Taking out a federal Direct PLUS Loan for grad school may not be a bad idea if you need to borrow money for your education. Federal repayment options such as Income-Based Repayment, Revised Pay As You Earn, and Public Service Loan Forgiveness can make Direct PLUS Loans an attractive option for student borrowers.
However, these loans currently come with a high interest rate of 7%. On top of that, you will have to pay an origination fee between 4.264% and 4.267% just to take out the loan in the first place.
Recently, Sallie Mae put a new line of loans on the market that may outperform what is available to grad students through the federal government. While there are some negatives, like not qualifying for the aforementioned repayment programs, there are some major positives, like no origination fees and potentially lower interest rates, which could save students a lot of money over the long haul.
In this review, we’ll see how Sallie Mae grad school loans compare to federal Direct PLUS loans.
Sallie Mae vs. Direct PLUS Loan
Sallie Mae’s recent releases include three classes of loans: one for MBA programs, one for dental and medical school students, and a separate loan program for other health care professionals.
In order to qualify for any one of these loan programs, you must be enrolled in a program at a degree-granting institution with the intent of getting a degree. These loans are not for certificate programs or continuing education.
It is worth noting that you do not have to be enrolled half-time to qualify, which differs from the standards for federal PLUS loans.
Interest rates and terms
With any one of these loans, you can borrow between $1,000 and the maximum your school charges for your degree — as long as you qualify either on your own or with a co-signer. Interest rates and loan terms will vary depending on which loan you take out, though.
In the table below, we’ve compared rates for Sallie Mae’s grad school loans against the current rates for the Direct PLUS Loan program.
Keep in mind that variable rates may be lower at first, but have the potential to change significantly over the course of repayment. Fixed rates, on the other hand, tend to start out higher, but will stay stable and predictable for the course of your loan.
None of the loans come with origination fees, and you can pay them off early without incurring a penalty.
3 options to repay your Sallie Mae grad school loan
When you take out any one of these three loans, you can pick how you’ll repay. You have three options:
- Deferred Repayment. With this option, you make zero payments while you’re in school and during the six months following graduation — the time frame known as the “grace period.” While it’s nice that you won’t have to shell out any money while you’re focused on your studies, you will accrue interest to be paid later. This option also gives you the highest interest rate of the three options.
- Fixed Repayment. Maybe you can’t afford to make full monthly payments while you’re in school, but you can afford to throw a little bit of money at the interest. During your education and grace period, you’ll make nominal, interest-only payments. You will still have back interest applied to your account when your grace period is over, but the amount will be less than if you chose the Deferred Repayment plan.
- Interest Repayment. When you choose this plan, you’ll get the lowest interest rate that your credit history and income qualify you for, but you’ll have to make full, interest-only payments while you’re in school through your grace period. After that, you’ll start making interest-plus-principal payments just like the other two options, but your payments will be smaller as there won’t be any back interest to tack on.
Graduated Repayment Period
Worried that you’ll struggle to find a job immediately after graduation? Sallie Mae does offer a principal deferment option called Graduated Repayment Period. For the first 12 months following graduation, you have the option of making interest-only payments, but it’s not automatic. You have to opt in, and there is only a small time frame where you’ll be allowed to do so. Your monthly billing statement will alert you when you’re eligible. Start looking for the notification beginning two months before your grace period is over.
Residency and internship deferment
If you have a Dental and Medical School Loan or a Health Professions Graduate Loan, you may qualify for deferment for the entirety of your residency or internship. If you chose Deferred Repayment, you won’t have to pay anything during this time, though interest will still accrue. If you chose Fixed Repayment, you’ll continue making nominal interest payments, and if you chose Interest Repayment, you’ll continue to make full interest payments while you’re completing this necessary step.
In order to qualify for this deferment option, your residency or internship must meet one of the following three criteria:
- Require a bachelor’s degree.
- Be a supervised program that leads to a degree or certificate.
- Be a supervised program that is required for entry into your field.
How to qualify for a Sallie Mae grad school loan
To qualify for one of Sallie Mae’s graduate-level student loans, you must be a U.S. citizen or permanent resident, or be a nonresident with an American co-signer. U.S. citizens and permanent residents can use the loan to study abroad, but all studies for nonresidents must be completed in the U.S. at American institutions.
If you have any other Sallie Mae loans, you must be current on them in order to qualify. That includes not being in forbearance or deferment. You won’t meet this requirement if you’re on a modified payment plan.
Sallie Mae grad school loans vs. federal PLUS loans
Pros and cons of Sallie Mae grad school loans
This new set of graduate school loans from Sallie Mae has a lot of good things going on, but as with any financial product, there are both pros and cons.
- You could potentially score a lower interest rate than federal PLUS loans.
- No origination fees.
- Ability to pay back early without penalty.
- Quite a few options for repayment — including deferment options after graduation.
- The 20-year repayment term on the Dental and Medical School Loan gives you a more realistic timeline for paying back your debt.
- You can take out a loan even if you’re taking a credit-by-credit approach. Federal student loans require you to attend at least half-time.
- There is the potential of getting an even higher interest rate than you’d find on a PLUS loan, though you’d still have no origination fees. This is most likely to impact those with a spotty credit history — especially if they opt for the Deferred Repayment option.
- Dental and medical school students should take note that while a 20-year term is attractive, you will end up paying more over the course of your loan than if you had a shorter repayment term. Take advantage of the fact that there is no early repayment penalty, if at all possible.
- Because these are private loans, you will not qualify for advantaged repayment options like the Department of Education’s REPAYE, IBR, or PSLF. Direct PLUS Loans do qualify for these programs.
- The window for enrolling in Graduated Repayment is short. You may miss it if you’re not paying attention.
How to apply
You can complete the application process online. Before you start, make sure you’re armed with this information:
- Your address
- Your Social Security number
- The name of your school
- Your enrollment status
- Your intended degree/course of study
- How much money you want to borrow
- Information on any other financial aid you’re receiving
- Current employer information
- Current salary information
- Bank account information
- Monthly mortgage/rent payments
- Contact information of two personal references
If you’re a permanent resident, you’ll have to furnish some additional paperwork. Be prepared with either your Alien Registration Receipt Card, or its conditional counterpart accompanied by INS Form I-751. If you don’t have either of those, you can also furnish an unexpired foreign passport with an unexpired stamp certifying employment, or a Permanent Resident card.
If you’re a nonresident, you’ll need to provide an unexpired passport, an unexpired student visa, or an Employment Authorization card. You’ll also need all of the above bulleted information for your co-signer.
Who are Sallie Mae’s new grad school loans best for?
Sallie Mae’s new student loans have an extremely targeted audience. If you’re studying in one of the specified fields, they can be a good option for you if you have a good credit history and can qualify for an interest rate lower than the one offered on PLUS loans. Just be mindful that while the repayment options are plentiful, they’re not quite as generous as some federal student loan programs that allow you to repay based on your income or even forgive a large portion of your debt after dedicating a portion of your career to public service.
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