Are you looking for a low-cost source of funds for your Graduate or Professional studies? Federal Direct loan programs can help you finance the education without worrying much about high costs. Graduate PLUS Loans belong to the Direct PLUS Loan program. This loan option offers low- 5.3% interest and multiple repayments plan to pay back debt quickly. However, the suitability of the loan depends on your qualifications- income, expenses, your desired payback period, credit performance, future expectations, etc. Hence, check this guide before you make any decisions regarding the Graduate PLUS Loan.
This guide explains the eligibility conditions, repayment options, application process, and many other elements to answer main questions about this loan program. If you have any further questions or need recommendations, you can get a free consultation from Student Loans Resolved Experts.
Graduate PLUS Loan vs. Parent PLUS Loan
You might confuse different names for loans, such as Graduate, Parent, or Direct PLUS loans. Direct PLUS Loan usually refers to Graduate PLUS Loan. The difference between Direct/Graduate and Parent PLUS loan is whom the loan belongs to. Graduate PLUS Loan is made to students, and they are responsible for repaying the debt. Meanwhile, Parent PLUS Loan is made to parents rather than students. Parents have to repay the debt, and they cannot transfer the loan to the student.
What is Graduate PLUS Loan?
Graduate PLUS Loan provides financial aid to graduate and professional students to cover their educational costs. The Education Department allocates funds to ensure people in need of money can still get a decent education. The eligibility condition for this loan program is extensive. Besides program-specific conditions, there exist general requirements that you need to meet. First, you need to enroll at least half-time for a graduate or professional degree. Keep in mind that not all schools will qualify. Next, you need to have a reliable credit history.
General Requirements for Federal Aid
Besides meeting the mentioned two conditions, you need to follow the general requirements designed for any type of federal aid program. The Education Department notes that your race, age, or study area do not affect the decision on student aid.
There exist several points. First, you have to be eligible for getting the education you wish (Graduate or Professional). In other words, you need to have prior education as prerequisites, such as a high school diploma or other degrees. Next, you should be enrolled as a student and acquire a Social Security number.
When it comes to residency, U.S citizens and nationals, or people with green cards, refugees, T-visa holders, can apply. Before applying for any federal aid, you have to submit the Free Application for Federal Student Aid (FAFSA) form. This form indicates that you do not have a defaulted loan, and you will use the money only for education. Lastly, male applicants aged between 18-25 should register to Selective Service. After meeting all these general requirements and the above-mentioned program-specific requirements, you can apply for a Graduate PLUS Loan.
For more detailed requirements, please, check the official website of Student Aid.
Graduate PLUS Loan Interest Rate
When choosing a loan program, one of the most critical factors is low interest. When the interest rate is low, you pay less additional money for the borrowed amount. Usually, the interest rate depends on the riskiness of the borrower and the lender’s willingness to take the risk. For example, a borrower with excellent credit performance has a low probability of non-payment. Hence, such borrowers get lower interest rates compared to people who have a history of bad debt.
Similarly, the federal government is more risk-taker compared to private lenders. The reason behind this difference is that the government only aims to help people, and the profitability of loans comes next. Meanwhile, private lenders aim to get profits. Therefore, the government loans like Grad PLUS loans might have lower interest rates than other private student loan options.
Currently, the Graduate PLUS Loan interest rate is 5.30%. This rate is applicable till July of 2021. The rate is fixed, which means during your whole repayment period, the rate will not change.
What is the Difference between Fixed and Variable Rate Loans?
As mentioned, Graduate PLUS Loan has a fixed interest rate. Fixed-rate loans offer the same monthly payments over the repayment period. Meanwhile, there also exist variable rate loans. The rate of such loans is tied to an external indicator such as the LIBOR rate. As the connected rate changes, the interest rate you also pay changes.
When interest rates decrease, it is good to have a variable-rate loan because you will pay less. However, the adverse situation can also happen; you can end up paying more and more. Compared to such volatility, fixed-rate loans provide certainty.
Usually, government loans are fixed-rate. Therefore, if you wish to get a variable-rate loan, you can get a private student debt. If you change your mind, you can always refinance the student loan to move from variable-rate loan to fixed, or vice versa.
Additional Costs
The Graduate PLUS Loan Interest Rate is not the only cost of borrowing. Besides interest, you will be required to pay a fee. This fee is deducted each time of disbursement. Disbursement is the process of transferring funds to the borrower, which happens two or more times.
The fee rate is the percentage of the loan amount. The exact amount depends on when your first disbursement happens. In case the first disbursement is between October 2018- October 2019, the fee is 4.248%. From that time till October 2020, the rate is increased to 4.236%.
Graduate PLUS Loan Limit
The Graduate PLUS Loan allows graduate and professional students to finance their educational costs. Hence, it is not surprising that the maximum limit is the cost of attendance. The school you are applying for determines this total cost by considering other financial benefits you have.
The Graduate PLUS Loan Limit - the cost of attendance- might involve tuition fees, accommodation, and other charges. Your school will allocate the funds to these cost areas. If any fund is left, they will transfer the money to you. In this case, you can decide how to spend money on other educational expenses.
Repayment
Federal loans provide multiple benefits when it comes to repayment. First, you do not need to repay any debt until six months past your graduation. In other words, you are not required to repay while you study. Plus, six months are granted for you to find employment or get your finance to start repayment. This period is called the grace period, and it is given even if you do not graduate- you leave the school or study less than half-time.
However, keep in mind that even during deferment (non-payment period during school and grace period), the interest payments on your debt continue to accrue. It is your decision either to repay the interest for the Graduate PLUS Loan during this period or to let it accumulate.
Yet, in the second case, the accrued interest will be capitalized when it is time to repay the debt. Capitalization means the accrued interest amount is added to the original debt balance. As discussed, the interest rate is the percentage of the original balance. Hence, increased original debt balance will lead to higher monthly payments.
Available Repayment Plans
One of the most significant advantages of federal student loans is that there exist several repayment plans. Hence, you can choose which one fits your budget and other requirements the best. The Graduate PLUS Loan qualifies for multiple repayment options, and we will briefly introduce them in this section.
If you are unsure which option to choose, you can use the Loan Simulator tool on the official Student Aid Website. This tool helps to find the best repayment method. Besides, you can contact the loan servicer or third-party debt experts like those in Student Loans Resolved. Our experts can analyze your finances and debt to determine the most suitable option.
1. Standard Repayment Plan
The standard repayment plan is available to any PLUS loan, whether Parent or Graduate PLUS Loan. This plan requires fixed payments so that you will pay off the debt in 10 years. Sure, a short payback period such as ten years is desirable to quickly repay the debt. However, as the payback period is short, the monthly payment amounts can also be high.
2. Graduated Repayment Plan
The Graduated Repayment Plan for Graduate PLUS Loans is similar to the Standard plan because it pays off the debt in 10 years. However, the difference is that the payment amount is not the same for all months. The monthly loan amount is low at first, and it gradually gets higher, usually every two years. Therefore, if you believe that your income level will increase over time, you can choose this option. Yet, the ten-year period is still short, so even the lower amounts might not be affordable.
3. Extended Repayment Plan
If your Direct loan amount exceeds $30,000, you can choose this repayment plan. The plan involves a complete payoff in 25 years. You can decide whether you want fixed payments or graduated payments, as in the Graduated Repayment plan. If you choose a fixed rate, your monthly payments will be lower than the Standard plan. It is reasonable because instead of 10 years, you will repay the debt in 25 years. Hence, monthly payment amounts for the Graduate PLUS Loan decreases.
4. Revised Pay As you Earn
This repayment option is based on your income level and family size. It requires 10% of discretionary income per month. Discretionary income is the amount left after you pay necessities and taxes from gross monthly income. The payment amount is revised each year to detect if your income level or family size changed. With this plan, the repayment lasts 25 years for a Graduate PLUS Loan. Any remaining amount after 25 years is forgiven.
5. Pay as You Earn
This plan also depends on income level and family size, which should be updated each year. The monthly repayment amount is 10% of discretionary income, and it takes 20 years to repay the debt. However, you need to be a new borrower- after October 2007- who received the first disbursement of the loan after October 2011. Again, unpaid debt after the payback period is forgiven.
6. Income-Based Repayment
As the name suggests, this repayment plan is based on the income, again. The difference is that the monthly student loan payment amount is either 10% or 15% of the discretionary income. It takes either 20 or 25 years to repay the debt. New borrowers after July 2014 get lower interest and shorter payback periods. Keep in mind that the remaining debt after the payback period is eliminated.
7. Income-Contingent Repayment
With this plan, the repayment amount is either 20% of discretionary income or a fixed amount for repayment in 12 years, whichever is less. It takes 25 years to repay the debt, and any remaining amount is forgiven.
Which Plan to Choose?
Sure, it is desirable to choose the plan that satisfies your requirements. You might want to pay back the debt quickly in 10 years or get lower monthly payments. From an affordability point of view, Income-Driven plans, such as Revised Pay as You Earn, Pay as You Earn, or Income-Contingent plans, are perfect. These plans consider income levels. Hence if you earn less, you will pay less.
Besides, if you want to apply for Public Service Loan Forgiveness in the future, you should choose Income-Driven repayment plans. Other plans such as Extended, Graduated, or Standard plans do not qualify for this federal aid program.
What If I Have Poor Credit Performance?
As mentioned before, one of the requirements for a Grad PLUS loan is good credit performance. However, having a poor credit history can still make you eligible if other factors exist.
First, you can get an endorser or cosigner. An endorser is a third party, such as a friend, who can guarantee the payment in case you do not repay the debt. In other words, this person will be required to repay the debt if you cannot. Besides, the cosigner should have a good credit score.
Another way is documenting an extenuating circumstance explaining your bad credit history. Extenuating circumstances indicate that the information on poor credit performance is either incorrect or outdated. For example, if you divorced and the bad debt no longer belongs to you, you can utilize this option. Regardless of which method you choose, you will need to complete a credit counseling session.
Application
The Grad PLUS Loan application process is relatively easy. You can apply online. Most schools accept online applications, but some can have their requirements. When you choose the school on the online platform, you will be able to see what the school requires. Besides, before application, make sure that you completed the FAFSA form.
After the Grad PLUS Loan application, if the review and decision are positive, the Education Department will send you a Master Promissory Note. This note is a document showing your willingness to undertake the debt. If you already have a PLUS loan, you will be required to finish entrance counseling. More information on counseling can be requested from the financial aid officer in your school.
Receiving the Loan
Once you accept the Graduate PLUS Loan, it is time to receive the funds. However, before funds are transferred, you have to complete the entrance counseling process. Only after this process, your first disbursement will happen. Generally, schools pay the funds in a minimum of two distributions.
The school will first apply the funds to your cost of attendance, such as tuition fee and accommodation (room or board). If there is some amount left, they will give the money to you so that you can finance other costs, such as books and supplies. In case you think that the remaining amount is not needed, you can return it within 120 days after receiving it. In this way, your loan amount will decrease, and there will be no fee or interest requirement on the returned amount.
Additionally, you can cancel the disbursed amount, partially or entirely, by informing your school.
More about Credit Balance
As mentioned, if there is some money left after paying for the tuition and boarding, the school should pay this amount to you to buy textbooks. Usually, the remaining amount is called credit balance, and it is paid to the student within seven days the term starts.
You will either receive cash or a voucher from the school to purchase textbooks. Generally, the amount paid either equals the whole credit balance or the amount required to buy textbooks. The lower between these two options will be selected.
If you do not want to get vouchers, you can request to get funds to purchase books and supplies on your own. The school can only reject your request if the school can prove that only they provide the materials or purchasing supplies outside can cause health and safety risks.
What if I cannot Pay the Debt?
A federal loan like Grad PLUS Loan offers favorable terms so that every borrower can repay the debt. However, it is possible that you will face an economic challenge, and you will not be able to afford debt payments. In such cases, the first action should be contacting the loan servicer.
The loan servicer can help you to solve the problem by providing several options. For example, the loan servicer can suggest a new repayment plan with lower monthly payment amounts. Besides, student loan forbearance can be achieved. Forbearance is a temporary non-collection period, usually due to economic difficulties. It lasts only a few months, not longer. Hence, forbearance can grant you only temporary relief.
Additionally, keep in mind that the interest on your Graduate PLUS loan will accrue even during forbearance. Later, when forbearance ends, the interests will be capitalized- added to your original balance. Hence, your monthly payment amounts can increase.
Additionally, you can refinance your debt to get lower interest or monthly payments. We will talk about this option in the next section.
Student Loan Refinancing
Student loan refinancing happens when a borrower gets a new loan and uses the funds to repay the existing loan. In this way, you can combine multiple loans into one, change your loan servicer and enjoy better terms.
By the time the borrower can qualify to lower interest rates. For example, if the borrower improves the credit history, he/she will decrease the non-payment risk. Hence, he/she will take advantage of lower interest rates. However, such borrowers cannot reduce the interest of their existing loans. They have to get a new loan to benefit from low-interest rates. Additionally, there can be times when the economy changes and interest rates for new loans decrease. In such cases, it is advisable to refinance the loan.
However, Graduate PLUS Loan holders need to think twice before they decide to refinance. Refinancing federal loans will lead to ineligibility to any type of federal aid. Hence, the borrowers will lose access to federal benefits like forgiveness programs. Yet, if you think that the use of refinancing is high and you do not qualify for other federal programs, go ahead.
Eligibility for Refinancing
Student loan refinancing requires two main conditions: good credit performance and stable income. If borrowers lack these qualifications, they can get a cosigner to ensure that the loan will be paid. Keep in mind that the cosigner should also meet these requirements. For further details, good credit performance is defined as 600 or more scores.
Can I Get Forgiveness for My Grad PLUS Loan?
A Graduate PLUS Loan can be forgiven through several federal aid programs. These are forgiveness and student loan discharge programs that can eliminate the debt, such as Public Service Loan Forgiveness, Closed School Discharge, etc. You can find a brief introduction to Graduate PLUS Loan forgiveness options in the following sections, but check our blog for more information about each opportunity.
1. Public Service Loan Forgiveness
Any program under Direct loans (including Graduate PLUS Loan) is eligible for Public Service Loan Forgiveness. This debt elimination option can help you get rid of debt after you make 120 payments. In other words, after repaying the debt for a minimum of 10 years, you can eliminate the rest of the debt.
However, during the repayment period, you have to work in the public sector full-time. Part-time work is also acceptable if you have more than one job so that the total hours equal to the full-time requirement- a minimum of 30 hours per week. Besides, each payment should be made in full amount, on time, through Income-Driven repayment plans (Revised Pay as You Earn, Pay as You Earn, Income-Contingent, and Income-Based plans).
Keep in mind the forgiveness you receive for your Graduate PLUS Loan is not taxable. For application, you will need to submit your PSLF Form and employment certificate to the loan servicer - FedLoan Servicing.
2. Closed School Discharge
If your school closes while you are enrolled, on approved leave, or within the allowed time after withdrawal, you can get rid of the debt incurred for this education. For loans disbursed before July 2020, the allowed time limit is 120 days within withdrawal. For loans disbursed after this period, the eligibility window is extended to 180 days.
Only the borrowers who do not transfer credits or utilize similar options to continue education in comparable programs can benefit from this program. In other words, if you continue studying in a similar program, you will not receive discharge benefits for your Graduate PLUS loan. However, if you decide no to continue studying or start over again with a different field of study, you can get discharged.
You can request discharge by contacting the lender. Borrowers who do not continue education within three years after school closure receive automatic discharge notice.
3. Total and Permanent Disability Discharge
Another discharge option for a Grad PLUS Loan is Total and Permanent Disability Cancellation. This program eliminates the debt of people who can prove that they are disabled. Hence, they cannot work and return the debt. Borrowers can prove disability through documentation from Veteran Affairs, Social Security Administration, or a Physician.
In case borrowers utilize SSA or Physician certification, they will be subject to a three-year monitoring period. During this period, if the borrower recovers and gains substantial employment activity, the discharge will be canceled. As a result, such borrowers should repay the debt.
4. Death Discharge
If the borrower dies, debt is discharged. This discharge option requires proof of death submitted by a family member or a representative.
5. Borrower’s Defense to Repayment
This program is available to Direct Loan borrowers, including Graduate PLUS Loans. Borrower’s Defense rule protects students that the school misled. If a school lied to you about job replacement rates, quality of education, or the true cost of education, you could request debt relief. However, you need to first prove that if the school did not engage in fraudulent activity, you would not have taken the debt for education in that school.
Therefore, you need to develop strong arguments and support them with documents- physical evidence. For example, you can submit email communications, a contract with false information, marketing materials with false advertising to indicate that the school engaged in unethical and illegal activities. As a result, you can receive up to 100% discharge.
The recent years were not kind to borrowers who wanted to benefit from this program. Unfortunately, the previous Education Secretary did not favor this program. Hence, many borrowers received rejections, or their cases were delayed. Luckily, new Education Secretary and president Joe Biden aims to improve the effectiveness of Borrower’s Defense rule. Therefore, more borrowers can qualify for full debt elimination.
Do Your Research
The loan servicer is the party that should guide you in any decision regarding your Graduate PLUS Loan. Unfortunately, there have been cases when borrowers accused loan servicers during recent years because they failed to help properly.
For example, rather than directing borrowers to repayment plans with low payments, they put the loan into forbearance. As a result, interest accumulated, and borrowers’ challenges with payment did not end in such a short period of non-collection that loan forbearance grants. Therefore, borrowers need to do their research besides asking the loan servicers to help them. The more informed you are, the less likely that any party will trick you.
Final Words
PLUS loans help students in professional or graduate studies and their parents to receive financial aid for education. When students are responsible for repayment, the program is called Grad PLUS Loan. Meanwhile, Parent PLUS Loan is for parents of dependent children, and they are responsible for paying back the loan.
Graduate PLUS Loans have lower interest rates and flexible student loan repayment options. It requires good credit performance and enrollment to eligible education types, in addition to general conditions for federal aid.
If you need a source of funds to finance your professional or graduate education, Graduate PLUS Loan can be a good option. However, before applying for the loan, analyze its conditions against your finances. Alternatively, you can get help from debt experts to ensure that you make the best decision for your debt concerns.
