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A graduate or professional degree can unlock many financial and career opportunities, though the achievement comes at a cost – often to the tune of more than $20,000 per year. That’s where a Grad PLUS loan can help.

Some professions require graduate degrees for highly sought-after positions. In other cases, money spent on graduate or professional school can lead to higher earnings later in your career. If you decide to borrow money for graduate school, here’s what you should know about Grad PLUS loans and the most effective ways to pay them back.

Benefits of Grad PLUS loans

Grad PLUS loans come with many of the same benefits that other federal student loans come with. Among them are:

  • Public Service Loan Forgiveness: If you pursue a public service career and you have made 120 payments on your Grad PLUS loans, you may be eligible to have the rest of your loans forgiven
  • Multiple repayment plans: Not everyone can afford to pay off their student loans in 10 years, which is the repayment period for the Standard Repayment Plan. The federal government gives student loan recipients the option of several other plans including plans that take your earnings into consideration. For example, the Income-Based Repayment Plan allows you to have monthly payments that are 10% to 15% of your discretionary income
  • Deferment and Forbearance: The federal government offers options if you run into financial trouble and can’t make your payments. You may be eligible for deferment or forbearance, which allow you to stop making payments or make reduced payments for a temporary period of time. However, with Grad PLUS loans, you will have to pay any interest that accrues during the period of the deferment or forbearance

Grad PLUS loans: Weighing the costs

  • Grad PLUS loans have a higher interest rate than other types of federal loans. Grad PLUS loans come with a fixed interest rate set by Congress each academic year. In 2017-2018, Grad PLUS loans had a fixed rate of 7%, which is higher than that of some other federal student loans. For example, Perkins Loans had an interest rate of 5% and are available to students who can demonstrate exceptional financial need, while direct unsubsidized loans for graduate and professional students had an interest rate of 6% in the 2017-2018 academic year
  • You’ll have to pay a loan origination fee, a one-time charge when the loan is initially disbursed. The fee can change from year to year. In the 2017-2018 school year, the loan origination fee for Grad PLUS loans was 4.3%. If you have excellent credit, you may be able to qualify for a private student loan with a lower interest rate and a lower origination fee. For example, the NEA Smart Option Student Loan by Sallie Mae provides fixed interest rates between 5.74% and 11.85%. However, keep in mind that private student loans often do not come with federal loan benefits such as income repayment plans and the ability to defer payments
  • You can borrow as much as you want — potentially leading to higher levels of debt. Grad PLUS loans have no borrowing limits. You can borrow up to the amount of the cost of attending graduate school minus any other financial aid that you have received. While it might be tempting to keep your cash in the bank while you’re finishing up your studies, you’ll still have to pay the loan back with interest, so it makes sense to only borrow what you need

Eligibility requirements for Grad PLUS loans

The U. S. Department of Education funds federal direct Grad PLUS loans. In order to qualify you must:

  • be enrolled in an accredited graduate or professional program at least half-time
  • not have an adverse credit history
  • be a U.S. citizen or eligible non-citizen
  • be registered with Selective Service if you are a male

Since good credit is an eligibility requirement, you agree to a credit check when you apply for a Grad PLUS loan. If you know in advance that you are going to be applying for loans to pay for graduate school, you have a chance to make sure your credit is up to par.

You can see where you stand by getting a free copy of your credit report from each of the three credit reporting companies – Equifax, Experian, and TransUnion – at www.annualcreditreport.com.

If you’ve had some financial challenges in the past, the following steps can help you improve your credit so that you are more likely to qualify for a Grad PLUS loan:

  • Pay your bills on time: If you have a tendency to forget to make payments, have your payments automatically deducted
  • Catch up on delinquent debts: If you’ve fallen behind on a loan, do whatever you can to become current. Some creditors may allow you to sign up for a payment plan. You might also take on a part-time job to make enough money to pay off the debt
  • Correct credit report errors: Make sure that there are no mistakes on your credit report, such as debts that you do not owe. If there are, contact the credit reporting agency to get them removed

An adverse credit history can derail your chances of getting approved for a Grad PLUS Loan and can be caused by the following events:

  • You are at least 90 days delinquent on more than $2,085 in total debt
  • You have more than $2,085 in total debt either in collections or you charged that amount off in the two years prior to the date of the credit report
  • You have a derogatory event, such as a bankruptcy discharge, a foreclosure or a repossession, on your credit report in the five years prior to the date of the credit report

What to do if you have an adverse credit history

Here are some options to consider:

  1. Get a co-signer: Also called an endorser, a co-signer agrees to be pay off your student loan debt if you default on your loan. This person would also undergo a credit check to make sure they didn’t have an adverse credit history.
  2. Submit documentation explaining your credit history: You may also qualify for a Grad PLUS loan with an adverse credit history if you can submit documentation that shows that your credit challenges resulted from extenuating circumstances that were out of your control.

If you have a major blemish on your credit reports such as a bankruptcy or a foreclosure, you must wait five years from that event to qualify for a Grad PLUS loan.

If you don’t want to put off graduate school for that long, you may be able to qualify for private loans to pay for the cost of attendance.

Applying for a Grad PLUS loan

To apply for Grad PLUS loans, you must file the Free Application for Federal Student AID (FAFSA) or the Renewal FAFSA if you completed a FAFSA in a previous year.

Once you get your financial aid award letter, you’ll find out how much financial aid you’ve received from other federal loan options such as Direct Loans. At that point, you’ll know how much you need in Grad PLUS loans to pay for the rest of your college costs.

The financial aid office of the school you wish to attend should be able to tell you what to do to request a Direct PLUS loan. Some schools will ask that you submit a loan request at StudentLoans.gov. On the StudentLoans.gov web site, click on Apply for PLUS Loans. It takes approximately 20 minutes to complete the application, which must be done in one session. To complete the application, you’ll need:

  • your Federal Student Aid ID (FSAID)
  • the name of the school you’re attending
  • personal information such as your mailing address, telephone number and email address
  • your employer’s name, address and telephone number

When applying for a Grad PLUS loan you will also have to complete a Direct PLUS Loan Master Promissory Note (Direct PLUS MPN), which basically is your agreement to repay the loan.

The repayment process for Grad PLUS loans

The federal government does not collect loan payments. Rather it assigns student loans to student loan servicers, companies that handle the collection process. Once you’re assigned a servicer, that is the company who will manage your loan repayment and who you’ll make your payments to.

There are several different repayment plans that you can choose from:

If you get a Grad PLUS loan, you can defer making payments as long as you are enrolled in an accredited graduate or professional school at least half-time. You also get a six-month grace period after you complete your education before you are obligated to start making payments.
Should you make payments while in school?

Some students may want to focus entirely on their studies and work as little as possible, paying back the loan after they graduate. However, think long and hard before you do that.

The minute your Grad PLUS loan is disbursed, interest will start to accrue. That means if you don’t make payments while you’re in school, the balance you owe will be higher than it was when you took out the loan.

Many people continue to work while they are in graduate or professional school. If you can afford to make student loan payments, do so. Another option is to make interest-only payments, which will ensure that the balance due doesn’t grow while you are in school.

Some ways to come up with extra money to make student loan payments while you are in school include:

  • Getting a part-time job
  • Driving for a rideshare service such as Uber or Lyft
  • Selling items on an online auction site such as eBay
  • Sharing expenses by getting a roommate

The earlier you can start paying back your loans, the less interest you’ll pay over time. You’ll also get out of the grip of debt sooner, which can allow you to focus on other financial goals.

If you find that you have trouble making your payments, contact your student loan servicer immediately, as they may be able to offer options that can help you, such as the ability to temporarily defer your payments.

Grad PLUS loans give you the opportunity to further your education, no matter what the costs. If graduate school or professional school will increase your earning potential, the cost of taking out student loans may be well worth it.

However, make sure you borrow only what you need, and come up with a repayment strategy before you sign on the dotted line. By taking those precautions, you can move forward in your professional life without compromising your financial future.