GradPLUS loans / Finance Option

Last Updated: 04/01/2024

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Overview

Grad PLUS loans are offered by the federal government to make it more accessible and affordable for people to seek graduate-level education. To receive a grad PLUS loan, students must be a graduate or professional student enrolled at least half-time at an eligible school in a program leading to a graduate or professional degree or certificate; not have an adverse credit history; and meet the general eligibility requirements for federal student aid.

The maximum PLUS loan amount a student can borrow is the cost of attendance (determined by the higher education institution) minus other financial assistance the student receives. For Direct PLUS Loans disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate is 8.05%. This is a fixed interest rate for the life of the loan.

Students receive an automatic deferment while enrolled in school at least half time, and for an additional six months after they graduate, leave school, or drop below half-time enrollment. During periods of deferment, interest will accrue on the loan.

report issued in December 2023 by the Century Foundation, EducationCounsel, and American Enterprise Institute finds that the average graduate student borrows triple what they did 30 years ago, with median debt for graduate students more than $70,000 in 2020. Black and Latino graduate students borrow more money and more often than White students and have a harder time paying down the debt. Nearly half of borrowers with professional degrees in fields such as law and medicine have debt that exceeds one-fifth of their discretionary income. This is the level at which the U.S. Department of Education deems debt unaffordable.

The report proposed five policy reforms to overhaul the federal system for graduate education financial aid:

  1. Set reasonable loan limits.
  2. Award grant aid to students and institutions to address equity and social good considerations.
  3. Ensure sufficient value and return on investment for students and taxpayers (student loans should only be available for programs where students are generally getting a good return on their investment and there isn’t a consistent pattern of taxpayers being on the hook to cover unpaid balances).
  4. Enhance the regulatory structure and consumer protections for private lending (more loans and new products could emerge from private student loan providers, necessitating an updated regulatory regime to ensure sufficient protections for consumers).
  5. Improve data disclosure and transparency (despite federal data systems like IPEDS and College Scorecard improving the public’s ability to access additional information on fields of study, earnings, and student debt, there is still a significant lack of basic information for students about comparable program costs and outcomes, and a lack of information for institutions, accreditors, researchers, and policymakers to drive understanding about program outcomes and inform policies related to graduate programs).

Background

Most growth in the average and overall levels of student indebtedness in the U.S. in the past 15 years has been driven by graduate student debt. Graduate and professional students comprised 21% of students enrolled in higher education institutions during the 2021–22 academic year, however this population of students accounted for 47% of the federal student loans disbursed.

Median Grad PLUS loan balances are nearly triple what they were ten years ago.  The increase in borrowing by graduate students coincides with the proliferation of new graduate programs. This is raising questions about the return on investment —whether these programs are worth the federal aid investments and whether programs are being created to chase federal dollars.

Unlike other federal student loans, there are currently no statutory or regulatory limits for Grad PLUS loans. The only limit is that these loans cannot exceed a student’s “cost of attendance.” Cost of attendance includes tuition, living expenses (e.g., housing, food), transportation, and childcare. The enrolling higher education institution determines the cost of attendance figure.

Historically, graduate student loans have generated revenue for the federal government. However, factors such as increasing prices, expansion of repayment options with shorter payment duration before forgiveness, and an expansion of graduate programs that do not provide sufficient earnings to fully repay this increasing debt now results in graduate loans cost the government money.

Many groups are calling for reforms in federal graduate student aid policy, including the Century Foundation, EducationCounsel, and American Enterprise Institute.

References

Akers, B.; Arnold, N., Smith Ellis, Z., Jett, J., Little, B., Moultrie. T., & Shireman, R. (December 8, 2023). A Framework for Reforming Federal Graduate Student Aid Policy. Century Foundation, EducationCounsel, American Enterprise Institute.

Douglas-Gabriel, D. (December 2023). It’s the fastest-growing type of student loan. How experts would rein it in. https://www.washingtonpost.com/education/2023/12/08/graduate-student-loans-aid-changes-report/

U.S. Department of Education: https://studentaid.gov/understand-aid/types/loans/plus/grad

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