Are Grad PLUS Loans Based On Credit

If you’re getting ready to attend graduate school and need some extra funds for living expenses or other costs, you’re probably looking into Grad PLUS loans as an option. But if you’re worried about your credit, you’re not alone—many students wonder if they can secure a Grad PLUS loan with poor credit. The good news is that even if your credit isn’t perfect, there are still options to help you qualify.

What is a Grad PLUS Loan?

A Grad PLUS loan is a federal student loan that graduate and professional students can use to cover the cost of their education. It’s different from other federal student loans because it’s credit-based, meaning the government checks your credit history before determining your eligibility. However, unlike private student loans, Grad PLUS loans are backed by the U.S. government, offering fixed interest rates and flexible repayment options.

Grad PLUS Loans and Credit: What You Need to Know

Unlike need-based federal student loans like Direct Unsubsidized Loans, Grad PLUS loans require a credit check. This means your credit history plays a significant role in determining whether you’ll be approved for the loan. But don’t panic! If your credit isn’t stellar, there are still ways to secure the loan you need.

To qualify for a Grad PLUS loan, you must not have an “adverse credit history.” This term essentially means that you cannot have certain negative marks on your credit report, such as:

• Accounts that are 90 days or more past due
• Defaulted loans
• Foreclosures
• Tax liens
• Wage garnishment or collection actions

However, Grad PLUS loans do not use your FICO score or debt-to-income ratio to determine eligibility, which is a big difference from private student loans. This means that even if your credit score is lower than you’d like, it doesn’t automatically disqualify you. As long as your credit report doesn’t show these negative items, you could still qualify.

What If I Have Poor Credit?

If you have poor credit or little credit history, it’s still possible to get a Grad PLUS loan—but there may be additional steps to take. Here’s what you can do:

1. Apply on Your Own

Start by applying for the Grad PLUS loan on your own. The application process is simple and can be done through your school’s financial aid office or online via the Federal Student Aid website. If your application is approved, you’ll receive the loan without needing any additional help. But if you’re denied, don’t worry—there are still options!

2. Apply with a Creditworthy Cosigner

If your initial application is denied due to your credit, you can reapply with a creditworthy cosigner. A cosigner is someone who has a strong credit history and agrees to take on the responsibility of the loan if you’re unable to repay it. This can significantly improve your chances of approval, especially if your cosigner has a solid credit record.

Keep in mind that not all cosigners are equal. The cosigner should ideally have a clean credit report with no delinquencies, defaults, or other negative items. This helps ensure that the loan application is more likely to be approved.

Grad PLUS Loans vs. Private Loans: Which Is Better?

While Grad PLUS loans are credit-based, they are often a better option than private loans for many graduate students, especially if you’re worried about securing funding with poor credit. Here’s why:

• Fixed Interest Rates: Grad PLUS loans come with a fixed interest rate, meaning your rate won’t change over time, which offers greater financial stability. Private student loans, on the other hand, may have variable rates that can fluctuate depending on market conditions.
• Repayment Flexibility: With Grad PLUS loans, you have more flexible repayment options. The federal government offers various repayment plans, including income-driven plans, which can help if your financial situation changes after graduation.
• Loan Forgiveness: Federal loans may qualify for loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF), which private loans typically do not. If you plan to work in public service, this could be a huge benefit down the road.

Next Steps: How to Secure Your Grad PLUS Loan

To start the process of applying for a Grad PLUS loan, follow these steps:

• Complete the FAFSA: Start by filling out the Free Application for Federal Student Aid (FAFSA). This will allow you to apply for federal financial aid, including Grad PLUS loans, and any other aid you may be eligible for.
• Apply for the Grad PLUS Loan: Once your FAFSA is processed, you can apply for a Grad PLUS loan directly through your school’s financial aid office. You’ll need to pass the credit check, but remember that if you have poor credit, you can always reapply with a cosigner.
• Review Your Loan Options: If you’re approved, review the loan terms carefully, including the interest rate, repayment options, and any fees that may apply. If you’re denied, work with a cosigner to improve your chances of approval.
• Consider Alternatives: If you don’t qualify for a Grad PLUS loan, consider other options like private student loans, scholarships, grants, or even working part-time through a work-study program. Your school’s financial aid office can help guide you through these options.

Securing a Grad PLUS loan with poor credit might seem like a challenge, but it’s not impossible. By understanding the requirements, applying with a cosigner if necessary, and comparing your options, you can find the right financial aid to help fund your graduate education. Remember to exhaust all other options, such as scholarships and grants, before turning to loans, and take time to carefully consider all the terms before borrowing.

If you still have questions about Grad PLUS loans or need help navigating the application process, don’t hesitate to reach out to your school’s financial aid office. They’re there to help you every step of the way!