Student Loan and Private Loan FAQs

Type of Borrower

GradPLUS Loans

How do private loans compare to GradPLUS loans?
The information below is only relevant if you are a graduate student. If you are an undergraduate, you cannot use a GradPLUS loan.

Interest Rates: GradPLUS loans offer a fixed interest rate for the life of the loan which is the same for all borrowers (currently 7.9%) while most (but not all) private loans are based on a variable rate that is based on your credit strength. Keep in mind that most lenders offer incentives to lower the rate you might actually pay. The variable rate used for private loans is credit-based and wil increase and/or decrease according to the market environment.

Consolidation: GradPLUS loans may be consolidated with other federal education loans such as Stafford or Direct loans. This may help to better manage your debt when you graduate and enter repayment.

Repayment Length: GradPLUS loans are based on a 10-year repayment that begins 60 days following the final disbursement, although this can be deferred in many cases until you graduate. Private loans offer variable repayment terms. Most are in the range of 12-30 years for repayment.

Credit Check/Credit Strength: GradPLUS loans do have a credit check, but it is a "light" credit check which looks for "adverse" credit. GradPLUS loans do not require a co-signer.

Private loan lenders generally perform a more thorough credit check which, in addition to checking your FICO, or credit score, may also look at your debt-to-income ratio, income, employment status and other credit-based factors. If you do not have strong credit, most private loans will require the presence of a creditworthy co-signer to approve the loan.

Consolidation: GradPLUS loans can be consolidated along with your Stafford loans upon graduation to give you a single payment. Private loans can be consolidated but in a separate loan from your Federal loans called a private consolidation loan.

Deferment & Forbearance: GradPLUS loans are federal loans and therefore offer the same payment deferment and forbearance options as the federal Stafford loan. Forbearance covers factors such as unemployment and economic hardship (up to 3 years) and deferment of payments while in-school is unlimited while you maintain at least half-time enrollment. Many private loans only offer one year of forbearance but each lender's conditions may vary.

Should I choose GradPLUS or a private loan?
You might want to choose a private loan if:

• You are comfortable with the possibility of interest rates increasing beyond the interest rate cap of the GradPLUS loan
• You have top-tier credit - at this point in time, these borrowers will presently be charged less interest, but if interest rates continue to climb, this benefit decreases or disappears altogether
• You believe that there is very little possibility that you may use the deferment or forbearance options
• You plan to only borrow the loan for a short time

You might want to choose a GradPLUS loan if:

• You like the certainty that a fixed-rate loan provides
• If your credit is good, fair, or poor, your cost will likely be lower
• You like the protection that the greater deferment and forbearance options provide
• The repayment incentives offered may bring the repayment interest rate cost to less than 8.50%

I'm in a certificate or continuing education program, not a graduate program. Can I use a GradPLUS loan?
You must be enrolled at least half-time in a graduate or professional program leading to a master’s degree (or law, medical, or other professional degree) to be eligible to borrow a GradPLUS loan.

Do I need to complete the FAFSA to apply for a GradPLUS loan?
Yes, in order to be eligible for the GradPLUS loan, you must file the FAFSA.

Additionally, you must apply for and the school must determine the student's eligibility for the maximum annual subsidized and/or unsubsidized Stafford loan amount; however, the student is not required to receive a Stafford loan as a condition of receiving a GradPLUS loan.

How much can I borrow using GradPLUS?
The eligible loan amount cannot exceed your total cost of attendance.

What is the cost of attendance (COA)?
The cost of attendance (COA) is a number (generally a yearly figure) that is designed to help summarize the various costs of attending a school that takes into account

1. tuition and fees
2. on-campus room and board (or an allowance for these amounts for off-campus students)
3. allowances for books, supplies, transportation, loan fees, and if applicable, dependent care,

It also generally includes various miscellaneous and personal expenses including an allowance for a purchase or rental of a personal computer and can also include additional costs related to a disability.

Most schools publish the COA annually in brochures and online college search sites, so it may help to check with some of these resources. Additionally, if you have unusual circumstances which have higher costs, it might help to discuss these with the financial aid office.

Is there a credit check for GradPLUS loans?

Yes, there is a credit check for GradPLUS loans that primarily checks for any signs of "adverse credit."

A GradPLUS loan applicant is considered to have adverse credit if any of the following conditions apply:

• The applicant is 90 days or more deliquent on the repayment of any debt
• The applicant has had any debt discharged in bankruptcy during the 5-year period before the date of the credit report
• The applicant has been the subject of a default determination on any debt, a foreclosure, a tax lien, a repossession, a wage garnishment, or a write-off of a Title IV debt during the 5-year period before the date of the credit report
• The Lender must obtain a credit report on the borrower from at least one major credit bureau
• If a student is turned down for credit, the student may chose to appeal the decision to the individual's lender (each lender will have a different appeal process) or re-apply with an Endorser
• The absence of a credit history is not considered adverse credit

 

 

What is adverse credit?
A GradPLUS loan applicant is considered to have adverse credit if any of the following conditions apply:

• The applicant is 90 days or more deliquent on the repayment of any debt
• The applicant has had any debt discharged in bankruptcy during the 5-year period before the date of the credit report
• The applicant has been the subject of a default determination on any debt, a foreclosure, a tax lien, a repossession, a wage garnishment, or a write-off of a Title IV debt during the 5-year period before the date of the credit report
• The Lender must obtain a credit report on the borrower from at least one major credit bureau
• If a student is turned down for credit, the student may chose to appeal the decision to the individual's lender (each lender will have a different appeal process) or re-apply with an Endorser
• The absence of a credit history is not considered adverse credit

What is a GradPLUS loan endorser?
An endorser is any creditworthy individual who agrees to become a co-party to the GradPLUS loan of the applicant. This is most often used if the applicants themselves have been denied due to adverse credit.

*Note that there is not currently a release provision for endorsers, meaning that they will remain subject to the terms of the loan until it is paid off or consolidated.

Are there fees on GradPLUS loans?
The federal regulations call for both a 3% origination fee and a 1% guarantee fee to be charged on the loan amount. These fees are structured in such a way that they are charged against the loan amount and the fee is removed prior to disbursement. Basically, they take the money out up front.

When does interest begin to accrue and when is interest capitalized?
Interest begins to accrue as soon as the first disbursement is made. Interest is capitalized when the accrued interest is added to the loan principal. Interest capitalization occurs when loan repayment begins and after periods of deferment or forbearance.

When do I have to begin repaying a GradPLUS loan?
In most cases, the first payment is required within 60 days after the final loan disbursement for the enrollment period for which you borrowed. But, most lenders will offer to defer payment of these loans while you are attending school at least half time. There is currently no provision for a grace period on the GradPLUS loan, which means that students would begin repayment immediately upon graduation or if they drop below half-time status. As with Federal Stafford loans, however, students may be eligible for an economic hardship forbearance.

What are my repayment options for GradPLUS loans?
The repayment plans for Stafford and the Parent PLUS are also available for GradPLUS.

• Level Payment Plan: equal monthly payments over the term of the loan
• Graduated Repayment Plan: two years of interest-only payments, followed by increased payments covering interest and principle for the remainder of the loan
• Income Sensitive Plan: payments adjusted to the borrower's income
• Extended Repayment Plan: payments can be extended up to a 25 year term
• Income-Based Plan: payments adjusted to the borrower's income with more generous options than the Income Sensitive Plan