Which is the better choice?
For many years law students who needed more money after exhausting their Stafford Loan eligibility have had only one choice — private educational loans. But beginning with the 2006-07 academic year another option became available: the Federal PLUS Loan for Graduate Students.
The financial aid office expects that the majority of students will benefit from choosing the Grad PLUS Loan, but there may still be valid reasons to choose a private loan. There is no single answer for all students as to which program is best. But the following information should help you to make an educated choice.
How Grad PLUS differs from private loans:
|Federal Direct Grad Plus||Private Loans|
|Interest Rate||The fixed interest rate on Direct PLUS Loans that disburse between July 1, 2013 and June 30, 2014 is 6.41%.||Private loans often have variable interest rates. Rate is often based on the credit rating of the borrower. Current rates range from about 4% to 12% or higher.|
|Origination Fees||A 4.288% origination fee will be deducted from your disbursements.||Most private loans with up-front fees add that amount to the principle, but it varies from lender to lender.|
|Credit Requirements||The credit requirements are based on federal standards. Credit scoring and debt to income ratio are not used. This is a less stringent credit check than you find with private loans.||Borrowers must pass a comprehensive credit review process.|
|Deferment/Forbearance Options||Offers the same deferment and forbearance options as the Stafford Loan. Can be deferred indefinitely while borrower is enrolled in school at least half time.||Deferment and forbearance options may be available but vary widely and are less flexible.|
|Grade Period||The PLUS Loan does not offer a grace period. It will go into repayment immediately after you stop attending school at least half time. You may have to request a deferment or forbearance while you study for the bar exam.||Most private loans offer a 6 or 9 month grace period after you stop attending school at least half time before repayment begins.|
|Death/Disability||The PLUS loan can be discharged if the borrower should die or become permanently disabled.||Private loans may not be insured against death or disability.|
|Repayment Options||The standard repayment term is 10 years, but can be extended for up to 25 years dependent upon the amount borrowed. PLUS Loans are also eligible for an Income Based Repayment option.||Repayment terms range from 10 to 25 years. There will likely not be an income-based repayment option.|
|Loan Consolidation||The PLUS Loan can be included in a federal consolidation with a fixed interest rate based on the interest rates of the loans being included.||Many private lenders offer a consolidation option, but the interest rates will likely be variable.|
|Loan Forgiveness||The PLUS Loan is eligible for the federal loan forgiveness program for public service employees.||Private loans are not eligible for the federal loan forgiveness program.|
You may prefer the PLUS Loan if:
- You like the certainty that comes with a fixed interest rate.
- Your credit is less than perfect. Your cost will likely be lower with PLUS if your credit history is not excellent.
- You like the protection of the greater deferment and forbearance options.
- You anticipate a career in public service.
- You want to have several flexible repayment options.
You may prefer a private loan if:
- You are comfortable with the possibility that the variable interest rate may rise higher than the rate on the PLUS Loan.
- You have top-tier credit. At this time borrowers with excellent credit may receive a lower interest rate on a private loan, but this is subject to change as the variable interest rates fluctuate.
- You believe that there is very little possibility that you will use the deferment or forbearance options.
- You plan to borrow this money only for a very short time.