Alternative Student Loans vs. Graduate PLUS Loans
Many students will need funding beyond the Federal Stafford Loan Limit to meet their total cost of education. Penn Law students can choose between the Federal Graduate PLUS Loan (Grad PLUS) and an alternative private student loan program. These programs should be compared and researched thoroughly before deciding on the type of loan that is best for you. We have put together a comprehensive comparison guide to help you make this decision.
You should consider the following when choosing to borrow either from a private alternative loan program or the federal Grad PLUS.
Private alternative loans:
- Generally have variable rates, which rise or fall based on market conditions.
- The actual rate you are offered most often depends on your credit score.
- Your rate may start lower than the Grad PLUS fixed rate of 6.41%; however, it could change dramatically between now and your graduation/repayment date.
The Grad PLUS rate can only change through an act of Congress. Lenders may offer benefits to reduce the interest rate.
The Grad PLUS Loan Program requires the student to pay a mandatory 3% origination fee. Many alternative loan programs, including CitiAssist, offer no fee loans.
Both alternative loan programs and the Grad PLUS offer deferment and forbearance options (in-school, economic hardship, etc.). Length of deferment/forbearance for alternative loan programs may vary by lender.
Students are charged interest for private alternative loans and the Grad PLUS Loan. However, alternative loans may offer a grace period between the time when a student leaves the University and when the first payment is due. Grad PLUS repayment begins once the student leaves the University or ceases to be enrolled at least half-time.
Credit requirements are less stringent for Grad PLUS. Neither lack of credit history nor income to debt ratios will negatively impact eligibility.
Grad PLUS may be consolidated with other federal loans. In most cases this can extend the length of repayment, thereby lowering your monthly payments. However, this move may substantially increase the cost of your loan as interest is being paid over a longer period of time.
Death and Disability Discharge Benefits
Grad PLUS Loans, as they are federal loans, provide the same death and disability discharge benefits as Stafford Loans. Private loans generally do not carry these benefits.
When should students consider the 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 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.
When should students consider a private alternative loan?
- If you have an excellent credit rating and thus can get a good 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 the no origination fee loan.