More Student Loan Drama: The New Graduate PLUS Loan

This post is really for graduate students. More interesting things will come for the general public in about 2 weeks, when I'm done grading the mountain of papers sitting on my desk. The twin monsters of posts on DIY oughta keep people busy for the time being ;-)

If you've read my original post on consolidation on Friday, read it again. I edited a little bit to include more accurate information.

Heading into my last year of school, my finances are starting to look grim. No, I didn't blow my entire fortune on clothes or anything, though I have to admit I did far more bargain shopping for play clothes than I should have this year...bad me. Actually, my woes stem from those little tests I have to pass before getting my license to sue. I just shelled out a chunk of cash for the MPRE, and I don't even want to think about how much I'll have to pay for the California Bar Exam--not just the test itself, but the $3K BAR/BRI review course that everyone takes. I'm pretty sure I'll pass the MPRE because I know better than to commingle funds, become romantically involved with clients, etc., but if I don't pass the Bar, I'll have to fork over even more money to try again. On top of that, I need to find more professional clothes, as my cheapies that served me well for years are starting to give out. Hence, it's time for me to really scrimp and save on what I already have, and I have to account for the extra costs when deciding how much to borrow for next year.

The student loan situation is getting uglier and uglier. Interest rates have gone sky high. I could remember when interest rates of my private loans were as low as 4.something %. On my last quarterly statement, it was well over 8%. Judging by the current economic conditions, I believe that it's likely to go up by a lot more in order to curb inflation (which results in part from overreliance on credit). Even government loans are rocketting upward--those 2.something% days are over. In-school consolidation of federal loans has been done away with. With all these changes and more that Congress is putting forth, it's hard for me to keep track. I'm not thrilled about needing to borrow more money this year when the interest rates are so high.

Fortunately, one new option has emerged for some (but not all) grad students--the Graduate PLUS loans. It's brand new and won't be in effect until 7/1, which means it can't be used for summer school. On its face, the terms don't seem all that appealing: the interest rate is capped at 8.5% for the life of the loan, there's a 3% origination fee, and there's no grace period, which means repayment starts once you're done with school. However, considering how high private loan interest rates already are, it might be worth looking into. The slightly-lower interest rate is certainly a plus, but I'm more drawn to the prospect of consolidation, which can't be done with private loans.

Unfortunately, not all schools offer this type of federal student loan. This is so new that some school administrators may have decided to forgo it to avoid the mess. If the GPLUS loan is something you're interested in, talk to your school's financial aid office. Don't just take my word for it--do your own homework carefully. The lowdown I provided barely scratches the surface--it's just what I heard a few months ago at a workshop plus new documents that got sent to my house, and the laws might have changed (or clarified) since then. I'm confused and will have to pay my school's FinAid folks a visit before rendering a final decision, but I just thought it would be nice to raise awareness of this new program.