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PLUS vs. Private Loans for Parents

Many families are considering financing their children’s education with either Federal Parent PLUS Loans or private student loans. The comparison chart below will help you understand the features and benefits of each type of loan.

Interest rates and fees for private loans vary from lender to lender based on the credit of the individual borrower and cosigner. We recommend that you apply for one or more private loans before deciding which type of loan is best for you. Applying for a private student loan does not obligate you to accept it.

 

 

PLUS Loans for Parents

Private Loan 

Whose name is on the loan?

Parent

Student and cosigner

Cosigner requirement

No. If parent has adverse credit history an endorser may be required.

 

No, but having a cosigner can help borrower qualify and obtain a better rate. Any creditworthy individual willing to assist the student may cosign.

Cosigner/parent release option

  

No. The parent, and any endorser, is making a commitment to repay the loan for the life of the loan.

  

Yes. Many lenders provide a cosigner release option where the student can apply to release the cosigner after he or she graduates and makes a specified number of on-time payments.
 Interest Rate                          Fixed Rate of 7.9%  

Many lenders offer both variable and fixed rate options. Interest rates range from 2.25% – 13.99%

Origination/Disbursement

    		  4.204%  

Varies by Lender - 0% to 5%
Borrower benefits   

0.25% percentage point interest rate reduction for automatic debit enrollment

Most lenders offer a 0.25% percentage point interest rate reduction for automatic debit enrollment. Additional benefits vary by lender (e.g., graduation rewards.

                

Repayment period

    

10-25 years 

   

Varies by Lender; typically 5-15 year terms are offered

Minimum Loan Requirement 

   		 $100 per semester Varies by Lender and - Range $1000-$1500

Loan Limit  

  

Up to 100% of the cost of attendance minus other financial aid received. 

   

100% of the cost of attendance minus financial aid.  Some lenders may impose limits based on various factors, and can have different loan limits for various loan programs.

Check Credit Required

    

Yes. Parent and student must not be in default on a federal loan or 90 days or more delinquent on any debt.

Yes. Loan approval and pricing is generally based on trustworthiness.

 

Minimum enrollment status

At least half time.

Varies by lender. Some offer loans to borrowers who are attending school less than half time.

Application process

Online through the Department of Education. (www.studentloans.gov)

Online with lender.

Free Application for Federal Student Aid (FAFSA) required

Yes. In addition to the FAFSA, some states/colleges require additional forms or applications for aid. (www.fafsa.gov)

No. Families are not required to complete the FAFSA unless it is the policy of the school.

Minimum payment amount while the student is enrolled in school

PLUS loan payments can be deferred while in school (interest continues to accrue and is added to the loan’s principal after graduation).

Varies by lender. Many lenders allow private loan payments to be deferred while in school (interest accrues during this time). Many lenders offer options to make interest payments while in school.

Loan forgiveness

Yes. If the primary borrower or student beneficiary dies, or if the primary borrower becomes permanently and totally disabled, then the payments on the loan will be waived if certain conditions are met.

Varies by lender. Some lenders waive the remaining balance in the event of the primary borrower’s death or permanent and total disability

Ability to consolidate through the Department of Education

Yes. Parents can consolidate with other federal loans in their name (not the student’s).

No. Cannot be included with federal student loans.

Options for denied loans

If parent applies and is denied, the student is eligible for additional unsubsidised Direct loans.

Student could apply with another private lender or re-apply with a cosigner or a different cosigner.

Repayment plans

PLUS loans are eligible for graduated and extended repayment options, federal consolidation, and some public service loan forgiveness options.

Most lenders have programs available to assist troubled borrowers, but they are discretionary and not part of the loan agreement.

Interest tax deductible

Yes. he parent may be able to use the interest paid on the loan for a tax deduction, subject to IRS guidelines.

Generally, yes. The student may be able to use the interest paid on the loan for a tax deduction, subject to IRS guidelines. Restrictions apply to loans for less-than-half-time enrollment.

 

*Chart provided with assistance from Sallie Mae, Inc.
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