Federal Graduate PLUS Loans
Starting July 1, 2006 graduate students will be able to use federal PLUS loans to fund the gap between their Stafford loan allocation and their cost of education.
After July 1, 2006, graduate students can borrow up to 100% of their cost of education (less other aid received) in federal PLUS loans. These loans carry a fixed 8.5% interest rate, have minimal credit approval standards, and allow interest payments to be deferred while in school (deferred interest payments are added to the principal amount of the loan).
Federal PLUS loans may offer many graduate students a lower cost alternative to higher rate private education loans and credit cards, and don't have the collateral requirements and higher credit standards that home mortgages or home equity lines of credit do.
Credit eligibility for federal PLUS loans is not based your on debt-to-income ratio or your credit score (as eligibility for private student loans and home equity loans is). You will be eligible for a PLUS loan, even if you have a high debt-to-income ratio or a bad credit score, as long as you don't have an "adverse" credit history. That is, as long as you haven't been more than 90 days late on any debt and don't have any defaults, bankruptcies or other adverse action on any education debt, you should be eligible to borrow PLUS loans.
You must start repaying your PLUS loan immediately after leaving school (or going below half-time enrollment). The standard repayment term is 10 years. PLUS loans are eligible for consolidation under the Federal Student Loan Consolidation Program. Consolidating your PLUS loans will allow you to extend your repayment period up to 30 years, and significantly reduce your monthly payments.
In addition, because the interest rate on a federal consolidation loan is capped at 8.25%, consolidating PLUS loans issued after July 1, 2006 will effectively reduce the interest rate on those loans by 0.25% (from 8.5% to 8.25%).
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