Is a Grad PLUS Loan Better Than Unsubsidized?
Navigate graduate school financing. Understand the key differences between Grad PLUS and Unsubsidized student loans to make an informed borrowing choice.
Graduate students often explore federal student loan options, with Grad PLUS loans and Direct Unsubsidized Loans being primary choices. Understanding their distinct features helps in making informed decisions about financing advanced degrees. This article clarifies the characteristics of these two federal loan programs for the 2025-2026 academic year.
Understanding Grad PLUS Loans
Federal Direct Graduate PLUS Loans are offered by the U.S. Department of Education to graduate or professional students. These loans are designed to help cover educational expenses up to the student’s full cost of attendance, less any other financial aid received. For the 2025-2026 academic year, Grad PLUS loans carry a fixed interest rate of 8.94% for the life of the loan.
An origination fee of 4.228% is deducted proportionately from each loan disbursement for loans first disbursed on or after October 1, 2020, and before October 1, 2026. This means the actual amount received will be slightly less than the amount borrowed, though the borrower is responsible for repaying the full principal. Eligibility requires students to be enrolled at least half-time in an eligible program and maintain satisfactory academic progress.
A credit check is mandatory. Borrowers must not have an adverse credit history. However, students with an adverse credit history may still obtain the loan by securing an endorser or documenting extenuating circumstances. Interest begins to accrue from the first disbursement date. Repayment generally begins six months after a student ceases to be enrolled at least half-time, with interest accumulating during this deferment period.
Understanding Unsubsidized Student Loans
Federal Direct Unsubsidized Loans are a common federal loan option for graduate and professional students. Eligibility for unsubsidized loans is not based on financial need. These loans are available to eligible students who are enrolled at least half-time in a degree or certificate program.
For the 2025-2026 academic year, Direct Unsubsidized Loans for graduate students have a fixed interest rate of 7.94% for the entire duration of the loan. An origination fee of 1.057% is deducted from each disbursement for loans first disbursed on or after October 1, 2020, and before October 1, 2026.
Graduate students can borrow up to $20,500 annually in Direct Unsubsidized Loans. An aggregate loan limit of $138,500 applies for graduate and professional students, which includes any federal loans received for undergraduate study. Direct Unsubsidized Loans do not require a credit check. Interest begins to accrue immediately upon disbursement. Repayment typically begins six months after the student graduates, leaves school, or drops below half-time enrollment.
Comparing Key Loan Characteristics
A primary distinction between Grad PLUS loans and Direct Unsubsidized Loans lies in their credit requirements. Grad PLUS loans necessitate a credit check, and borrowers must not have an adverse credit history to qualify. Direct Unsubsidized Loans do not require any credit assessment, making them accessible regardless of a borrower’s credit background.
Loan limits also differ. Direct Unsubsidized Loans have a fixed annual borrowing limit of $20,500 for most graduate students, with an overall aggregate limit of $138,500. Grad PLUS loans allow students to borrow up to their institution’s cost of attendance, minus any other financial aid received, and do not have an aggregate maximum borrowing limit. This flexibility means Grad PLUS loans can cover a larger funding gap.
Interest rates for the 2025-2026 academic year differ, with Grad PLUS loans at 8.94% and Direct Unsubsidized Loans at 7.94%. Origination fees also vary, with Grad PLUS loans having a higher fee of 4.228% compared to the 1.057% fee for Direct Unsubsidized Loans.
Considerations for Your Borrowing Decision
When deciding between Grad PLUS and Direct Unsubsidized Loans, consider your personal financial situation and borrowing needs. Your credit history plays a significant role in accessing Grad PLUS loans; a strong credit history can facilitate approval for these loans. If your credit history is not favorable, Direct Unsubsidized Loans may be the more straightforward option, as they do not involve a credit check.
Consider your total funding needs for your graduate program. Direct Unsubsidized Loans offer a set annual amount, which might be sufficient for some students, especially if combined with other forms of aid. However, if the cost of attendance significantly exceeds the $20,500 annual limit of an unsubsidized loan, a Grad PLUS loan can help cover the remaining educational expenses. It is advisable to borrow the maximum Direct Unsubsidized Loan amount before considering a Grad PLUS loan due to its lower interest rate and origination fee.
The difference in interest rates and origination fees between the two loan types can impact the overall cost of borrowing. A lower interest rate on an unsubsidized loan means less interest will accrue over the life of the loan, potentially saving money. Similarly, the lower origination fee for unsubsidized loans means more of the borrowed amount will be directly applied to educational expenses. These cost differences should be weighed against the flexibility of borrowing a larger amount through a Grad PLUS loan.
Your future repayment strategy should also factor into your decision. While both loans offer similar repayment plans, understanding the total amount borrowed and the accrued interest will influence your monthly payments. Planning how you intend to manage repayment after graduation, including potential income-driven repayment options or deferment possibilities, can help you choose the loan structure that best aligns with your long-term financial goals.