What are Graduate PLUS Loans?

Graduate PLUS Loans are federal student loans designed specifically for graduate and professional students. They are a subset of the Direct PLUS Loan program, which also provides loans to parents of dependent undergraduate students (Parent PLUS Loans). Unlike some other types of federal student loans, Graduate PLUS Loans are not need-based. This means that while financial need is not a criterion, a basic credit check is required to determine if the borrower qualifies.

Eligibility Criteria for Graduate PLUS Loans

To be eligible for a Graduate PLUS Loan, a student must meet specific requirements. These include:

1. Enrollment Status

The borrower must be enrolled at least half-time in an eligible graduate or professional degree program. This includes various fields of study, such as law, medicine, business, and other advanced degrees. The exact definition of half-time enrollment can vary by institution, but generally means being enrolled in a certain number of credit hours per semester.

2. Creditworthiness

Graduate PLUS Loans do not have strict income or financial need requirements, but borrowers must pass a credit check. While you don’t need to have excellent credit to qualify, you cannot have an adverse credit history. Adverse credit events include items such as recent bankruptcies, defaults, foreclosures, tax liens, or a history of being more than 90 days late on debt repayments.

If you have an adverse credit history, you may still be able to qualify for a Graduate PLUS Loan if you can secure an endorser (co-signer) who does not have an adverse credit history, or if you can demonstrate extenuating circumstances that led to the credit issue.

3. U.S. Citizenship or Eligible Noncitizen Status

You must be a U.S. citizen, a U.S. national, or an eligible noncitizen (such as a permanent resident) to qualify for federal student loans, including Graduate PLUS Loans.

4. Completion of the Free Application for Federal Student Aid (FAFSA)

To apply for any federal student loan, including Graduate PLUS Loans, you must complete the FAFSA. The FAFSA collects information about your financial situation and helps determine what other types of financial aid you might be eligible for, such as unsubsidized Direct Loans, grants, or work-study programs.

Borrowing Limits

One of the primary advantages of Graduate PLUS Loans is that they allow students to borrow up to the full cost of attendance, minus any other financial aid they receive. This differs from some other federal loan programs, which have annual or lifetime limits on how much can be borrowed.

1. Cost of Attendance (COA)

The cost of attendance includes not just tuition and fees, but also expenses like room and board, books, supplies, transportation, and other personal costs associated with attending school. Each school sets its own COA based on these factors, and this amount can vary significantly depending on the program and location.

2. Subtracting Other Financial Aid

Before you can borrow a Graduate PLUS Loan, any other financial aid you are receiving (such as scholarships, grants, or other loans) is subtracted from your total COA. The remaining amount represents how much you are eligible to borrow in the form of a Graduate PLUS Loan.

For example, if your total COA is $50,000 and you receive $20,000 in other aid, you can borrow up to $30,000 in Graduate PLUS Loans.

Interest Rates and Fees

Graduate PLUS Loans carry a fixed interest rate, which means the rate will remain the same for the life of the loan. However, the rate can vary from year to year for new borrowers, as it is tied to the 10-year Treasury note plus a fixed percentage.

1. Interest Rate

For the 2023-2024 academic year, the interest rate on Graduate PLUS Loans is 8.05%. This rate is higher than the rate on Direct Unsubsidized Loans, which is also available to graduate students but has an annual limit on how much can be borrowed.

2. Loan Fees

In addition to interest, Graduate PLUS Loans carry an origination fee, which is a percentage of the total loan amount. This fee is deducted from the loan disbursement, meaning the amount you receive is slightly less than the amount you borrow. As of the 2023-2024 academic year, the origination fee is 4.228%.

Repayment Options

Repaying a Graduate PLUS Loan typically begins once the student graduates or drops below half-time enrollment. However, borrowers are given a six-month grace period after leaving school, during which payments are not required.

1. Standard Repayment Plans

Under the standard repayment plan, borrowers have up to 10 years to repay their loans, with monthly payments calculated based on the total loan balance. This option leads to the fastest payoff and the least interest paid over the life of the loan, but monthly payments can be relatively high.

2. Extended and Graduated Repayment Plans

Other repayment options include extended repayment plans, which lengthen the repayment term to up to 25 years, and graduated repayment plans, where payments start lower and gradually increase over time. These options may offer more affordable monthly payments but can result in paying more interest overall.

3. Income-Driven Repayment Plans

Graduate PLUS Loan borrowers can also take advantage of income-driven repayment plans, such as Income-Based Repayment (IBR) or Pay As You Earn (PAYE). These plans cap monthly payments at a percentage of your discretionary income and extend the repayment period to 20 or 25 years. After this period, any remaining balance is forgiven, though the forgiven amount may be considered taxable income.

Deferment and Forbearance

Borrowers who are struggling to make payments due to financial hardship or other qualifying circumstances may be able to defer payments or enter into forbearance. During a deferment, payments are postponed, but interest still accrues. In forbearance, payments are reduced or paused for a limited time, but interest continues to accumulate.

Common reasons for deferment include returning to school or facing unemployment. Forbearance can be granted due to economic hardship, illness, or other temporary financial difficulties.

Loan Forgiveness Programs

Graduate PLUS Loans are eligible for federal loan forgiveness programs, most notably the Public Service Loan Forgiveness (PSLF) program. PSLF forgives the remaining balance on a borrower's Direct Loans after they have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying public service employer, such as a government agency or nonprofit organization.

Pros and Cons of Graduate PLUS Loans

Pros:

• Borrow up to the full cost of attendance: Graduate PLUS Loans allow you to cover the entire cost of your education, including living expenses, which other loans may not.
• Fixed interest rate: The rate stays the same over the life of the loan, providing predictability in payments.
• Flexible repayment options: You have access to a variety of repayment plans, including income-driven plans and loan forgiveness programs.

Cons:

• High interest rates: The interest rate on Graduate PLUS Loans is relatively high compared to other federal student loans, such as Direct Unsubsidized Loans.
• Origination fees: The loan comes with an origination fee, which reduces the amount you actually receive.
• Credit check required: While most students can qualify, the credit check can be a barrier for those with adverse credit histories.

The Bottom Line

Graduate PLUS Loans are a useful tool for students pursuing advanced degrees who need to cover significant educational expenses. With flexible borrowing limits that allow you to finance the full cost of attendance, they provide an important source of funding when other aid may fall short. However, their higher interest rates and origination fees make them a more expensive option than other federal loans. Carefully consider your financial situation, and explore all available financial aid options, including grants, scholarships, and Direct Unsubsidized Loans, before taking on Graduate PLUS Loans.