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If you’re like most parents, you want to help your child with the cost of college. But if you need to borrow money to cover the full cost, which is the better option for you: federal Parent PLUS Loans or parent private student loans?
Parent PLUS Loans have the highest interest rate and fees of any federal student loan, but you can borrow up to the total cost of attendance for your child’s program (just don’t borrow more than you need or can afford to pay back). With parent private student loans, you may be able to get a lower interest rate than you would with PLUS loans, but you can’t take advantage of federal benefits like income-driven repayment plans (IDR) or Public Service Loan Forgiveness (PSLF).
If you can’t decide between the two loan types, here’s a breakdown of common scenarios:
- Use Parent PLUS Loans if you intend to pursue PSLF or take advantage of an ICR plan.
- Use parent private student loans if you have good credit and can qualify for a lower interest rate.
- Use parent private student loans if you’d prefer a loan with a variable interest rate.
Parent PLUS Loans vs. parent private student loans
|Parent PLUS Loans||Parent Private Student Loans|
|Interest rate type||Fixed||Fixed or variable|
|Interest rate||7.08%||Fixed rates from (APR): 3.95%+
Variable rates from (APR): 1.47%+
(Private lenders on Credible)
|Origination fee||4.236%||Varies by lender|
|Payment due date||After loan is disbursed, unless deferred||After loan is disbursed, unless deferred|
|Credit check required?||Yes; if adverse, an endorser is required||Yes; in some cases, a cosigner may be required|
|Loan term||10 to 25 years||5 to 25 years|
|Borrowing limits||Total cost of attendance||Total cost of attendance|
|Eligible for student loan interest deduction?||Yes||Yes|
Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available
Comparing Parent PLUS Loans and private student loans
Despite college costs skyrocketing in recent years, borrowing limits on most federal loans — like Direct Subsidized and Unsubsidized Loans — haven’t increased in over a decade. As a result, more parents and graduate students are turning to PLUS loans because they can borrow up to the total cost of attendance, filling the gap left by the strict borrowing limits.
However, Parent PLUS Loans have significant downsides which can make private student loans a viable alternative:
- Interest rates: Loans disbursed after July 1, 2019, and before July 1, 2020, have an interest rate of 7.08%. But if you have good credit and stable income (or a creditworthy cosigner), you could qualify for a much lower interest rate on a private loan, helping them save money.
- Fees: Loans disbursed after July 1, 2019, and before July 1, 2020, have a disbursement fee of 4.236%. This fee is deducted from the loan amount, so the amount of money you’ll receive is less than you actually borrowed. But Credible’s private student loan partners don’t charge any application, origination, or disbursement fees.
- Payments: With Parent PLUS Loans, payments are due as soon as the loan is disbursed, even while your child is in school. Borrowers can opt to defer payments until after the student graduates, but interest will continue to accrue on the loan. With private student loans, you can choose a repayment option that works best for you. You may defer payments until after graduation, or you can start making payments or interest-only payments while the student is in school to reduce interest charges.
Check Out: Average Student Loan Interest Rates
How to decide between Parent PLUS Loans and private student loans
When deciding between Parent PLUS Loans and parent private student loans, ask yourself these questions:
- What interest rate can I qualify for?
- Do I want a variable-rate loan?
- Did I complete the FAFSA?
- Will I need access to federal benefits?
- Am I eligible for PSLF?
1. What interest rate can I qualify for?
- Parent PLUS Loans: PLUS Loans have a 7.08% interest rate for all borrowers, regardless of their credit. But the upfront fee on PLUS Loans can increase your APR by about a full percentage point.
- Private student loans: Private loan borrowers with good to excellent credit and steady income may be able to qualify for a lower rate. Over the length of your loan repayment, that lower interest rate can help you save a significant amount of money.
2. Do I want a variable-rate loan?
- Parent PLUS Loans: Federal loans only have fixed interest rates.
- Private student loans: By contrast, private student loans can have variable or fixed interest rates. Unlike fixed-rate loans, which have the same interest rate for the entire repayment term, variable-rate loans tend to start off with low interest rates. Over time, the rates can increase and decrease. If you want to aggressively repay the loan, it may make more sense for you to use a variable-rate loan.
3. Did I complete the FAFSA?
- Parent PLUS Loans: Parent PLUS Loans are a type of federal loan administered by the U.S. Department of Education. Because it comes from the federal government, you’ll need to make sure you complete a FAFSA first.
- Private student loans: Private student loans, on the other hand, don’t require you to fill out the FAFSA. Just remember that your school may have to certify the cost of attendance in order to determine how much you’re eligible for, and try to keep the total amount borrowed in line with what you expect your annual salary to be after graduation.
4. Will I need access to federal benefits?
- Parent PLUS Loans: Federal student loans are eligible for deferments and forbearance, which allow you to postpone making your payments on your loans for a set period of time, without becoming delinquent or damaging your credit. While Parent PLUS Loans aren’t eligible for IDR plans as they are, you can consolidate them with a Direct Consolidation Loan. Once you do so, your loans are eligible for Income-Contingent Repayment (ICR), one of the four IDR plans. By signing up for ICR, you can sometimes reduce your minimum monthly payment. And, after 25 years of making payments, any remaining loan balance can be discharged.
- Private student loans: Private student loans aren’t eligible for federal benefits, so if you need these perks, make sure you apply for federal loans.
5. Am I eligible for PSLF?
- Parent PLUS Loans: If you have federal student loans and work for a nonprofit organization or government agency for 10 years and make 120 qualifying payments — and payments made under an ICR plan count — you can qualify for loan forgiveness under PSLF. Parent PLUS Loans can qualify for PSLF, but you do have to consolidate them with a Direct Consolidation Loan first and sign up for an ICR plan. Once you do that, your monthly payments will count towards PSLF, helping you pursue loan forgiveness, which can be a substantial relief.
- Private student loans: Only federal loans are eligible for PSLF; private student loans don’t qualify.
Learn More: Public Service Loan Forgiveness
Cosigning a private student loan as an alternative
If you take out any loan for your child, the only way to remove your obligation on these loans is to transfer them into your child’s name; otherwise, you’re on the hook for the debt for 10 years or more.
Instead, it might make more sense for your child to apply for private student loans in their own name, with you acting as a cosigner on the loan.
Some private student loan lenders offer cosigner release, too. After two to three years of on-time payments, your child can apply to have you removed as a cosigner from the loan, eliminating your responsibility for the loan. This strategy is a good way to help your child get the financing they need to pay for school, without tying yourself to a loan for decades.
Check out these private student loan lenders that offer parent loans:
|Lender||Fixed rates from (APR)||Variable rates from (APR)|
|Check with lender||Check with lender|
|Check with lender||Check with lender|
Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 1Citizens Bank Disclosures | 2,3College Ave Disclosures | 6Discover Disclosures | 8EDvestinU Disclosures | 9Sallie Mae Disclosures
Citizens Bank Student Loan Rate Disclosure Variable rate, based on the one-month London Interbank Offered Rate ("LIBOR") published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of May 1, 2020, the one-month LIBOR rate is 0.44%. Variable interest rates range from 1.47%-9.80% (1.47%-9.65% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.40%-12.19% (4.40% - 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co- signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.