Grad Plus Loan Review: Rates, Options, and Public Opinion


Last updated on July 26th, 2022 at 11:17 pm

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For many, student loans are a necessary part of funding their education. If you are a graduate student, it is even more difficult to secure the funding necessary to complete your course of study, especially for those in medical school or law school. Having a variety of funding options available and selecting the options that work best for each individual is the best strategy for anyone looking to continue their education. In this article we will review the federal Grad Plus loan program. We will take a closer look at the loan features, fees, rates, and repayment terms.

Finally, we will compare it to some other funding options available so you can make the best choice for your own personal situation.

An Unbiased View Of loans - Made wi...
An Unbiased View Of loans - Made with Clipchamp

What Is a Grad Plus Loan?

The Grad Plus loan is a federal direct student loan that is only available for graduate students. Federal direct student loans are funded directly from the U.S. Department of Education and assigned to a loan service company that will service the loan while it is in repayment. To obtain a Grad Plus loan, the borrower must first fill out the Free Application for Federal Student Aid (FAFSA) for the school year that they wish to borrow.

Once a completed FAFSA is on file, the Department of Education will issue a Student Aid Report (SAR) that gives the exact figure of each student’s expected family contribution or EFC. Once the SAR has been completed, it is sent to the colleges that the student requests. From there, each college will notify the student what types of financial aid they are eligible for. This includes student loans. For graduate students, unsubsidized student loans are the only type of direct federal loans available.

With an unsubsidized loan the interest is capitalized, or added to the principal starting on the date of loan disbursement. Unsubsidized loans are not based on financial need, and the student can borrow the full amount of their cost of attendance up to the allowable limits. For graduate students the limit on Direct Stafford Loans is $20,500 per year up to a maximum of $138,000. For some students in medical school these limits are higher. Once you have reached the upper aggregate limit of student loan debt you are no longer eligible for a Stafford Loan; that’s where a Grad Plus loan can help.

In order to be awarded a Grad Plus loan you must first exhaust all Stafford Loans for the current year or have reached the lifetime aggregate limit. Once this has been done you can be awarded a Plus loan for the full amount of attendance. Plus loans have no yearly or aggregate limits, so in theory, you could pay for your entire graduate school education with student loans.

However, there are some drawbacks to a Grad Plus loan. First, the loan origination fee is much higher than a Stafford loan and is currently around 4.2%. Also, interest rates are higher on a Plus loan with the current rate being close to 7.6%. Finally, Grad Plus loans can be consolidated with other student loans you may have, however they are not eligible for income based repayment and are only eligible for the Income Contingent Plan which features higher monthly payments. Overall, the Grad Plus loan is another funding option to make a graduate degree program a reality and should be used wisely.

Loan Features

Grad Plus loans are loans that are given directly to graduate students that have maxed out their Direct Stafford Loans either for the current year or for their lifetime. The Grad Plus loan is funded by the Department of Education and features similar repayment terms and plans as any other federal loan program with one major exception. The standard repayment term for a Grad Plus loan is 10 years, but for borrowers with more than $30,000 in total student loan debt, this term can be extended to 25 years.

Also, Grad Plus loans are eligible for Direct Consolidation with other student loan debt, but Plus loans are only eligible for Income Contingent repayment and not any of the other income based repayment plans. Under ICR your monthly payment is capped at 20% of your discretionary income as computed by the Department of Education. The origination fee for a Grad Plus loan is currently around 4.2%, and the interest rate is approximately 7.6% currently. Grad Plus loans are only limited by the college’s cost of attendance figure published annually minus any applicable student aid.

Pricing

Grad Plus Loans currently have an origination fee of about 4.2% making them rather expensive in terms of student loan debt.

How It Compares

We picked a few similar products available on the market to see how they compare.

Federal Perkins Loans
Parent PLUS loans

Discover Student Loans

Grad Plus Loan

Price $$$

With an origination Fee of 4.2% the Grad Plus loan is more expensive than any other federal student loan.

Interest Rate *** (3/5 stars)

Interest rates for these loans are right around 7.6% currently.

Loan Options **** (4/5 stars)

Borrowers can borrow any amount they wish up to the full cost of attendance minus any applicable student aid.

Public Opinion  ** (2/5 stars)

Some view student loans negatively due to the very high debt loads that some students can accumulate without the ability to repay them.

Loan Terms  **** (4/5 stars)

The Grad Plus loan is eligible for all the same repayment plans that are available to other federal student loans expect for the most of the income based plans. The only income based plan a Grad Plus loan is eligible for is the Income Contingent Plan which is the most expensive.

Pros

  • No limits on amount you can borrow
  • Can be consolidated with other student loan debt
  • Is eligible for deferment and/or forbearance

Cons

  • High origination fee
  • Higher interest rates
  • Not eligible for IBR plans
https://studentaid.ed.gov/sa/types/loans/plus

Federal Perkins Loans

The federal Perkins loan is a federal student loan program that gives loans to students with considerable financial need. Students that qualify for Perkins loans may borrow up to their cost of attendance minus any other applicable financial aid. Also, Perkins loans are awarded after Direct Stafford loan limits have been reached. Perkins loan funds are dispersed by the college and the college becomes the lender. Origination fees with Perkins loans are currently right around 1% and interest rates are approximately 5% currently. The federal Perkins loan program is set to be phased out after 2018.

Price $

The origination fee with a Perkins loan is about 1%

Interest Rate **** (5/5 stars)

The interest rate on a Perkins loan is about 5% making it relatively low for unsecured debt.

Loan Options *** (3/5 stars)

Only borrowers with very high levels of financial need will qualify for a Perkins loan.

Public Opinion  **** (2/5 stars)

Student loans generally have a relatively low public opinion due to what some people feel is predatory lending practices.

Loan Terms  **** (4/5 stars)

The Perkins Loan program is eligible for the same repayment programs as well as consolidation that all federal student loan programs are eligible for, and these loans are eligible for income based repayment plans.

Pros

  • Allows borrowers access to more funds outside of Stafford loan limits
  • Low origination fee
  • Low interest rate

Cons

  • Very few people will qualify
  • Currently being phased out
https://studentaid.ed.gov/sa/types/loans/perkins

Parent PLUS loans

The Parent Plus loan program is a federal direct loan program that allows parents of undergraduate students borrow money that can be applied to their child’s college educational expenses. These loans are funded directly by the Department of Education, and similar to Grad Plus loans, have no limits that Stafford loans have. Parents may borrow up to the full amount of their child’s cost of attendance minus any applicable financial aid.

These loans cannot be transferred to the student at any time and cannot be consolidated with any of the student’s federal student loans. However, a parent may consolidate a Plus loan into their existing federal student loans. Plus loans are eligible for in school deferment and a 6 month grace period once the student drops below half time status. However, Plus loans are only eligible for Income Contingent Repayment and not any other income based repayment plan.

Price $$$

The origination fee for a Plus loan is currently around 4.2%.

Interest Rate *** (3/5 stars)

The interest rate on a Plus loan is around 7.6%.

Loan Options **** (4/5 stars)

Parents can borrow up to their child’s full cost of attendance or any smaller amount minus applicable financial aid.

Public Opinion  ** (2/5 stars)

Student loans have received lots of negative publicity in recent years due to what some feel are predatory lending practices.

Loan Terms  **** (4/5 stars)

Plus loans are eligible for several repayment plans just as all federal student loans are. However, the only income based repayment plan they are eligible for is the Income Contingent Plan.

Pros

  • No cumulative loan limits
  • Can be used to reduce the student’s debt load
  • Eligible for Income Contingent Repayment

Cons

  • Higher interest rate
  • Higher origination fee
  • Not eligible for IBR
https://studentaid.ed.gov/sa/types/loans/plus

Discover Student Loans

Discover student loans are private student loans issued by Discover. These loans have either a variable interest rate or a fixed interest rate depending on what you select. These loans are based on credit worthiness and may be difficult for undergraduate college students to qualify for without a co-signer. Discover student loans offer several loan options with each tailored to the individual borrowers needs including: Undergraduate loans, grad school loans, medical school loans, law school loans, and MBA loans.

Discover offers an in-school deferment and 6 month grace period on these loans. The standard repayment term is 15 years once repayment has been entered. All loans with Discover will be rolled into one account similar to a federal Consolidation loan. Discover Student Loans are private loans and do not require a FAFSA and are not eligible for consolidation with federal student loan debt. Also, these loans are not eligible for any of the federal loan repayment programs including income based repayment, extended repayment terms, and loan forgiveness.

Private student loans are typically not the first choice for an undergraduate student, but can be a good alternative to a Parent Plus loan if a favorable interest rate is awarded. 

Price                $

There are no fees to apply for a Discover Student Loan.

Interest Rate  ****  (4/5 stars)

The interest rate can vary from 4.12% up to 13.49% depending on credit worthiness and the loan program selected.

Loan Options  ***** (5/5 stars)

These student loans can be tailored to meet each individual borrower’s needs. Borrowers can borrow up to the full coast of attendance minus any applicable financial aid.

Public Opinion    ** (2/5 stars)

Student loans are not held in a high public opinion which is why there has been an increase in private lenders offering student loans. These lenders require demonstrated ability to repay the debt unlike federal loans.

Loan Terms       *** (3/5 stars)

The standard repayment term for Discover Student Loans are 15 years after the student leaves school.

Pros

  • Potentially lower interest rates
  • flexible loan amounts
  • Longer standard repayment term for lower payments

Cons

  • Not eligible for federal Consolidation
  • Not eligible for income-based repayment plans 
  • Not eligible for loan forgiveness
https://www.discover.com/student-loans/undergraduate.html

Conclusion

For some students a student loan is a necessary part of funding a higher education. In this article we have examined several loan programs. If you are a graduate student a Grad Plus loan may be a good choice for funding your education under some circumstances. For those in medical or law school that need access to more funds than are available through the Stafford Loan program, a Grad Plus loan may be a good option. Above all, remember to take these loans on with caution and only borrow what is necessary to pay for your school related expenses because, as you have been told many times: These are loans that must be repaid.

Overall Rating for Grad Plus Loans     *** (3/5 stars)

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