College Loans for Parents: Federal PLUS Loan and Private Options

College graduate with her parents who used a private parent student loan

Topics: Student Loans

Several lenders now offer private college loans for parents.

Unlike private student loans, where the student is the borrower and the parent is often a cosigner, parents are the only borrowers on a private parent loan.

Parent PLUS Loan Costs

Parent PLUS Loans have a fixed interest rate for all borrowers. Interest rates are updated every year on July 1st. The current interest rate for Parent PLUS Loans is 7.08% (this applies to loans first disbursed between July 1, 2019 and July 1, 2020). Parent PLUS Loans also incur origination fees, which are updated every year on October 1. The current origination fee is 4.236% (this applies to all loans first disbursed on or after October 1, 2019, and before October 1, 2020).

Private Parent Student Loan Costs

A private parent loan may be a cheaper option than a Parent PLUS Loan. A parent with a strong credit history may qualify for a private parent student loan with a lower interest rate than what is offered by the PLUS loan program. Also, many private lenders do not charge origination fees.

best private student loan interest rates

Student Loan Benefits

When you compare federal and private college loans, it’s important to consider the differences in benefits, not just the costs of the loan.

Federal student loans generally offer better benefits than private student loans. But Parent PLUS Loans aren’t eligible for all of these same benefits.

This chart highlights some key differences:

Compare Federal Parent PLUS Loan and Private Parent Loan Benefits
 Loan Benefit Parent PLUS Loans Private Parent Loans
Income-Based Repayment Plan No No
Pay-As-You-Earn Repayment Plan No No
Public Service Loan Forgiveness No No
Deferment and Forbearance Options Up to 3 years Typically up to 1 year
Death and Disability Discharge If parent borrower or student dies, or parent becomes totally and permanently disabled Depends on lender - some offer a similar benefit
Credit Requirements Borrower must not have an Adverse Credit History; Credit scores are not considered Credit scores, income, and other factors may be considered

Usually not required; If parent borrower has an Adverse Credit History, an endorser will be required

Usually not required; Cosigner release option may be available

private student loans for parents

When to Use a Private Parent Loan

How do you know if it’s the right time to consider a private parent loan? First, you should ask yourself these questions:

  1. Has the student exhausted eligibility for lower-cost federal student loans, such as Direct Subsidized and Unsubsidized Loans?
  2. Are the parents willing to borrow money to help pay for college costs?

If the answer to both questions is yes, then you should compare the tradeoffs between the costs and benefits of the private parent loan and Parent PLUS Loan and choose the best option.

A private parent loan might also be a good option for parents with older Parent PLUS Loans at higher interest rates. Some lenders may refinance these loans into a lower rate private loan.

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