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Understanding gap financing options

The Federal Direct PLUS Loan for graduate students and private student loans

Many graduate students are considering financing their education with either Federal Graduate PLUS Loans or private student loans. This comparison chart will help you understand the features and benefits of each.

Interest rates and fees for private loans vary from lender to lender based on the credit of the individual borrower and cosigner;however, other factors may also be considered. We recommend that you research private loans before deciding which type is best for you.

 

Federal Direct Graduate PLUS Loan1

School-certified private student loan2

Whose name is on the loan? Student and endorser (if applicable) Student and cosigner (if applicable)
Cosigner requirement No, but applicants with an adverse credit history may obtain an endorser. No, but a student with little or no credit history may have a better chance of getting a loan by applying with a creditworthy cosigner.
Cosigner release option This loan does not require a cosigner. Many lenders provide a cosigner release option where the student can apply to release the cosigner after they graduate,make a specified number of on-time payments, and meet underwriting requirements.
Interest rate For loans first disbursed on or after July 1,2020, and before July 1, 2021, the interest rate is 5.30% Many lenders offer both variable and fixed interest rates. Interest rates for undergraduate students start from 2.04% to 12.66% for variable and range from 4.99% to 12.74% for fixed. Although lenders may consider multiple factors, rates are generally based on the borrower’s and cosigner’s creditworthiness, so those with good credit may qualify for a lower rate.
Origination/disbursement fees 4.236% for loans first disbursed on or after October 1, 2019 and before September 30,2020 Varies by lender, most offer 0%
Borrower benefits 0.25 percentage point interest rate reduction for automatic debit enrollment. Most lenders offer a 0.25 percentage point interest rate reduction for automatic debit enrollment. Additional benefits vary by lender.
Repayment period 5– 20 years of principal and interest payments Varies by lender; typically terms of 5 – 20 years of principal and interest payments are offered.
Loan limits Up to 100% of the school-certified expenses, minus other financial aid received. Generally, up to 100% of school-certified expenses, minusfinancial aid received; lenders may impose limits based on various factors, and can have different loan limits for different loan programs
Credit check required Yes, applicants with an adverse credit history may obtain an endorser or meet additional requirements to qualify. Yes, loan approval and pricing is generally based on creditworthiness.
Minimum enrollment status At least half-time Varies by lender; some offer loans to borrowers who are attending school less than half-time.
Application process Online with the Department of Education through the FAFSA process but some schools have different application processes. Online with lender or other potential application options, e.g., applying over the phone
Free Application for Federal Student Aid (FAFSA) required Yes No, students are not required to complete the FAFSA unless it is the school's policy.
Minimum payment amount while the student is enrolled in school Loans will automatically be placed in principal and interest repayment. The borrower can request to defer PLUS loan payments while the student is in school and for six months after graduation, leaving school, or dropping below halftime enrollment (interest continues to accrue during this time and unpaid interest is added to the loan’s principal amount when the deferment period ends). Varies by lender; many lenders allow private loan payments to be deferred while in school (interest accrues during this time and is added to the loan’s principal amount when the deferment period ends). In addition, many lenders offer options to make monthly interest payments while in school.
Death and disability loan forgiveness Yes, if the parent dies or becomes totally and permanently disabled or if the student beneficiary dies and certain conditions are met, then the loan will be discharged. Varies by lender; some lenders waive the remaining balance in the event of the primary borrower’s death or permanent and total disability.
Ability to consolidate through the Department of Education Yes, the student can consolidate with other federal loans in their name. No, they cannot be included with federal student loans.
Options for denied loans If denied, the student may apply with an endorser (cosigner). Student can apply with a different cosigner if the cosigner is denied, or apply with another private lender.
Repayment plans PLUS loans for graduate students are eligible for graduated,income-based, income-contingent and extended repayment options, federal consolidation, pay as you earn,and some public service loan forgiveness options. Most lenders have programs available to assist troubled borrowers, but they are discretionary and not part of the loan agreement.
Tax deduction for interest paid3 The interest paid on the loan may be deductible subject to IRS guidelines. The interest paid on the loan may be deductible subject to IRS guidelines.

Borrow responsibly

We encourage students and families to start with savings, grants, scholarships, and federal student loans to pay for college. Students and families should evaluate all anticipated monthly loan payments, and how much the student expects to earn in the future, before considering a private student loan.

  1. Federal student loan rate and fee information is based on a May 15, 2020 Electronic Announcement from Federal Student Aid, an office of the U.S.Department of Education. Other federal student loan information was gathered on August 31, 2019 from studentaid.ed.gov.

  2. Interest rates, fees, terms, and borrower benefits based on a May 18, 2020 review of national school-certified private loan programs offered by publicly-traded companies or subsidiaries thereof. Private loans that have variable rates may go up or down based on the changes of an underlying interest rate index.

  3. This information is not meant to provide tax advice. Consult with a tax advisor for education tax credit and deduction eligibility. For more information, see IRS Publication 970.

EXPLORE FEDERAL LOANS AND COMPARE TO ENSURE YOU UNDERSTAND THE TERMS AND FEATURES. PRIVATE EDUCATION LOANS THAT HAVE VARIABLE RATES CAN GO UP OVER THE LIFE OF THE LOAN. FEDERAL STUDENT LOANS ARE REQUIRED BY LAW TO PROVIDE A RANGE OF FLEXIBLE REPAYMENT OPTIONS, INCLUDING, BUT NOT LIMITED TO, INCOME-BASED REPAYMENT AND INCOME-CONTINGENT REPAYMENT PLANS, AND LOAN FORGIVENESS AND DEFERMENT BENEFITS, WHICH OTHER STUDENT LOANS ARE NOT REQUIRED TO PROVIDE. FEDERAL LOANS GENERALLY HAVE ORIGINATION FEES, BUT ARE AVAILABLE TO STUDENTS REGARDLESS OF INCOME.

This information accurate as of May 26, 2020.

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Commerce Bank does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Consult your own attorney or tax advisor about your specific circumstances. Grant, work-study, and federal student loan information was gathered on August 15, 2018 by Studentaid.ed.gov. ©2020 Commerce Bancshares, Inc. MKT 15083 2/20