How do private loans compare to GradPLUS loans?
The information below is only relevant if you are a graduate student. If you are an undergraduate, you cannot use a GradPLUS loan.
GradPLUS loans offer a fixed interest rate for the life of the loan which is the same for all borrowers (currently 6.41%) while most (but not all) private loans are based on a variable rate that is based on your credit strength. Keep in mind that most lenders offer incentives to lower the rate you might actually pay. The variable rate used for private loans is credit-based and will increase and/or decrease according to the market environment.
GradPLUS loans are based on a 10-year repayment that begins 60 days following the final disbursement, although this can be deferred in many cases until you graduate. Private loans offer variable repayment terms. Most are in the range of 12-15 years for repayment.
Credit Check/Credit Strength
GradPLUS loans do have a credit check, but it is a “light” credit check which looks for “adverse” credit. GradPLUS loans do not require a cosigner.
Private loan lenders generally perform a more thorough credit check which, in addition to checking your FICO, or credit score, may also look at your debt-to-income ratio, income, employment status and other credit-based factors. If you do not have strong credit, most private loans will require the presence of a creditworthy cosigner to approve the loan.
GradPLUS loans can be consolidated along with your Stafford loans upon graduation to give you a single payment. Private loans can be consolidated but in a separate loan from your Federal loans called a private consolidation loan.
Deferment & Forbearance
GradPLUS loans are federal loans and therefore offer the same payment deferment and forbearance options as the federal Stafford loan. Forbearance covers factors such as unemployment and economic hardship (up to 3 years) and deferment of payments while in-school is unlimited while you maintain at least half-time enrollment. Many private loans only offer one year of forbearance but each lender’s conditions may vary.