What Is A Grad PLUS Loan? | Everything You Need To Know

Going to graduate school, medical school, or a professional school are common goals for people looking to advance in their career. 

But figuring out how to pay for an expensive education can be difficult, especially for people who have only been working for a year or two.

If you don’t have sufficient savings to cover the cost of graduate school, a Grad PLUS loan from the federal government may be a good option to consider. Here’s what you need to know about this student loan designed specifically for graduate students. 

A Grad PLUS loan is a US Department of Education loan for students who are attending graduate, professional or medical school. Often, people pursuing an MD, JD, PhD, or Masters degree will use this loan to pay for some or all of their graduate school expenses.

Eligible borrowers can borrow up to the full cost of attending school (which includes a modest allowance for living expenses in most cases). This is unlike Stafford loans (Direct Subsidized and Unsubsidized) which have both annual and lifetime borrowing limits.

To qualify for a Grad PLUS loan, you must be a student in either a professional (law or medical) or graduate school. Students must be enrolled at least half-time to qualify for the loan.

The enrollment requirement may seem concerning for students who are doing research to complete their thesis. However, these students will almost always qualify for the PLUS loans. In general, students doing research on a full-time or half-time basis will be awarded credit hours that will allow them to qualify for these loans.

The last requirement for these loans is that borrowers cannot have an adverse credit history. There is no particular credit score minimum, but anyone with bad credit (unpaid loans, bankruptcy, etc.) may want to spend a year or two repairing their credit before applying for a Grad PLUS loan.

There are two important fees to understand related to Grad PLUS loans. The first fee is interest. Interest is the money you pay for the privilege of borrowing money.

PLUS loans charge the highest rates of all federal student loans. Over the past 10 years, Grad PLUS loans have charged rates between 6.3% and 7.9%. However, due to the massive decline of the 10-Year Treasury note yield in the wake of the COVID-19 crisis, the recently announced new federal student loan rates were also all-time lows.

For the 2020-2021 academic year, the interest rate on Grad PLUS loans is 5.3%. Interest begins accruing the minute you take a disbursement. So if you take a $10,000 loan today, you will owe $10,530 next July.

You can find the best student loan rates here >>

There is also a “disbursement” fee associated with Grad PLUS loans. The disbursement fee is taken out of your loan issuance. Right now the disbursement fee is 4.236%. With the disbursement fee, you receive less money than you borrow. When you borrow $10,000, you will only receive $9,576.40. The disbursement fee is applied every time you receive money from the loan.

Like all Direct loans, you do not have to make any payments on your Grad PLUS loan while you're still enrolled in school. You will also have a 6-month grace period following graduation where you won’t have to make payments.

After graduation, you will be placed on a 10-year repayment plan. However, you can repay your loan sooner without penalty. Other options include refinancing your loans or joining an Income-Driven Repayment (IDR) plan. With IDR plans, your loans will be paid off or cancelled after 10 to 25 years, depending on a variety of factors.

In general, Grad PLUS loans have interest rates that are competitive with or beat rates on private loans. However, the high disbursement fee may make a private loan look more attractive on the surface. 

You’ll also want to consider repayment options. As mentioned earlier, Grad PLUS loans are eligible for Income-Driven Repayment (IDR) plans. Additionally, individuals who work full-time in public service could have their loans forgiven through the Public Service Loan Forgiveness (PSLF) program after 120 qualifying payments. This could be especially beneficial for medical students who plan to work in non-profit hospitals or clinics.

Private student loans may offer better interest rates, but they rarely offer the flexibility that federal loans offer. Because of this, we generally recommend choosing a Grad PLUS loan rather than a private loan to pay for graduate school.

However, it should be noted that while graduate students aren't eligible for Direct Subsidized loans, they can take out Direct Unsubsidized loans. If you haven't hit your Stafford loans borrowing limit, Direct Unsubsidized loans should be your first choice as their interest rate (4.30%) and disbursement fee (1.059%) are both lower.

Related: How To Pay For College: The Best Order Of Operations

Before you sign on the dotted line for any loan, it’s important to explore your options. In general, you’ll want to look for personal savings, scholarships, grants, and Stafford loans before turning to Grad Plus loans.

But if you've already taken out a Grad PLUS loan, refinancing at a lower rate could save you a lot of money in interest charges. If you took out your loan during the 2017-2018, 2018-2019, or 2019-2020 academic years, for example, your interest rate will be over 7%. You might be able to nearly slice that rate in half by refinancing.

If you're not pursuing a federal forgiveness program, you owe it to yourself to check your pre-qualified rates with the top student loan refinancing companies.