As a graduate student, the pressure is higher than ever and of course, your classes are likely more expensive than your undergraduate career. The majority of loan products available to you are graduate Stafford loans, graduate PLUS loans and private student loans.

Getting back to the primary question, why pick a graduate PLUS loan?

There are some differing schools of thought on this, but I’ll break down the benefits and differences so you can decide which makes more sense for your financial information.

Graduate PLUS Loans vs. Private Student Loans

Interest Rate

• Grad PLUS = 7.9% fixed
• Private = variable, based on the Prime or LIBOR + X%; can be very low with good credit or a creditworthy cosigner

Repayment Terms

• Grad PLUS = several repayment options including: Standard, Graduated, Income Based Repayment, Income Contingent Repayment and Extended Repayment
• Private = Generally 1 or 2 standard repayment plans; often 15 years

Incentives / Benefits

• Grad PLUS = interest rebate for one year’s worth if you make every payment on time during the first year; 0.25% APR reduction for auto-debit payments
• Private = a variety of different options depending on the lender such as: APR reductions, graduation rewards, co-signer release and more

To learn more about the differences between graduate PLUS loans and private student loans, check out GradLoans.com’s “Comparing Graduate PLUS and Graduate Private Loans” page.

On Tuesday, one of our financial aid forum users, Scarab790, asked this question:

I am starting grad school next week and my cost of attendance is $74,347 with a grant of $10,000. With no personal funds to reduce the cost, I have the option of taking a federal grad stafford loan, grad plus loan or a private loan. which of the loans is better to take? the fed loans or private? If a federal one, I will have to take both grad stafford and grad plus loans to make up my bill.I want to reduce my debt burden by all means possible. What do you advise?

This is actually a very common question and the answer is by no means etched in stone.

Let’s outline some of the major details of each type of loan:

Graduate PLUS Loan

• Fixed interest rate of 7.9% APR
• Several generous repayment plans
• 0.25% APR reduction for enrolling in auto-debit payments

Private Student Loan

• Variable interest rate, based on an index such as LIBOR
• Fewer repayment plans
• A wide variety of benefits depending on the lender, ability to use a co-signer

The easy response to the question is the federal loans are a better deal. However, this may not be the case with all students. One important thing to consider is the credit aspect; if you have a good score, excellent history or creditworthy co-signer, you can potentially get a very low APR private student loan.

In addition, there are numerous benefits offered by private lenders. Some select examples are APR reductions, graduation rewards and co-signer release. Compare private student loans »

Thus, the decision rests more on the basis of credit. If yours is low, non-existent or troubled, always pick the federal option because it is far more lenient and there are repayment plans that take your income into account.

If your credit is good, or you have a good co-signer, pick a private student loan. I have seen rates as low as 2.80% APR with private loans; startlingly less than a Graduate PLUS’s 7.9% APR. Just keep in mind that private student loans have variable interest rates, so they can fluctuate during repayment.

On July 1, 2010, the world as you know it is about to change. Okay, that’s not true. But student loans will be handled in a different fashion than in previous years. As a prospective graduate student, you might be wondering how the changes affect you.

Graduate Stafford: You can still receive a Graduate Stafford loan, however this loan will be originated by the federal government, and not a Federal Family Education Loan (FFEL) bank. You will still apply by filling out your FAFSA. You can receive subsidized or unsubsidized Stafford Loans for graduate school, the primary differences being that unsubsidized Stafford loans will being accruing interest immediately and are not based on need.

Graduate PLUS: When Stafford loans aren’t enough, you should look into a graduate PLUS loan, a federally originated loan that allows you to borrow up to the cost of attendance. The Graduate PLUS loan is based on credit, not need, and carries a fixed interest rate of 7.9 percent.

Remember, to receive federal direct loans, you need to fill out your FAFSA. If federal aid isn’t enough, consider an alternative student loan.

Should I go to graduate school? It’s a very common question among post-graduates and other young professionals. With each passing year, graduate school is becoming less of an option for advanced degree seekers and more a virtual prerequisite in most fields. Getting in is harder than it’s ever been. So it’s up to the responsible student to decide if graduate school is right for them.

First, look into the market outlook for your profession. Is it worth it, for example, to get an MBA now? The market is saturated with people pursuing MBAs for a similar career path. Graduate school is about more than a degree, but about having a specialized career path in mind.

Second, decide how you are going to pay. Tuition and fees are going up every year. Fortunately, there are many options for paying for graduate school, including Stafford loans, graduate PLUS loans and private graduate loans. If you are currently working, check to see if your company offers a tuition reimbursement program. Many companies are willing to cover some of the graduate tuition costs for an employee to advance their degree and expand their skill set.

Finally, check to see if you can get your graduate school loans forgiven. Both Graduate Stafford and Perkins loan forgiveness programs are available. Other notable forgiveness categories include public service, volunteer work, and military service.

The financial aid process, for the most part, works the same for graduate students as it does for undergraduate students. Graduate students have the same loans at their disposal and apply for financial aid the same way as undergraduate students. However, there are a few differences in loans that are worth noting.

Stafford Loans

-For undergraduate students: There are two types of Stafford loans; subsidized and unsubsidized. Subsidized loans are awarded based on financial need and unsubsidized are awarded to any eligible student.  The Stafford loan comes with a low fixed interest rate and annual loan limits.

-For graduate students: The Graduate Stafford loan is very similar to the undergraduate Stafford loan except for the fact that graduate students can borrow a lot more. They can borrow up to $20,500 a year with the Graduate Stafford loan.

Private Loans

-For undergraduate students: Undergraduate students are usually not approved for a private student loan without a cosigner however, they can use private loans to cover up to the entire cost of their education.

-For graduate students: Graduate students can usually apply for private loans with or without a cosigner.  A good credit score help students both get approved for a loan and obtain a good interest rate. These loans can help graduate students cover up to the entire cost of their attendance including books, housing and transportation. No FAFSA is required to apply.

PLUS Loans

-For undergraduate students: The Parent PLUS loan is available to parents of undergraduate students.  Parents can use this loan to supplement their children’s financial aid package. The Parent PLUS loan is a federal loan based on credit rather than on need. There is not option for an undergraduate student to take out a PLUS loan for himself or herself.

-For graduate students: The Graduate PLUS loan is available to graduate students. Much like the Parent PLUS loan, this is a federal loan that is based on credit rather than on need.  It also has a low fixed interest rate and payments can be deferred while in school. No cosigner is required for the Graduate PLUS loan.

Most people who go to grad school fall into one of two categories; professional students or professionals advancing their career. For some, four years of college can be grueling enough, others love going back to campus every fall. If you fall into the first category and thought you were done with school forever you might want to think again. In today’s world even people who never imagined touching another textbook are being forced back into the classroom.

Whether you are an intellectual junkie or a career ladder climber, getting funding for your graduate education has never been easier. Graduate students have three great student loan options and many people take advantage of all of them. The Graduate Stafford Loan is the first option. This loan comes with a low fixed interest rate and there is no credit check to apply. With the Stafford loan graduate students can borrow up to $138,500 for school. This is way more than what undergrads can borrow with the Stafford loan. The second option in the Graduate PLUS Loan. This is also a federal loan, but it is not based on need and it comes with a flexible repayment plan. Unlike other federal loans the PLUS loan is based on credit so a clean credit history is helpful when applying. Finally, graduate students can always apply for flexible private student loans to help cover the costs of books and living expenses.

If you plan to be in school for a long time there are loan options for you. If you are trying to get out of school as quickly as possible there are loan options for you. If your employer is making you go to school there are loan options for you. And, if you have the choice between school or unemployment there are loan options for you.