Students who are in the midst of applying for financial aid, seeking out scholarships and considering loans hear a lot of terms thrown around. It can be confusing to try to decipher exactly what each loan means, what the terms are and which ones are better for you. Grad PLUS loans are a popular option, but it's good to know the terms before you commit to borrowing.
Grad PLUS loans are federal student loans for graduate students.
What Is a Grad PLUS Loan?
A Grad PLUS loan is a federal student loan that is disbursed by the U.S. Department of Education. It is available to students who are attending graduate or professional school. Unlike many other student loans, Grad PLUS loans are not available to students who are pursuing their undergraduate education.
One of the benefits of the Grad PLUS loan is its fixed interest rate. While the loan itself begins accruing interest as soon as it is disbursed, the interest rate is set at a fixed amount that is dictated each year by the Department of Education. This amount cannot change at any point during that calendar year.
A Grad PLUS loan is unique in terms of student loans in that it requires that the recipient prove creditworthiness before the loan can be approved. Interestingly, the ability to qualify for a Grad PLUS loan is contingent upon the quality of your credit, but having a strong credit score does not change the amount of interest you will need to pay. For this reason, students with exceptionally good credit scores may want to explore options for private loans, which may offer a lower interest rate.
Parent PLUS Loan vs. Private Loan
Another popular loan for students and their families is the Parent PLUS Loan. Like the Grad PLUS loan, the Parent PLUS loan is available in subsidized and unsubsidized forms and comes with the same sorts of protections that other direct federal student loans have. However, the Parent PLUS loan can be used to help children pay for their undergraduate education.
Parent PLUS loan eligibility can be easily discerned. A parent who works in the public sector or has lower income or a lower credit score may find that it's easier to get a Parent PLUS loan than it is to secure one from a private lender with a reasonable interest rate. For families with parents who have strong credit scores and a robust income, a lender on the private market may be a better choice. They may get a better interest rate while also avoiding the fees associated with the Parent PLUS loan.
While Parent PLUS loan repayment may make the loan easier on the family because of the low interest rate, there is no guarantee that a private lender won't be able to offer you a better rate. As with any decision that will require you to take on debt, it is best to do extensive research before making any kind of commitment.
Parent PLUS Loan vs. Direct PLUS Loan vs. Grad PLUS Loan
Another popular choice for students looking for help to finance their education is the Direct PLUS loan. The Direct PLUS loan is similar to the Parent PLUS loan in that both loans are taken out by parents who desire to help pay for their child's education. It can also be taken out by students who are pursuing graduate or professional education.
PLUS loans have many positives, including the fixed interest rate and the likely approval for parents who are helping their children, but they do have drawbacks. For one thing, the interest rates are typically higher than a loan would be from a private provider. Secondly, the repayment options for parents are minimal.
Students pursuing graduate or professional studies are often advised to take out PLUS loans only when they have exhausted all opportunities for unsubsidized federal loans. For their part, parents who are considering taking out any kind of a PLUS loan should only proceed if they find themselves in need of the limited consumer protection offered by these loans.
Ashley Friedman is a freelance writer with experience writing about education for a variety of organizations and educational institutions as well as online media sites. She has written for Pearson Education, The University of Miami, The New York City Teaching Fellows, New Visions for Public Schools, and a number of independent secondary schools. She lives in Los Angeles.