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Graduate Plus vs. Private Loans

For college students, there is little argument that the first line of financing education should be Federal Stafford Loans (obviously after all “free” sources have been exhausted – grants, scholarships, etc.). For an ever-growing number of students, the amount they’re able to borrow in Federal Loans has been insufficient to meet their educational costs – the result? A 700% increase in private loan volume between 1995 and 2004 (according to College Board).

A recent tip (see blog tip archive to read) outlined the substantive changes to student loan legislation that took place on July 1 (2006). One of the primary [good] changes for graduate and professional students was the introduction of the Grad PLUS Loan, allowing grad/professional students to borrow up to the total cost of education with this type of loan (ultimately eliminating the need to take out [typically] higher-cost private loans unless specifically chosen). PLUS loans had initially only been available to parents of undergraduate students. One of the benefits of the new Grad PLUS Loan is the fixed rate it offers (8.5% for most — 7.9% for Direct Loan-provided Grad PLUS Loans). A fixed rate is a huge sigh of relief relative to the variable rate that private [credit-based] loans provide (with many currently topping 9% with interest rate caps (if they even have a cap) of 20% OR MORE!). Obviously, you should speak with someone that can inform you of your options relative to your individual circumstances before making loan decisions.

Several sites provide helpful charts/breakdowns of the primary differences between Grad PLUS and Private Loans. Some of these include:

If you feel that a private loan is necessary, view this former tip on selecting the best possible loan for you.