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Parent PLUS loans are typically a good choice for parents taking loans out for a child who wants to take advantage of federal loan benefits. Private loans, on the other hand, are a good option if it makes more sense for the student to take the loan out themselves or if a variable interest rate is preferred.

Here are a few of the differences between both options:

  • Borrower: With Parent PLUS loans, the parent is the borrower. For Private student loans the borrower can be either the parent or the student.
  • Lender: If you take out a Parent PLUS loan, the federal government is your lender. Private student loans, however, are offered by various private institutions like banks, credit unions, and online lenders.
  • Terms: Parent PLUS loans typically have terms between 10 and 25 years. Private student loans typically offer terms between 5 and 25 years.

Parent PLUS loans vs. private student loans

Here’s a quick comparison between Parent PLUS loans and private student loans.

Parent PLUS LoanPrivate student loan
Who is the borrower?ParentStudent or parent
Do you need a cosigner?Depends on the parent's credit history (if adverse, yes)Depends on who is taking out the loan and their credit history (but typically the student would need a cosigner)
Who is the lender?Federal governmentVarious private institutions
What’s the interest rate type?Fixed and set by CongressFixed or variable and depends on your credit
Do you need to fill out the FAFSA?YesNo
How much can you borrow?Depends on the cost of attendance minus other financial aid and the student’s year in schoolSome have caps, others limit by cost of attendance minus other financial aid
How long does it take to repay the loan?Typically 10 to 25 years (depends on loan)Typically 5 to 25 years (depends on loan)
Is interest tax-deductible?YesYes

How to decide between Parent PLUS loans and private student loans

While parents can be involved in both types of loans, how they work are completely different. Here’s what you should consider before making a decision.

1. Figure out who should take out the loan

Consider a Parent PLUS loan if: You’re a parent wanting to take out the loan for your child and have a solid credit history.

Consider a private student loan if: You’re a student wanting to take out the loan (even if this includes a cosigner).

For Parent PLUS Loans, parents take out the loan on behalf of their child who is attending college. For private student loans, the student or parent has the opportunity to take out the loan.

If you’re a student wishing to take out loans so your parents don’t have to, you may want to make sure you have as much federal funding as possible before turning to private student loans.

If you’re a parent taking out a private student loan, you may want to think about being a cosigner on their loan, rather than taking out the loan in your own name. This makes your child responsible for the loan along with you. Many lenders offer cosigner release which allows the parent (or other cosigner) to be taken off the loan in the future.

2. Decide if you need a cosigner

Consider a Parent PLUS loan if: Your parent has a solid credit history and won’t need a cosigner.

Consider a private student loan if: You or your parent has a solid credit history.

Private student loans allow you to take out loans under the student’s name rather than the parent’s. But a strong credit history can increase the likelihood of approval and secure a lower interest rate. If you don’t have strong credit — or much credit at all — you might need a cosigner. That means you may need to ask your parents or another relative to sign onto your loan with you.

If your parents have a good credit history, they can apply for a Parent PLUS Loan to help you through school or as a cosigner on a private student loan for you.

Keep in mind that whoever is on the loan — whether it’s just you, just your parent, or both — is responsible for repaying the loan when the time comes. So if you can’t afford to make payments and fall behind, your credit score will take a hit, and so will your cosigner’s. That might impact who signs onto the loan and if having a cosigner is possible.

3. Consider who your lender will be

Consider a Parent PLUS loan if: You prefer loans from the federal government and will fill out the FAFSA anyway.

Consider a private student loan if: You prefer not to have to fill out the FAFSA and want to work with a specific private lender.

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.

A Parent PLUS Loan is a good idea if you’ve exhausted all your other federal loan options and qualify for one. It makes sense if your parent has agreed to do this on your behalf. But it also makes them financially responsible for your education and not you. You’ll need to either work out a repayment plan to your parents or agree that they are paying this portion of your education.

Private student loans, on the other hand, don’t require you to fill out the FAFSA. Private loans come from various private institutions, including:

  • Banks
  • Credit unions
  • Online lenders

Although the FAFSA isn’t required for private student loans, some lenders limit how much you can borrow based on your cost of attendance minus any federal aid you’ve received. So if you’ve exhausted all of your federal funding options, you can turn to private student loans. Just remember that your school may have to certify the cost of attendance in order to determine how much you’re eligible for.

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4. Think about the different repayment plans and benefits

Consider a Parent PLUS loan if: You want more repayment plan options and hardship options as a backup plan in case you can’t make payments in the future.

Consider a private student loan if: You have a steady job and income and should always be able to make on-time payments.

Parent PLUS Loans, like many federal loans, offer many different repayment options. They also have certain benefits, such as:

  • Grace period: Like other federal loans, you’ll be able to choose to start repayment after the six-month grace period ends.
  • Direct Consolidation Loan qualification: If the Parent PLUS Loan is one of many different federal loans you have, you can include it when you consolidate.
  • Deferment or forbearance: If you’re having trouble repaying your Parent PLUS Loans, you may qualify for deferment or forbearance. These allow you to temporarily stop making payments on your loans without facing a penalty. But you’re still responsible for the interest that adds up while your Parent PLUS Loan is in deferment.

But there are some drawbacks to Parent PLUS Loans:

  • Higher rates: PLUS loans carry the highest interest rates and fees of any federal student loans: 7.08% for loans taken out during the 2019-20 academic year, with an up-front fee of 4.264%.
  • Risk of over-borrowing: You can borrow up to your child’s certified cost of attendance, which can be well into the six-figures — so it might be easy to get in over your head and take out more than you actually need.
  • IDR plan qualification: Parent PLUS Loans don’t qualify for most income-driven repayment plans. IDR plans are based on income and family size. So if your Parent PLUS Loan is hard to repay, you may want to look into other options, like deferment, forbearance, or a Direct Consolidation Loan.

Private student loans, on the other hand, have terms set by the lender, ranging from five years to 25 years, depending on the lender you choose. They typically don’t offer as many benefits as federal loans, but some might offer hardship plans that would allow you to pause payments in case you lose your job or face another type of economic or family emergency. Although you may be able to take a break from repayment, keep in mind that this can cause you to repay your loan for longer.

Check Out: The Best Private Student Loan Lenders

5. Compare interest rates

Consider a Parent PLUS loan if: You prefer fixed rates.

Consider a private student loan if: You want the option of a fixed or variable rate.

Parent PLUS Loans have fixed interest rates which means that when it comes time to repay, you pay the same amount every month.

But keep in mind that interest accrues while you’re in school. These are different from subsidized loans, which don’t charge interest until after you graduate or drop below part-time enrollment.

Private student loans usually offer both fixed and variable interest rates. Variable interest rates mean your monthly payments could fluctuate based on market conditions. So, for example, you could end up paying less in interest one month and more the next.

If you have a set income every month and can only afford to make payments up to a certain amount, fixed interest rates may be better for you. But if you have a little more wiggle room in your budget and don’t mind taking the chance, a variable interest rate is a good idea. There’s no wrong choice — only which one is right for you and your finances.

Find Your Student Loan

Find the right loan for you

If you’re still wondering which plan is right for you, take some time to review your financial situation and ask yourself a few quick questions:

  1. Do your parents have a solid credit history to qualify for a Parent PLUS Loan?
  2. Are your parents willing to take out a loan on your behalf — whether federal or private?
  3. Do you have a repayment plan after you graduate?
  4. Do you have a backup plan in case you can’t make payments?
  5. Are there other funding options you can take advantage of, like grants, scholarships, or other family contributions, to offset borrowing more money?

Try to take advantage of all your federal loan options first. If you find that you can’t take out a Parent PLUS Loan or that it’s not right for you, it might be time to look into private student loans. Review all your options and take the time you need to find one that’s the right fit for you.

About the author
Dori Zinn
Dori Zinn

Dori Zinn is a student loan authority and a contributor to Credible. Her work has appeared in Huffington Post, Bankate, Inc, Quartz, and more.

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