Grad PLUS loans are unsubsidized. The federal government does not cover any portion of the interest at any point in the life of the loan, which means interest starts accruing the day your school receives the funds and keeps accruing through school, deferment, and repayment. You are responsible for every dollar of it.
What “Unsubsidized” Actually Costs You
With a subsidized loan, the Department of Education pays the interest while you are enrolled at least half-time and during certain other periods. Grad PLUS loans get none of that help. From the moment of disbursement, the balance grows.
While you are enrolled at least half-time, your Grad PLUS loan is automatically placed in deferment, so no payments are required. After you graduate or drop below half-time enrollment, you get another six months of deferment before payments begin.1Federal Student Aid. In-School Deferment Interest accumulates the entire time, including through that six-month window.
How Unpaid Interest Turns Into More Debt
If you do not pay the interest as it accrues, it does not simply sit to the side. When deferment ends, the unpaid interest is added to your principal balance. This is called capitalization, and after it happens, interest is calculated on the larger balance going forward.1Federal Student Aid. In-School Deferment
A quick example. Borrow $30,000 and let $5,400 of interest pile up during a two-year graduate program. When repayment starts, your principal is $35,400. Every future interest calculation runs off that higher number, and the effect compounds over a ten-year (or longer) repayment period.
There is a straightforward way to blunt this: pay the interest as it accrues, or make partial interest payments while enrolled. Even small monthly amounts limit the size of the capitalized balance and reduce total repayment cost.
The Current Rate and Origination Fee
Grad PLUS loans carry a fixed interest rate for the life of the loan. For loans first disbursed between July 1, 2025, and July 1, 2026, the rate is 8.94%.2Federal Student Aid. Federal Student Aid Interest Rates and Fees Whatever rate is assigned at disbursement is the rate you carry, so a loan taken this year stays at 8.94% until it is paid off.
There is also an origination fee of 4.228% on each disbursement for loans disbursed before October 1, 2026.3Federal Student Aid Partners. FY 26 Sequester-Required Changes to the Title IV Student Aid Programs It comes out of each disbursement before the money reaches your school, but you owe the full loan amount. On a $10,000 loan split into two equal disbursements, each $5,000 payment is reduced by about $211. You receive roughly $9,577 and still owe $10,000. Budget for that gap when deciding how much to request.
How Grad PLUS Compares to Direct Unsubsidized Graduate Loans
Direct Unsubsidized Loans for graduate students are also unsubsidized, so interest accrues the same way. What differs is the price. During the same July 2025 to July 2026 window, Direct Unsubsidized Loans for graduate students carry a rate of 7.49%,2Federal Student Aid. Federal Student Aid Interest Rates and Fees compared with 8.94% for Grad PLUS. The origination fee on Grad PLUS is also higher than what applies to Direct Unsubsidized Loans.
The practical takeaway: because neither loan is subsidized, the cheaper option is the one with the lower rate and lower fee. Most schools require graduate students to borrow their full Direct Unsubsidized Loan eligibility before certifying a Grad PLUS loan, which lines up with that math.
Are Grad PLUS Loans Being Eliminated?
Federal legislation signed in 2025 terminates graduate and professional students’ eligibility for Direct PLUS Loans for any period of instruction beginning on or after July 1, 2026.4Federal Register. Reimagining and Improving Student Education New graduate students enrolling after that date will not be able to borrow through Grad PLUS at all.
In its place, the law raises the annual and aggregate limits on Direct Unsubsidized Loans for graduate and professional students. Graduate students (non-professional) can borrow up to $20,500 per year with a $100,000 aggregate limit. Professional students can borrow up to $50,000 per year with a $200,000 aggregate limit. These caps are meaningfully lower than what Grad PLUS previously allowed, which was the full cost of attendance minus other aid.5U.S. Department of Education. U.S. Department of Education Issues Proposed Rule to Make Higher Education More Affordable and Simplify Student Loan Repayment The replacement loans remain unsubsidized, so the interest-from-day-one rule does not change.
There is a grandfathering provision. If you were enrolled in a program as of June 30, 2026, and had a Direct Loan disbursed before July 1, 2026, for that same program, the new annual limits do not apply to you for the expected duration of your program.4Federal Register. Reimagining and Improving Student Education For those borrowers, the Grad PLUS terms described above continue to apply to loans already disbursed.
What This Means for Borrowers
If you are taking out a Grad PLUS loan now, treat the unsubsidized status as the single most important cost factor to plan around. Two decisions matter most:
- Borrow only what you need. The origination fee is deducted from every disbursement, and the balance you sign for begins accruing interest immediately. A smaller loan means a smaller compounding base.
- Pay interest during school if you can. Even modest interest-only payments while enrolled prevent that interest from being folded into your principal at the end of deferment, and they lower the total you will repay over the life of the loan.
If you are weighing Grad PLUS against a Direct Unsubsidized Loan for graduate school, run the numbers on both rates and both fees before choosing how to layer them. Neither one is subsidized, so the comparison comes down to price.