FEDERAL DIRECT GRAD PLUS OR PRIVATE EDUCATIONAL
LOANS —
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 Direct PLUS Loan interest rate is fixed at 7.9%. | Private loans have variable interest rates. Rate is often based on the credit rating of the borrower. Current rates range from about 7% to 12% or higher. |
| Origination Fees | A 2.5% 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. |
| Grace 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 are not insured against death or disability. |
| Repayment Options | The standard repayment term is 10 years, but can be extended for up to 25 years dependant upon the amount borrowed. PLUS Loans will be eligible for an Income Based Repayment option beginning July 2009. | Repayment terms range from 10 to 25 years. |
| 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 be variable. |
| Loan Forgiveness | The PLUS Loan will be eligible for the new 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:
