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It seems that subsidized loans will no longer be offered to graduate students studying in the US. Students will typically have two choices, Unsubsidized Stafford Loans and Federal PLUS Loans.

  • Assuming a student had a choice of taking the same amount of money from one or the other, which would be the preferred loan to have?
  • Are there any other loan options which a student might consider instead?
  • Is there any added advantage of having the loans be part of the Direct loan program?
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    I refunded your original bounty (expiring) and started another. You can also add your bounty back for another 7 days if you like. This is a good question and hopefully we'll get a good answer for it. – Chris W. Rea Jun 2 '12 at 13:04
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+150

Of course, the situation for each student will vary widely so you'll have to dig deep on your own to know what is the best choice for your situation.

Now that the disclaimer is out of the way, the best choice would be to use the Unsubsidized Stafford loan to finance graduate school if you need to resort to loans. The major benefits to the Unsubsidized Stafford are the following:

  • Low loan origination fee of 1% of the loan amount
  • Fixed lower interest rate of 6.8% for the life of the loan

You'll be forced to consider other loan types due to the Unsubsidized Stafford loan's established limits on how much you can borrow per year and in aggregate. The borrowing limits are also adjustable down by your institution.

The PLUS loan is a fallback loan program designed to be your last resort. The program was created as a way for parents to borrow money for their college attending children when all other forms of financing have been exhausted. As a result you have the following major disadvantages to using the PLUS loan:

  • 4% loan origination fee based on the amount of the loan at each disbursement
  • Higher interest rate, 7.8% fixed.

You do have the bonus of being able to borrow up to 100% of your educational costs without any limits per year or in aggregate.

The major benefit of keeping your loans in the Direct Loan program is predictability. Many private student loans are variable interest rate loans which can result in higher payments during the course of the loan. Private loans are also not eligible for government loan forgiveness programs, such as for working in a non-profit for 10 years.

  • Thanks, was wondering the same thing - this is good info! – MattMcA Jun 4 '12 at 0:00
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All new loans must be originated from the direct loan program. In most cases, the Stafford loan is better, as the rate is lower (6.8% vs. 7.9% for the PLUS loan).

There aren't many viable alternatives for most people.

Private student loans exist, but carry significantly higher rates and worse payment terms. The exceptions are programs that exist for professions like medicine and dentistry.

Credit cards usually carry higher rates and limited credit lines, but you have the option of negotiating the balance down or declaring bankruptcy to discharge the debt if you are unable to repay.

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