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Graduate school can be pricey, and many students must borrow to pay for their education. Grad PLUS loans, which are offered by the federal government, can be a good option for some borrowers — but it’s important to compare them to other federal and private loans to decide which is best.
See how grad PLUS loans stack up against other types of debt, and which might be best to fund your degree.
The basics of federal grad PLUS loans
There are two types of federal PLUS loans: Parent PLUS loans are offered to parents of undergraduate students, while grad PLUS loans are meant for graduate and professional students.
Eligibility requirements
To be eligible for a grad PLUS loan, students must:
- Be enrolled at least half time in an eligible institution
- Be working toward a graduate or professional degree
- Pass a credit check that looks for “adverse credit”
PLUS loans are the only type of federal student debt that requires a credit check, but your credit score isn’t a significant factor. Instead, it looks for adverse credit such as a recent loan delinquency, default, foreclosure, repossession, or wage garnishment.
Those with an adverse credit history are eligible only if they have an endorser (similar to a cosigner) or if they provide approved documentation of extenuating circumstances.
Loan terms
Unlike other federal student loans, there’s no strict annual limit on the amount you can borrow using grad PLUS loans; you can borrow up to the school-certified cost of attendance. However, grad PLUS loans have higher interest rates and origination fees than other types of federal debt, so they’re not necessarily the right choice for everyone.
It is important to compare grad PLUS loans with other loan options to decide how much to borrow using this method.
How do grad PLUS loans compare to other options?
Both grad PLUS loans and Direct Unsubsidized Loans are available through the Department of Education, but there are important differences between them — including the student loan requirements and interest rates.
For many graduate students, it’s generally better to max out Direct Unsubsidized Loans first before turning to grad PLUS or private loans to pay the remainder of your educational costs.
| Grad PLUS | Direct Unsubsidized | Private loans | |
|---|---|---|---|
| Borrowers | Graduate or professional students | Undergraduates and graduates | Undergraduates and graduates |
| Eligibility | Show no adverse credit and meet standard Federal Student Aid requirements | Meet standard Federal Student Aid requirements | Good credit and stable income |
| Benefits |
|
|
|
| Interest* | 8.05% | 7.05% | Varies by lender |
| Fees* | 4.228% | 1.057% | Varies by lender, but often no fees |
| Annual borrowing limit | Up to cost of attendance | $20,500 | Up to cost of attendance |
Related: What’s the average student loan interest rate?
How to get a federal grad PLUS loan
Applying for a federal grad PLUS loan is different from applying for a loan with private student loan lenders. Here are the steps you must take to borrow any federal student loan:
- Complete your Free Application for Federal Student Aid (FAFSA): You can submit your FAFSA online after inputting your personal and financial details. As a graduate or professional student, you don’t need to include your parent’s income on the FAFSA.
- Receive your student aid report: This details your Expected Family Contribution as well as the estimated availability for different kinds of federal student loans.
- Decide which aid to accept: You can accept or decline the different federal aid you are eligible for. Direct Unsubsidized Loans are often the most affordable option for grad students, followed by grad PLUS or private loans.
- Respond to your financial aid offer: Your school will provide instructions on how to accept your desired aid. Once completed, you’ll need to sign a promissory note for your loan and your funds will be distributed to your school’s financial aid office.
Related: How to take out a student loan for college
Should you borrow grad PLUS loans — and how much?
Grad PLUS loans are more expensive than Direct Unsubsidized Loans due to the higher interest rate and origination fee. In some cases, they can even be more expensive than private student loans — especially if you have excellent credit and solid income (or a well-qualified cosigner).
Say, for example, you need to borrow an additional $10,000 after maxing out your Direct Unsubsidized Loans. The 4.228% origination fee would be deducted from your loan balance, so if you needed $10,000 after your origination fee was subtracted, you would actually have to borrow a total of $10,441. If you paid that back over 10 years, you would incur total interest costs of $4,793 and your repayment would cost you $15,234 over the life of the loan.
By contrast, if you took out a $10,000 private student loan at 7.45% with no origination fees, you would pay interest costs of $4,213 and your total repaid amount would be $14,212 in 10 years. And getting a low-interest private student loan due to good credit could potentially reduce your costs even further.
| Grad PLUS loan | Private loan | |
|---|---|---|
| Amount borrowed | $10,441 | $10,000 |
| Interest rate | 8.05% | 7.45% |
| Loan fee | 4.228% | None |
| Total interest paid | $4,793 | $4,213 |
| Total amount paid | $15,234 | $14,212 |
Now, grad PLUS loans offer federal borrower benefits that private loans don’t have. This means you can change your payment plan as needed, including income-driven plans; get the same fixed rate regardless of your credit; and are eligible for loan forgiveness for public service work or after a set number of payments on an income-driven plan.
Consider the difference in cost between grad PLUS loans and the top private student loans, take the federal benefits into account, and decide what is best for you before moving forward.
Should you borrow a private student loan if you max out federal options?
Private student loans can be more affordable than grad PLUS loans, but your potential savings are highly dependent on what interest rate you qualify for.
If you can only qualify for private student loans for bad credit, for example, your interest rate would likely be much more expensive than a grad PLUS loan. You’ll also have to consider whether you will use federal student loan benefits, such as Public Service Loan Forgiveness. If so, grad PLUS loans could be a better bet, since private lenders don’t offer the same opportunity.
By considering these issues, you can make an informed choice about what kind of student loans are right for you.
FAQ
How are grad PLUS loans different from other PLUS loans?
There are two types of PLUS loans: parent PLUS and grad PLUS loans. These share the same interest rate, fees, and general eligibility requirements.
However, parent PLUS loans are only made to parents of undergraduates, while grad PLUS loans are available to graduate and professional students. Grad PLUS borrowers also have access to more income-driven repayment options than parent borrowers do.
What are the interest rates and fees on grad PLUS loans?
For the 2023-24 school year, the interest rate on grad PLUS loans is 8.05% and the origination fee is 4.228%. Borrowers should compare these rates to private student loans when deciding how much to borrow.
How much can you borrow in grad PLUS loans?
You can borrow up to the school-certified cost of attendance in grad PLUS loans, minus any other financial aid you are eligible for. It’s usually best to exhaust other sources of federal student aid first, such as Direct Unsubsidized Loans, before turning to grad PLUS loans, as PLUS loans have higher rates and fees.
Should I accept a PLUS loan over an unsubsidized one?
Generally, it doesn’t make much sense to accept a PLUS loan over a Direct Unsubsidized Loan. Direct Unsubsidized Loans have lower interest rates and fees than grad PLUS loans, so it’s usually more cost-effective to max out your Direct Unsubsidized Loans before turning to grad PLUS loans.
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