Graduate PLUS Loans vs. Private Student Loans

Many PCOM students will consider funding their educational and living expenses with Federal or private student loans, or a combination of the two.

A common question during the financial aid process is whether to borrow a Federal Graduate PLUS loan or a private student loan. It is important to understand the differences between the Federal Grad PLUS loan and private student loans.

Federal Direct Grad PLUS Loan
Private Student Loan
 
How to Apply

Login to studentaid.gov and complete:

  • a Graduate PLUS Loan Master Promissory Note.
  • a Graduate PLUS Loan Application.
    • View full details on applying.
    • A credit check is part of the PLUS Loan Application. If a student does not pass the credit check, the student can either apply for an appeal with the Department of Education or use a credit-worthy endorser.
 
  • Discuss the terms, conditions and application process of the private student loan with the lender.

Eligibility
  • FAFSA required.
  • Credit check required.
  • Must be enrolled as at least a half-time student, in good academic standing and working toward a degree or certificate.
 
  • No FAFSA required.
  • Credit check required.
  • Must be enrolled as at least a half-time student, in good academic standing and working toward a degree or certificate.

Cosigner or Endorser
  • No co-signer required, but a credit co-signer can be used if credit is declined.
 
  • No co-signer required, but having a co-signer can dramatically decrease your interest rate.
  • Discuss details and conditions with lender.

Lender
  • U.S. Federal Government, however the loan is serviced by an assigned loan servicing company.
 
  • Bank, credit union or lending institution.

Interest Rate
  • The Grad PLUS loan has a fixed interest rate set based on its first disbursement. A new interest rate is established each July 1. Visit studentaid.gov/interest to view the present interest rate.
 
  • Variable and fixed rates available.
  • Rates vary by lender and credit worthiness.
  • Having a good credit rating and/or using a credit‐worthy cosigner may dramatically decrease your loan interest rate.
  • Discuss details and conditions with lender.

Interest Accrual
  • Interest begins accruing upon first disbursement.
  Interest usually begins accruing upon first disbursement.
       
Interest
Capitalization
  • Interest capitalizes upon repayment or at end of a deferment/grace period.
 
  • Varies by lender.
  • Some lenders capitalize interest monthly or quarterly.
  • Discuss details and conditions with lender.

Loan Fees
  • The Grad PLUS loan has an origination fee set based on its first disbursement. A new origination fee is established each October 1. Visit studentaid.gov/interest to view the present origination fee.
 
  • Usually no loan fees.
  • Discuss details and conditions with lender.

Loan Limit
  • Up to cost of attendance minus other financial aid (loans, scholarships and federal work study) awarded.
 
  • Up to cost of attendance (loans, scholarships and federal work study) minus other financial aid awarded.

Aggregate Lifetime
Borrowing Limit
  • None.
 
  • Varies by lender.
  • Discuss details and conditions with lender.

Repayment
Grace Period
  • Student may request a 6-month post-enrollment deferment from lender after student ceases to be enrolled at least half-time or graduates.
 
  • Varies.
  • Discuss details and conditions with lender.

Repayment Plans
  • Various repayment plans available including:
    • Multiple income-driven repayment plans.
    • Standard (10 years)
    • Extended (25 years)
    • and more.
 
  • Most lenders offer 10-20 year repayment plans.
  • Most lenders do not offer income-driven repayment plans.
  • Discuss details and conditions with lender.

Consolidation  
  • Non-federal private student loans cannot be consolidated with federal student loans.
  • Eligible for student loan refinancing.

Public Service Loan
Forgiveness (PSLF)
  • Eligible for PSLF.
 
  • Not eligible for PSLF.

Death/Disability
  • Loans discharged upon borrower death or disability.
 
  • Private loans may have discharge for death or disability.
  • Discuss details and conditions with lender.

Private Student Loan Advice

Our office recommends carefully researching private student loans for graduate or medical school. Use the below questions as guides for learning more about the loans you research.

Is the interest rate variable or fixed?

Fixed interest rates keep the same rate for the life of the student loan.

Variable interest rates usually fluctuate on a quarterly basis. During repayment, your monthly payment amount may increase or decrease based on changes to the variable interest rate.

How can I receive a better interest rate?

Use a cosigner/endorser

Using a credit‐worthy cosigner or endorser may dramatically decrease your student loan interest rate.

Be a customer of the bank

A bank may offer better interest rates on their student loans if the borrower has other banking products with the company such as a checking account, savings account, mortgage and more.

How often does the loan capitalize interest?

What is interest capitalization?

It is very important to understand how interest capitalizes, when it capitalizes and how it affects your student loans.

Interest capitalization is when the interest accrued on a loan is added to the principal amount of the loan, resulting in a new, higher principal.

  With yearly capitalization Without yearly capitalization
Principal amount $10,000

at 10.0% fixed interest rate
$10,000

at 10.0% fixed interest rate
Year 1 interest accrued $1,000 $1,000
New principal amount $11,000 $10,000

(plus $1,000 in interest accumulated)
Year 2 interest accrued $1,100 $1,000
New principal amount $12,100

the loan is now accumulating interest on $12,100
$10,000

(plus $2,000 in interest accumulated)

Are there any loan fees?

Potential private student loan fees

Service, disbursement or origination loan fees may be deducted from the amount borrowed before the loan disburses to the school.

For example, a $10,000 student loan may have a 3.0% origination fee. That means only $9,700 of the original $10,000 borrowed will actually pay to the school. However, you will still owe $10,000 in a principal amount.

Ask if the loan has any loan fees such as origination fees or service fees.

When will my first loan payment be due after school?

Ask about grace periods

Find out if you will receive a grace period on your loan repayments after graduation.

Once you are no longer enrolled at least half-time in an eligible program, a grace period may grant you a period during which you are not required to make loan payments. If your loan has a grace period, payment will be due at the conclusion of the grace period.

Medical students should ask if the loan has any deferment options during residency years.

If I have an economic hardship, what can be done to reduce or defer my monthly payment?

Ask about deferments

Ask lenders about deferment options to reduce or delay repayment in case of economic hardships. In case you ever have difficulty making payments, it is important to know your options for deferment. There may also be other options such as changing your repayment plan.

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