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Graduate and Professional Student PLUS Loans

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Starting on July 1, 2006, graduate and professional students will be able to borrow money through the PLUS Loan program to pay for their own education. It is expected that this will operate in similar fashion to the parent PLUS Loans.

The main difference between the Graduate and Professional Student PLUS Loan ("Grad PLUS") and the Parent PLUS Loan is that graduate and professional students who are denied a PLUS loan because of an adverse credit history will not be eligible for increased Stafford Loan limits.

The Graduate and Professional Student PLUS loan will not reduce eligibility for the Stafford Loan, but the PLUS loan limit will take the amount borrowed under the Stafford Loan into account. The PLUS loan is limited to cost of attendance minus aid received, as certified by the school.

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The graduate and professional student PLUS loan presents an interesting alternative to private education loans. Here are some of the key differences:

  • Eligibility. Eligibility for private education loans typically depends on your debt-to-income ratio and FICO score. Eligibility for the PLUS Loan does not depend on these factors. You can get a PLUS loan even if you have a bad credit score, so long as you don't have an adverse credit history (i.e., no more than 90 days late on any debt and no defaults, bankruptcies or other adverse action on any Title IV debt).
  • Interest Rates. Most private education loans are variable rate loans with an interest rate that depends on the borrower's (and/or co-borrower's) credit score. The PLUS loan has a fixed interest rate of 8.5% that does not depend on your credit score. Generally, the PLUS loan will be less expensive than most private student loans.
  • Loan Fees. The loan fees on a PLUS loan total 4%, while the loan fees on private education loans depend on your credit score and can be as high as 11%.
  • Consolidation. Grad PLUS loans can be consolidated with other federal education loans, such as the Stafford and Perkins loans. Private loans cannot. Also, the Grad PLUS loan balance will count toward the economic hardship deferment, while private education loans do not.
  • Borrower. Both the Grad PLUS and private student loans are student obligations. With the Grad PLUS a parent may be added to the loan as an endorser if the student has an adverse credit history or if the parent wants to help pay for the loan. With private student loans the parent can cosign the loan if the student has bad credit or if they have better credit (cosigning often reduces the interest rates and fees).
  • FAFSA. Graduate and professional students who borrow the Grad PLUS loan must submit the Free Application for Federal Student Aid (FAFSA) and max out the Stafford Loan first. Private student loan borrowers do not need to submit the FAFSA.

FinAid has a separate page that presents a technical discussion of how the Graduate and Professional Student PLUS Loan is expected to work.

 

 
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