Attending a graduate school, medical school, or vocational school is a common goal for people looking to advance their careers.
However, figuring out how to pay for expensive education can be difficult, especially for people who have only worked for a year or two.
If you don’t have enough savings to cover graduate school costs, a federal government Grad PLUS loan might be a good option. Here’s what you need to know about this student loan specially designed for graduate students.
What is a Degree Plus Loan?
A Degree PLUS loan is a U.S. Department of Education loan for students attending graduate, professional, or medical school. Individuals pursuing an MD, JD, PhD, or Masters degree often use this loan to pay off part or all of the cost of their graduate school.
Eligible borrowers can borrow up to the full cost of schooling (which in most cases includes a modest allowance for living expenses). This is in contrast to Stafford loans (direct subsidized and unsubsidized), which have both annual and lifetime credit limits.
What are the conditions of participation?
To qualify for a Grad PLUS loan, you must either study at a vocational school (law or medicine) or graduate school. Students must be at least half enrolled to qualify for the loan.
Enrollment seems to be an issue for students doing research to complete their thesis. However, these students almost always qualify for the PLUS loans. Generally, students doing research on a full-time or part-time basis are given credit hours to qualify for these loans.
The final requirement for these loans is that the borrowers do not have an adverse credit rating. There’s no specific minimum credit score, but anyone with bad credit (unpaid loans, bankruptcy, etc.) may want to spend a year or two repairing their credit before applying for a Grade PLUS loan.
What Fees Are Associated With Degree Plus Loans?
There are two important fees to understand when it comes to Degree PLUS loans. The first fee is interest. Interest is the money you pay for the privilege of borrowing money.
PLUS loans charge the highest interest rates of any federal student loan. Interest rates between 6.3% and 7.9% have been charged for Grad PLUS loans over the past 10 years. Due to the massive decline in 10-year Treasury note yields as a result of the COVID-19 crisis, the recently announced new federal student loan interest rates were also all-time lows.
For the 2020-2021 academic year, the interest rate on Degree PLUS loans is 5.3%. Interest accrues from the moment you make a withdrawal. If you borrow $ 10,000 today, you will owe $ 10,530 next July.
You can find the best student loan rates here >>
There is also a withdrawal fee for Grad PLUS loans. The withdrawal fee will be deducted from your loan origination. Currently the withdrawal fee is 4.236%. With the withdrawal fee, you get less money than you borrow. When you borrow $ 10,000, you get only $ 9,576.40. The withdrawal fee is charged every time you receive money from the loan.
What are the repayment options?
As with all direct loans, you do not have to make any payments for your Degree PLUS loan while you are still enrolled in school. You also have a 6 month grace period after graduation during which you don’t have to make any payments.
Upon graduation, you will be given a 10 year repayment plan. However, you can repay your loan earlier with no penalty. Other options include refinancing your loans or joining an IDR (Income-Driven Repayment) plan. With IDR plans, your loans will be repaid or canceled after 10-25 years, depending on a variety of factors.
How do Degree PLUS loans compare to other student loan options?
In general, Grade PLUS loans have interest rates that are competitive or superior to those on personal loans. However, the high withdrawal fee can make a private loan look more attractive on the surface.
You should also consider repayment options. As mentioned earlier, Grad PLUS loans are eligible for Income-Driven Repayment (IDR) plans. In addition, people who work full-time in the public sector could extend their loans after 120 qualified payments under the PSLF (Public Service Loan Forgiveness) program. This could be particularly beneficial for medical students who want to work in non-profit hospitals or clinics.
While private student loans offer better interest rates, they rarely offer the flexibility that federal loans offer. For this reason, we generally recommend choosing a Grad PLUS loan instead of a graduate school private loan.
It should be noted, however, that while PhD students are not eligible for directly subsidized loans, they are can Take out direct unsubsidized loans. If you haven’t reached your credit limit on Stafford loans, direct unsubsidized loans should be your first choice as both the interest rate (4.30%) and withdrawal fee (1.059%) are lower.
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Before you sign up for a loan on the dotted line, it is important to consider your options. In general, you should look for personal savings, scholarships, grants, and Stafford loans before turning to Grad Plus loans.
However, if you’ve already taken out a Grad PLUS loan, lower refinancing can save you a lot of money on interest expenses. For example, if you took out your loan in the 2017-2018, 2018-2019, or 2019-2020 academic years, your interest rate will be over 7%. You may be able to cut this interest rate almost in half by refinancing.
If you’re not running a federal forgiveness program, you owe it to yourself to check your pre-qualified interest rates with the leading student loan refinancing companies.