Q: I will be attending graduate school shortly, and will need some additional funds for living expenses, etc… I was wondering if Grad PLUS loans are based on credit, and if so, how someone with poor credit can secure a Grad PLUS loan?
A: Similar to funding an undergraduate education, graduate students should first exhaust all of their free money options, such as scholarships and grants, and apply for federal financial aid (via FAFSA) before applying for Grad PLUS loans and/or private student loans. The Grad PLUS loan is a student loan (for graduate students only) that is guaranteed by the Federal Government.However, unlike other need-based federal student loans, the Grad PLUS loan is based on credit. The Grad PLUS Loan is similar to a private student loan in that it is a credit based student loan, however Grad PLUS loans may be a better option than private student loans for some college graduate students, after they have exhausted all other federal financial aid and scholarship opportunities. Unlike most private student loans, Grad PLUS loans offer a fixed interest rate, which could possibly be lower than what they would receive with a private student loan (depending on the private student loan and borrowers credentials).
Similar to private student loans, Grad PLUS loans do have some credit criteria, however the credit requirements do differ from those of private student loans. A Grad PLUS loan will require that the applicant does not have an adverse credit history, which means that the applicant must not be delinquent on any debt (90 days or more), or have negative marks (including but not limited to wage garnishment, foreclosures, default, discharge or tax liens) on his or her credit report. Unlike the credit criteria for private student loans, Grad PLUS loans will not use an applicants FICO score or consider an applicants debt to income ratio when determining eligibility. If you have poor or little credit, this does not mean you will not have the ability to secure a Grad PLUS loan, it just means you may simply require the help of a creditworthy cosigner to qualify. You can try to apply for the Grad PLUS loan on your own, and if you get denied, you can always re-apply with a creditworthy cosigner. Read more on Grad PLUS loans and student loans for graduate students by visiting our Graduate Loans section.