Summary: Both Parent PLUS Loans and private student loans can help pay for college when other student aid isn’t enough to cover educational expenses. The loans offer different features and benefits. Parents should carefully review the differences before borrowing any type of loan.

Both Parent PLUS Loans and private student loans can help cover the difference between the total cost of attendance (COA) of your school and the financial aid you receive. Both types of loans can be used to pay for educational expenses such as:.

  • Tuition and fees
  • Room and board
  • Books
  • Supplies
  • Equipment
  • Transportation
  • Miscellaneous/personal expenses

Differences Between Parent PLUS and Private Loans

There are three main differences:

  1. Lender: Parent PLUS Loans are federal student loans. The federal government is the lender. Private student loans are offered by private financial institutions, such as banks and credit unions, states, as well as colleges and universities.
  2. Primary Borrower: The parent is the primary borrower on a Parent PLUS Loan and the student is the primary borrower on a private student loan. The parent may be a cosigner on the student’s private student loan.
  3. Interest Rate: Parent PLUS Loans have fixed interest rates, currently @PLIRCurrent% for the @AYCurrent academic year. Private student loan interest rates are based on borrower credit and come in fixed and variable interest rate options, depending on the lender.

Families should always consider scholarships, grants, and federal student loans, like Direct Subsidized and Unsubsidized Loans and Perkins Loans, before applying for private student loans.

Parent PLUS Loan and Private Student Loan Comparison Chart

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When Repayment Begins

Parent PLUS Loans

Parent PLUS Loan borrowers can start making payments right away, or choose between two repayment deferment options.

Immediate Repayment

Full payments of principal and interest begin within 60 days after full disbursement of the loan.

Deferment Options

  1. Defer principal and interest payments until the student graduates or drops below half-time enrollment.
  2. Defer principal and interest payments until 6 months after the student graduates or drops below half-time enrollment.

Interest continues to add up during deferment, increasing the amount of the loan.

Private Student Loans

Private student loan deferment options vary by lender. Here are some common options:

  • Immediate Repayment: Full payments of principal and interest begin within 30-60 days after disbursement of the loan.
  • Interest-Only Payments: Borrowers must make payments of at least the new interest that accrues while the student is enrolled at least half-time and during the 6-month grace period. Then, full payments of principal and interest begin.
  • Fixed In-School Payments: Borrowers make fixed monthly payments of $25 per loan per month during the in-school and grace periods. Then, full payments of principal and interest begin. Any interest over the $25 will continue to add up, increasing the loan balance.
  • Full Deferment: Borrowers do not make any payments during the in-school and grace periods. Monthly payments of principal and interest begin 6 months after the student graduates or drops below half-time enrollment. Interest continues to add up, increasing the loan balance.

Some private student loan lenders require immediate repayment. Other lenders let the borrower choose, but may offer interest rate discounts for making payments while in school

Important Things to Consider When Comparing Loans

The parent is responsible for the loan. It doesn’t matter if the parent is the primary borrower (Parent PLUS Loan) or a cosigner (private student loan).

A cosigner is a co-borrower, with equal responsibility to repay the debt. Both types of loans will appear on the parent’s credit history, which could affect eligibility for other types of debt, such as credit cards, auto loans, and home loans (including home loan refinancing).

Even though Parent PLUS Loans are federal loans, they don’t come with all of the same advantages of other federal loans. Parent PLUS Loans are not eligible for:

  • Income-contingent repayment (ICR), unless consolidated into a Direct Consolidation Loan
  • Income-based repayment (IBR)
  • Pay-as-you-earn repayment (PAYE)
  • Revised pay-as-you-earn repayment (REPAYE)
  • Public Service Loan Forgiveness, unless consolidated into a Direct Consolidation Loan

Recommendations

  1. File the FAFSA every year to maintain eligibility for student aid.
  2. Dependent students should take out Direct Subsidized Loans (if eligible), Direct Unsubsidized Loans, and Perkins Loans before parents consider taking out a Parent PLUS Loan.
  3. Parents should compare the costs and benefits of PLUS Loans and private student loans. Parents with excellent credit may qualify for private student loan interest rates that are lower than the current PLUS Loan rate.
  4. If a parent is denied for a PLUS Loan due to an adverse credit history, the student should contact the school’s financial aid office to request a higher loan limit on the Direct Unsubsidized Loan, or the parent should find a creditworthy cosigner.