Should I Use Private Student Loans Or Grad PLUS Loans

Q: I am getting ready for grad school and am going to need more student loans in addition to what I will receive from FAFSA. I am going to need some student loans to help cover the costs of my living expenses, and have been told that some private lenders may provide loans with a better interest rate than Grad PLUS Loans. Is it really possible to receive private student loans for graduate school at a better interest rate than what the Grad PLUS Loan offers?

A: While it may be tempting to think that a Grad PLUS loan and a private student loan are interchangeable, the reality is that there are some significant differences between the two different types of loans.

What makes private student loans and Grad PLUS loans similar?

Both a private student loan and a Grad PLUS loan can be used to help cover the educatioal costs associated with graduate school, including a students living expenses. All private student loans and federal Grad PLUS will be based on the borrowers credit. If the borrower has poor, little, or no credit at all, he or she may need the help of a creditworthy cosigner to help secure either type of loan.

What makes private student loans and Grad PLUS loans different?

Both undergraduate and graduate college students can apply for a private student loan, while only graduate students are eligible to apply for a Grad PLUS loan. Grad PLUS Loans have higher borrowing limits than other federal student loans and are offered at a low, fixed interest rate to those who qualify. While private student loans may offer similar borrowing limits to the Grad PLUS loan, virtually all private student loans are offered at a variable interest rate. Since Grad PLUS loans are federally backed student loans, you will receive the repayment and consolidation benefits that come with federal student loans. With private student loans, you will be subjected to whatever repayment terms your particular lender offers, which likely will not be as diversified as the Grad PLUS repayment options.

Which is loan is better to use for my grad school expenses?

While it certainly may be possible to get a private student loan at a lower interest rate than a Grad PLUS Loan, it is unlikely that you will be able to secure a private student loan with a comparable ‘fixed’ interest rate. With a Grad PLUS loan you will have a choice between the standard, graduated, extended, and income-contingent repayment terms offered on federal student loans, and your Grad PLUS loans will also be eligible for a Federal Direct Consolidation Loan. When presented with the choice between a private student loan or a Grad PLUS loan, the Grad PLUS loan is typically the better option.

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