Both Federal Parent PLUS Loans and private student loans can help cover the difference between the total cost of education and financial aid. Both types of loans can be used to pay for educational expenses such as tuition, fees, books, supplies, student housing and meals, computers, transportation and miscellaneous/personal expenses.
There are two primary differences: First, the parent is the primary borrower on a Federal 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.
The other difference between these two college loans is the interest rate. Federal Parent PLUS loans are based on a fixed interest rate, currently 6.84% for the 2015-2016 academic year. Private student loan interest rates are based on borrower credit and come in fixed and/or variable options depending on the lender.
Families should always consider scholarships, grants and federal loans, like the Federal Stafford Loan and the Federal PLUS Loan, before applying for Private Student Loans.
|Parent PLUS Loan||Private Student Loan|
(only if primary borrower has an adverse credit history)
|Credit Criteria||Borrower may not have an Adverse Credit History
(if so, he/she must have a creditworthy endorser)
No Adverse Credit History
|Impact of Loan Denial||Increased Unsubsidized Federal Stafford Loan Limits||--|
|Requires School Certification|
|Lender||Federal Government||Private Lenders and Financial Institutions|
|Interest Rate Type||Fixed||Fixed and Variable Options|
|Interest Rate||6.84% Fixed||Depends on Borrower and Cosigner Credit|
|Interest Rate Reduction for Automatic Payments||0.25%||Varies by Lender|
|Loan Fees||4.272% (for all Federal Direct PLUS loans first disbursed on or after December 1, 2013)||Varies by Lender and Borrower Credit
Typically, 0% to 5% of the amount borrowed
|Interest Capitalization||Once at Repayment||Monthly, Quarterly, Annually or Once at Repayment|
|Annual Loan Limits||Cost of Attendance minus Aid||Cost of Attendance minus Aid
Lower Limits for Some Degrees and Majors
|Cumulative Loan Limits||None||Varies by Lender
Varies by Degree and Academic Major
|Funds Disbursed to the School|
|In-School and Grace Period Deferment Options||Immediate Repayment
Fixed In-School Payments
|Forbearance Options||3-Year Limit (1-year increments)||Varies by Lender|
|Repayment Term||Varies by Repayment Plan and Loan Balance
10 to 30 years
|Varies by Lender
5 to 25 years
|Repayment Plans||Standard, Extended, Graduated||Varies by Lender|
|Death Discharge||Yes (Student or Parent)||Varies by Lender|
|Disability Discharge||Yes (Parent Only)||Varies by Lender|
|Public Service Loan Forgiveness||Maybe||No|
|Can Be Consolidated?||Yes
Does Not Relock Rate
|Varies by Lender
Rate Based on Current Credit
Federal PLUS loan borrowers may choose between two repayment deferment options:
Private student loan deferment options vary by lender, but may include one or more of the following options:
Some lenders of private student loans require immediate repayment. Other lenders let the borrower choose, but offer interest rate discounts for options other than full deferment.
Regardless of whether the parent is a borrower of a Federal Parent PLUS loan or a cosigner on a private student loan, the parent is liable for the loan. A cosigner is a co-borrower, equally obligated to repay the debt. Both types of loans will appear on the parent’s credit history, potentially affecting the parent’s eligibility for other types of debt, such as credit cards, auto loans and home mortgages (including refinancing existing debt).
The cosigner on a private student loan can be someone other than the student’s parent.
Federal Parent PLUS loans are not eligible for income-contingent repayment (ICR), income-based repayment (IBR) or pay-as-you-earn repayment (PAYER) plans. However, if the borrower of a Federal Parent PLUS Loan entered repayment on or after July 1, 2006 and includes the Federal Parent PLUS loans in a Federal Direct Consolidation Loan, the consolidation loan may be eligible for ICR. Such a consolidation loan may also be eligible for public service loan forgiveness.
Federal Parent PLUS and “Certified” Private Student Loans are both disbursed to the school’s financial aid office.
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