Grad PLUS Loan

A Grad PLUS loan is a Federal Direct PLUS Loan borrowed by a graduate or professional student for their own education, as distinct from a parent PLUS loan borrowed by a parent for a dependent undergraduate. The Higher Education Act does not use the nickname: 20 U.S.C. 1087e(a)(2)(B) simply designates Direct loans with the terms of section 1078-2 as "Federal Direct PLUS Loans", and the regulation at 34 CFR 685.200(b) is headed "Student PLUS borrower". "Grad PLUS" is the Department of Education's own shorthand, which it uses throughout its loan-limit guidance.

Two design features made it the instrument it was. It is credit-underwritten, so eligibility turns on the borrower's credit history in a way no other federal loan to a student does. And it had no separate annual dollar cap: under 20 U.S.C. 1078-2(b), no loan may be made "in excess of (A) the student's estimated cost of attendance, minus (B) other financial aid as certified by the eligible institution", a limit 34 CFR 685.203(j)(1) repeats for Direct Loans. A graduate student could therefore borrow the whole cost of their program from the federal government, which is the fact that makes the 2026 termination consequential rather than technical.

The credit test, in the regulation's own detail. Under 34 CFR 685.200(b)(1)(v) a student PLUS borrower must meet the same credit requirements as a parent borrower at (c)(2)(viii)(A) to (G). The borrower must either have no adverse credit history, or have one and obtain an endorser without one and complete PLUS loan counseling offered by the Secretary, or have one and document extenuating circumstances to the Secretary's satisfaction and complete the same counseling. Adverse credit history has two limbs. One or more debts with a total combined outstanding balance above a threshold the regulation states as $2,085 and the Secretary adjusts for inflation, published in the Federal Register whenever the cumulative adjustment would reach $100 or more, that are 90 or more days delinquent as of the date of the credit report or that have been placed in collection or charged off during the preceding two years. Or having been "the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a debt under title IV of the Act during the five years preceding the date of the credit report". One relief is worth knowing because it reassures the wrong people: paragraph (F) provides that the Secretary "does not consider the absence of a credit history as an adverse credit history and does not deny a Direct PLUS loan on that basis".

A sequencing rule that is easy to trip over. 34 CFR 685.200(b)(1)(iv) requires that the student "has received a determination of his or her annual loan maximum eligibility under the Direct Unsubsidized Loan Program" before a Grad PLUS loan can be made. The unsubsidized determination comes first; PLUS fills what remains of cost of attendance after it and after other aid.

The termination, and exactly who it does not reach. 20 U.S.C. 1087e(a)(3)(C) provides that "for any period of instruction beginning on or after July 1, 2026, a graduate or professional student shall not be eligible to receive a Federal Direct PLUS Loan under this part", and 34 CFR 685.200(b)(2)(i) mirrors it. The interim exception at 1087e(a)(8)(A) disapplies that termination, along with the new graduate limits, the parent PLUS caps and the lifetime cap, for a student who as of June 30, 2026 both "is enrolled in a program of study at an institution of higher education" and "has received a loan (or on whose behalf a loan was made) under this part for such program of study". The Department has clarified the second condition in the borrower's favor: in its loan-limits guidance it confirms that "it is not a requirement for the borrower to have borrowed a Grad PLUS Loan", and any Direct Loan for that graduate or professional program establishes eligibility.

The exception is a cliff, and the tripwires are enrollment ones. 34 CFR 685.200(b)(3) and 685.203(j)(4) both provide that if the student withdraws under 34 CFR 668.22 "or otherwise ceases to be enrolled in the program of study at any point after receiving the exception", the new limits apply. The Department's guidance fills in the edges. A student who takes a required research year within the program keeps the exception; one who withdraws for any reason loses it. Dropping a course that merely changes enrollment status does not cost the exception, because eligibility turns on being enrolled rather than on enrollment intensity. A student not considered enrolled as of June 30, 2026 because of academic suspension never had it. And the exception cannot be declined: a professional student eligible for the old $20,500 unsubsidized limit cannot opt out of it in order to take the new $50,000 one.

The lifetime cap counts Grad PLUS; the graduate aggregates do not. This asymmetry is the single most-misstated thing about the loan, and the Department has addressed it twice. The final rule's preamble states that "the parenthetical exception in Section 455(a)(6) of the HEA excludes only FFEL Parent PLUS Loans or Direct Parent PLUS Loans but does not exclude PLUS loans made to graduate or professional students (Grad PLUS loans)", and notes that some commenters "appear to incorrectly assume that all Graduate PLUS loans are excluded". Its loan-limit guidance says the same in a single line. Going the other way, that guidance confirms that only subsidized and unsubsidized loans borrowed as a graduate or professional student count toward the $100,000 and $200,000 aggregates, and that Grad PLUS loans are not counted toward them. Two further wrinkles: a borrower inside the interim exception is not subject to the lifetime cap at all while it lasts, but any Grad PLUS borrowed during it counts toward the cap once it ends; and a consolidation loan is not counted separately, because the underlying loans already are.

No grace period, and a deferment that costs interest instead. Under 34 CFR 685.207(d) the repayment period for a Direct PLUS Loan "begins on the day the loan is fully disbursed". What stands in for a grace period is 34 CFR 685.204(c)(1)(i), a deferment for the six-month period beginning the day after the student ceases half-time enrollment, which (c)(1)(ii) folds into an in-school deferment the Department has already granted. The difference is in 685.204(a)(2): for a PLUS borrower in deferment, "interest does accrue and is capitalized or paid by the borrower". So the familiar six months exist and they are not free.

Taking one after July 1, 2026 changes how the borrower's whole portfolio is repaid. A Grad PLUS loan taken under the interim exception is still a loan made on or after July 1, 2026, and 20 U.S.C. 1087e(d)(7)(A) offers a borrower of such a loan exactly two plans, the tiered standard plan and the Repayment Assistance Plan. Paragraph (d)(7)(C) then requires the borrower "to pay each outstanding loan of the borrower made under this part under the same selected repayment plan", so one new loan pulls the borrower's older loans into the two-plan world with it. Unlike a parent PLUS loan, a Grad PLUS loan is not an "excepted loan" under (d)(7)(E)(ii), which reaches only a PLUS loan made on behalf of a dependent student and consolidations of one, so a Grad PLUS borrower can use the Repayment Assistance Plan. Under (d)(7)(B) the plan a non-selecting borrower is placed on is the standard one, and that default deserves a deliberate look from anyone counting on public service loan forgiveness. The forgiveness provision keeps its own list of qualifying plans at 20 U.S.C. 1087e(m)(1)(A): the Repayment Assistance Plan is named in it expressly, at clause (v), while the standard-plan entries in the list are keyed to the pre-2026 standard plan in subsection (d)(1)(A) rather than to the tiered plan in (d)(7). A borrower relying on forgiveness should confirm with their servicer which of the two plans on offer credits payments before letting the default apply.

Three smaller rules with real money in them. Loan funds returned by the institution or the borrower "will not count against the lifetime maximum aggregate loan limit", under 34 CFR 685.203(j)(2). Converted TEACH Grants "are not counted against any annual or aggregate loan limits", under 685.203(k). And from July 1, 2026, 20 U.S.C. 1087e(a)(7)(B) lets a financial aid administrator cap the total borrowing for a program of study, "as long as any such limit is applied consistently to all students enrolled in such program of study", which is a new and under-reported way a graduate student's number can be reduced below the statutory maximum.

The student is first determined for their annual Direct Unsubsidized Loan maximum. The school then certifies cost of attendance and other financial aid, and the Grad PLUS request is limited to the difference. The Department runs a credit check against the adverse-credit definition; a borrower who fails can proceed with an endorser or on documented extenuating circumstances, in either case after completing PLUS loan counseling. Interest accrues from first disbursement and the repayment period begins when the loan is fully disbursed, with a six-month post-enrollment deferment available on request or folded into an in-school deferment. For any loan first disbursed on or after July 1, 2026, the borrower chooses between the tiered standard plan and the Repayment Assistance Plan, and that choice applies to every Direct Loan they hold.

A hypothetical illustration of the gap the closure created. A professional student's cost of attendance is $84,000 for the year and they receive $9,000 of institutional grant aid. Under the pre-2026 rules the unsubsidized limit of $20,500 leaves $84,000 minus $9,000 minus $20,500, which is $54,500, and a Grad PLUS loan could cover all of it. Under the new rules a professional student's unsubsidized annual limit is $50,000 and there is no Grad PLUS, so federal borrowing reaches $50,000 and the remaining $84,000 minus $9,000 minus $50,000, which is $25,000, has to come from savings, family or private credit. A classmate one year ahead, enrolled and already borrowing on June 30, 2026, is inside the interim exception and so is held to the old $20,500 unsubsidized limit with Grad PLUS still available above it. Two students in the same lecture hall, two different federal systems, and the one on the older system cannot choose the newer one.

Pros

• It is a federal loan, so it carries statutory deferment and forbearance, death and disability discharge, and access to the Repayment Assistance Plan and public service loan forgiveness, none of which private credit provides.
• The absence of a credit history is not treated as adverse credit, so a student with a thin file is not turned away for that reason.
• Where it is still available it reaches cost of attendance minus other aid, which no other federal loan to a graduate student does.
• A borrower who fails the credit check has two documented routes forward, an endorser or extenuating circumstances, rather than a flat refusal.
• Loan funds returned to the Department do not count against the lifetime cap.

Cons

• It is closed for any period of instruction beginning on or after July 1, 2026, other than for the interim-exception cohort, and nothing federal replaced it.
• There is no grace period. Interest accrues from disbursement and the six-month post-enrollment substitute is a deferment that capitalizes interest.
• The interim exception ends the moment the student stops being enrolled in that program, and it cannot be regained.
• Grad PLUS counts toward the $257,500 lifetime cap even though it does not count toward the graduate and professional aggregates, so a borrower can exhaust federal eligibility entirely.
• Taking one after July 1, 2026 collapses the borrower's repayment options for every Direct Loan they hold down to two plans.
• It is the most expensive federal student loan by statutory design. The rate is the 10-year Treasury yield plus 4.6 percent, capped at 10.5 percent, against plus 3.6 percent for a graduate unsubsidized loan, and it is fixed for the life of the loan.