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Grad PLUS Loan: 7 Things to Know Before You Apply

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If you need to pay for graduate school, one option to consider is a grad PLUS loan. Offered by the U.S. Department of Education, this loan can help cover any remaining costs for grad school. But like any debt, make sure you know the financial implications before applying.

Here are seven things you should know before getting a graduate PLUS loan:

1. Grad PLUS loans are unlocked with a FAFSA form
2. You can borrow up to the full amount of cost of attendance
3. You need to demonstrate creditworthiness to qualify
4. Interest accrues from the moment your loan is disbursed
5. You’ll have pay a loan origination fee
6. Graduate PLUS loans have a fixed interest rate
7. Grad PLUS loans can be consolidated
● Plus: Alternatives to Grad PLUS loans

1. Grad PLUS loans are unlocked with a FAFSA form

Your eligibility for a grad PLUS loan is determined when you fill out the Free Application for Federal Student Aid (FAFSA).

The borrowing process is relatively simple — in addition, federal loans typically offer more benefits than private student loans, such as income-driven repayment and student loan forgiveness programs. In the end, this can make graduate PLUS loans a very attractive choice.

2. You can borrow up to the full amount of cost of attendance

The maximum amount you can borrow under the federal Direct unsubsidized loan program for graduate school is $20,500 a year, with a maximum lifetime limit of $138,500. In comparison, a graduate PLUS loan allows you to borrow up to the cost of attendance, minus any other financial aid received.

It’s possible to pay for graduate school entirely with federal loans — assuming you qualify (see next section). This is a definite advantage if you’re leery of the private student loan market.

3. You need to demonstrate creditworthiness to qualify

Unlike federal Direct unsubsidized loans, graduate PLUS loans require evidence that you don’t have an adverse credit history.

If you have a poor credit history, you may be required to find an “endorser” (the federal equivalent of a cosigner) with a better credit history. You could also document the extenuating circumstances that resulted in your adverse credit history.

Alternatively, you could take steps to improve your credit before attending graduate school to help you qualify for a grad PLUS loan. Of course, delaying your decision to attend graduate school can also allow more time to save money, reducing your need to borrow additional funds.

4. Interest accrues from the moment your loan is disbursed

Although you’re not required to make payments if you’re enrolled in a graduate program at least half-time, interest on your grad PLUS loan begins accruing upon the loan’s disbursement.

On the other hand, you could make interest-only payments while still in school to help you save costs on the loan. To get an idea of how the interest costs will rack up, try crunching the numbers with this student loan calculator.

5. You’ll have pay a loan origination fee

In addition to the accruing interest on your grad PLUS loan, you’ll also pay an origination fee. Because of this, you’ll receive a little less than what you borrowed.

The fee changes each year, usually in October; currently, it’s 4.228% of the loan amount for the 2022-23 academic year.

6. Graduate PLUS loans have a fixed interest rate

As with other federal loans, the interest rate is set by federal law each academic year. However, your rate will remain fixed for the duration of your loan. For the 2022-23 academic year, the grad PLUS loan interest rate is 7.54% (you can find the most current info at studentaid.gov.

Even though you have to prove creditworthiness to qualify for a PLUS loan, having excellent credit won’t improve your interest rate. In fact, if you have stellar credit, you might even get a better interest rate on a master’s loan from a private lender, though rates on grad PLUS loans and other federal student debt tend to be competitive.

7. Grad PLUS loans can be consolidated

If you’re considering a grad PLUS loan, you may not be a first-time federal loan borrower.

For those with undergraduate debt, you could eventually group all your federal loans via a Direct consolidation loan. There are pros and cons to consolidation, though, so move forward cautiously.

If you don’t need federal loan protections, you could ultimately refinance grad PLUS loans too. Student loan refinancing is the only way to lower the interest rate on the federal debt (a Direct consolidation loan carries a rounded-up average of your original loans’ rates).

Remember that qualifying for refinancing requires good credit or a creditworthy cosigner, along with other criteria like a solid debt-to-income ratio.

Alternatives to Grad PLUS loans

Paying for graduate school is expensive, even if you’re an in-state resident at a public institution. To save as much as you can, consider all means of funding your degree.

Here are several alternatives to consider in addition to (or instead of) getting a grad PLUS loan:

Borrow the max of unsubsidized Direct loans. The interest rate for the 2022-23 school year is fixed at 6.54%, a full percentage point less than a grad PLUS loan’s 7.54%. This would be a significant saving when looking at the duration of your loan.
Investigate your private loan options: While interest rates on private student loans tend to be higher than those of federal loans, it’s worth shopping around. (Here’s a list of some of our favorite lenders to get you started.) Just remember that even if you find a private student loan with a lower rate than a grad PLUS loan, it probably won’t include the special protections that federal student loans provide.
Apply for grants and scholarships. Check out our list of resources to find grad school grants and scholarships. Although researching and applying for such funding takes effort and time, it’s worth it if you can receive money you don’t need to pay back.
Get a college job. Juggling classes and a college job can be challenging, but every dollar earned can help reduce your overall student loan debt.
Ask family and friends for support. There’s no shame in reaching out to your loved ones to help support your college career. You can receive contributions via the Gift of College, or use a crowdfunding site like GoFundMe.