unemployment protection? How long is the forbearance period?
5. Understand Co-signer Rules: If you are using a co-signer, check the co-signer release terms. Knowing you can release them after 24 monthly payments adds flexibility.

Frequently asked questions

Yes, you can combine them. Many students prioritize Grad PLUS loans to maximize federal protections and then use private loans to cover any remaining gap or to replace Grad PLUS borrowing if they secure a significantly better interest rate.

Yes, Grad PLUS loans appear on your credit report just like any other debt. Making on-time payments will help build your credit history, while late payments or default will negatively impact your score.

Yes, you can refinance Grad PLUS loans into a private loan later to get a lower rate. However, doing so is irreversible—you will permanently lose access to federal benefits like PSLF and income-driven repayment plans.

If you are denied a Grad PLUS loan due to adverse credit, you can still qualify by obtaining an endorser (who acts like a co-signer) or by documenting that the negative credit event was due to extenuating circumstances.

Generally, private lenders do not negotiate rates on an individual basis. The rate you are offered is determined by an algorithm based on your credit profile. However, shopping around allows you to find the lender whose algorithm offers you the best deal.

Choosing between Grad PLUS and private loans is a balancing act between cost and security. Grad PLUS loans offer a safety net that is unmatched in the lending world, making them the prudent choice for borrowers who value flexibility or plan to work in public service. Private loans, however, reward strong credit with lower costs, making them an excellent tool for financially stable borrowers focused on minimizing interest.

Key Takeaways:

• Prioritize your career goals: If PSLF is a possibility, stick with federal loans.
• Do the math: Calculate the total cost including fees, not just the monthly payment.
• Check your credit: Your credit score determines whether private loans are a viable competitor to Grad PLUS.
• Mix and match if needed: You don’t have to choose 100% of one type; you can build a portfolio that works for you.
• Shop around: Always pre-qualify with multiple private lenders to ensure you are seeing the market’s best rates.

Investing in a graduate degree is a major commitment to your future. By understanding these options, you are ensuring that your investment is funded on terms that empower your success.

Ready to explore your options? Compare graduate student loan rates from top lenders to see what you qualify for.

References and resources

For further research and to manage your loans, rely on these official sources:

• Federal Student Aid (StudentAid.gov): The official portal for FAFSA, Grad PLUS applications, and federal loan management.
• PSLF Help Tool: Use this tool to check if your employer qualifies for Public Service Loan Forgiveness and to generate your PSLF forms.
• Consumer Financial Protection Bureau (CFPB): Provides unbiased information on student banking and private student loans.
• College Finance Graduate Loan Guide: Our comprehensive guide to financing your advanced degree.