Comparing Graduate Loan Options
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Many graduate/professional students rely on supplemental loan programs to fund their educations, such as the Federal Direct Grad PLUS Loan or private educational loans. Both of these programs allow students to borrow up to their full cost of attendance, minus other aid received. Some loans are more beneficial to borrowers than others, and it is important for students to weigh the pros and cons of each loan program before deciding which is best for them.
You should consider the following when choosing to borrow either from the Direct Grad PLUS or a private alternative loan program.
- Private alternative loans generally have variable interest rates, tied to either LIBOR or Prime, and can either rise or fall depending on the market. The actual interest rate offered to a student is most often based on your credit history. If you have superior credit, some lenders may discount the rate they offer you. If your credit is poor, your rate will likely be higher. The Federal Direct Grad PLUS interest rate is fixed and does not vary based on market conditions or credit scores.
- The Federal Direct Grad PLUS Loan program requires the student to pay a fixed origination fee. Alternative loan fees will depend on the lender and your credit score and can vary in amount.
- Both alternative loan programs and the Federal Direct Grad PLUS offer deferment and forbearance options (in-school, economic hardship, etc.). Length of deferment/forbearance for alternative loan programs may vary by lender.
- Interest accrues during in-school, grace, and deferment periods for both private alternative loans and the Federal Direct Grad PLUS Loan.
- Alternative loans may offer a grace period between the time a student leaves the University and when the first payment is due. Federal Direct Grad PLUS loans entitle the borrower to a six-month grace period after they cease half-time enrollment.
- Credit requirements are generally less stringent for Federal Direct Grad PLUS. Neither lack of credit history nor income-to-debt ratios will negatively impact eligibility. All loans have some form of credit check.
- Federal Direct Grad PLUS Loans may be consolidated with other federal loans through the Direct Lending Program.
- Federal Direct Grad PLUS Loans provide the same death and disability discharge benefits as Direct Loans. Private loans may not carry these benefits.
- Income Based Repayment provisions with Federal Direct Grad PLUS Loans may allow more manageable repayments for those students with higher loan debt and lower paying professions.
- Certain public servants may qualify for loan forgiveness in the Federal Direct Federal Grad PLUS Loan program.
- If you have an excellent credit rating and can thus get a superior interest rate on your loan.
- If you plan to pay off the loan quickly, thereby lessening the impact of a higher long-term interest rate while taking advantage of a no-origination fee loan.
- If you believe you can get a variable alternative loan at a significantly better interest rate than the fixed Direct Grad PLUS.
- If you prefer a fixed rate loan to the uncertainty of a variable rate loan.
- If you don’t have great credit.
- If you like the option of consolidating your Federal Direct Grad PLUS Loans with other federal loans.
- If you like the further financial security of death/disability discharge benefits for you and/or your estate.
- If you believe you can take advantage of either the Income Based Repayment, Pay as You Earn, or Public Service Loan Forgiveness provisions associated with the Federal Direct Grad PLUS Loan program.
