A Grad PLUS Loan is a type of federal student loan for graduate and professional students that helps bridge the gap between other financial aid and educational expenses.
Grad PLUS Loans are a subset under the William D. Ford Federal Direct Loan Program from the U.S. Department of Education.
Other federal loans include:
- Direct Subsidized Loans (need-based aid for undergraduate students)
- Direct Unsubsidized Loans (for undergraduate, graduate, and professional students)
- Direct PLUS Loans
- Direct Consolidation Loans (where multiple loans are combined into one)
There are two categories of PLUS Loans: When the Direct PLUS Loan is made out to a parent, it is called a Parent PLUS Loan, and when the borrower is a graduate or professional student, it is called a Grad PLUS Loan.
Something to keep in mind is that not all schools participate in the Direct Loan Program.
FAFSA First
Before applying for a Grad PLUS Loan, you will need to fill out the Free Application for Federal Student Aid (FAFSA). After you fill out the FAFSA, you’ll learn what financial aid programs – grants, loans, and work-study – you’re eligible for.
When you get ready to fill out the FAFSA, first determine your dependency status. You will need to have personal records for yourself (if you’re considered independent) or yourself and your parents (if you’re considered dependent).
- Social Security number
- Driver’s license number
- If not a U.S. citizen, an Alien Registration number
- Tax returns
- Records of untaxed income
- Information on bank account balances, any investments, and assets
The FAFSA helps your chosen school determine which of their programs and state programs fit your eligibility.
Grad PLUS Loans
Any graduate or professional student who is enrolled in an eligible program at least half-time, meets the requirements for federal student aid, and does not have an adverse credit history is eligible for a Grad PLUS Loan.
The lender is the U.S. Department of Education.
Although these loans are not need-based, they do require a credit check; if your credit history is not favorable, you will have to meet additional requirements.
For example, if you have an adverse credit history, you can ask someone to endorse the loan, or you can provide the U.S. Department of Education with the circumstances for why your credit history is unsatisfactory.
Regardless, if you can receive a Grad PLUS Loan, then you must take part in credit counseling to ensure that you are not taking on more debt than you can handle; the online counseling typically takes less than a half-hour to complete.
First-time PLUS Loan recipients have to complete entrance counseling. To agree to the loan terms, you must sign a Master Promissory Note (MPN).
The maximum amount that can be borrowed at a fixed interest rate for the life of the loan is a calculation based on your financial aid and the cost of attendance for your school. Your financial aid is subtracted from your cost of attendance – your school determines this number – to determine how much more financing is necessary for you to pay for your schooling.
For Grad PLUS Loans disbursed on or after July 1, 2019, and before July 1, 2020, the fixed interest rate is 5.30%. In addition to the interest that you’ll pay on your loan, there is also a loan fee (determined by when the loan was first disbursed) that gets deducted from each loan disbursement.
For loans with their first disbursement between Oct. 1, 2018, and Oct. 1, 2019, the loan fee is 4.248%; for loans disbursed between Oct. 1, 2019, and Oct. 1, 2020, the fee is 4.236%.
Getting Your Grad PLUS Loan
Your Grad PLUS Loan funds are typically given to you by the school in two disbursements, usually once per semester, to be used to pay tuition, room and board, fees, and any other school charges that you owe. Leftover money is then able to be used for other educational expenses, such as books and supplies.
If the loan amount is too much for your needs, you can contact your school to cancel part of the loan.
Grad PLUS Loan Repayment
While you are not making payments – either six months after graduating, leaving school, or dropping below half-time enrollment – interest will accrue on your Grad PLUS Loan; you can pay it as it accrues, or have it added to your loan’s principal balance.
Your loan servicer will also contact you to discuss your options for loan repayment. To get an idea of what your loan payment might be ahead of time, you can use a loan simulator. Before making payments to your loan, you will want to determine which plan is the best for you.
All PLUS Loans are eligible for the Standard Repayment Plan, Graduated Repayment Plan, and the Extended Repayment Plan.
- Payments under the Standard Repayment Plan are fixed, making sure your loan is paid off within 10 years. You’ll also usually have lower costs over the life of the loan.
- The Graduated Repayment Plan begins with lower payments that increase, making it so that loans are paid off within 10 years.
- The Extended Repayment Plan is fixed or graduated and for those with more than $30,000 in outstanding loans. With this plan, loans are paid off within 25 years.
Payment plans that are based on income – the Revised Pay As You Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE), Income-Based Repayment Plan (IBR), and the Income-Contingent Repayment Plan (ICR) – are all available for Direct PLUS Loans made to students.
They have the option for loan forgiveness, although you may have to pay income tax on the forgiven amount. REPAYE calculates payments based on 10% of your discretionary income. PAYE requires a high debt-to-income ratio, and payments are never more than what you’d pay under the Standard Repayment Plan, calculated as 10% of your discretionary income.
IBR requires a high amount of debt, where payments are 10% or 15% of your discretionary income but not more than what you’d pay under the Standard Repayment Plan. With ICR, payments are either 20% of your discretionary income or what you’d pay on a fixed plan over 12 years with an income adjustment.
Grad PLUS Loan Forgiveness
Depending on your chosen field and circumstances, you may be eligible for student loan forgiveness, cancellation, or discharge. Forgiveness and cancellation are occupation-based, while discharge is determined based on circumstances such as a total and permanent disability, bankruptcy, or school closing.
- Public Service Loan Forgiveness (PSLF) is available to those who work for an eligible government or nonprofit organization, make 120 qualifying payments, and work full time.
- Closed School Discharge is available to students whose school closes soon while enrolled or soon after withdrawing.
- Total and Permanent Disability Discharge is available if you are permanently disabled.
- If a loan was taken out on behalf of someone who has died or by someone who has died, the loan may be eligible for Discharge Due to Death.
- While rare, after declaring bankruptcy, you might be eligible for Discharge in Bankruptcy.
- If the school did not use the loan as paid for, you might be eligible for the Borrower Defense to Repayment.
- If your school falsely certified your eligibility, you might be eligible for the False Certification Discharge.
- If you withdrew, and the school didn’t return the funding to your loan servicer, you may be eligible for an Unpaid Refund Discharge.
College Finance has the experts to guide you through deciding if a Grad PLUS Loan is right for you, how to make your payments, as well as anything and everything else you need to know while exploring your financing options.
