Parent PLUS Loans vs. Private Student Loans

PLUS Loan Benefits
  • Fixed interest rate - 7.21%
  • Borrow up to the cost of education

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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.

Differences Between PLUS and Private Loans

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 other difference between these two college loans is the interest rate. Federal PLUS loans are based on a fixed interest rate of 7.21% for the 2013-2014 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.

Federal PLUS Loan and Private Student Loan Comparison

  Parent PLUS Loan Private Student Loan
Primary Borrower Parent Student
Cosigner Required Yes
(only if primary borrower has an adverse credit history)
Yes
Credit Criteria Borrower may not have an Adverse Credit History (if so, he/she must have a creditworthy endorser) Credit Scores
Debt-to-Income Ratios
No Adverse Credit History
Impact of Loan Denial Increased Unsubsidized Federal Stafford Loan Limits --
Requires School Certification Yes Yes
FAFSA Required Yes No
Lender Federal Government Private Lenders and Financial Institutions
Interest Rate Type Fixed Fixed and Variable Options
Interest Rate 7.21% Fixed as of July 2013 Depends on Borrower and Cosigner Credit
Interest Rate Reduction for Automatic Payments 0.25% Varies by Lender
Deductible Interest Yes Yes
Subsidized Interest No No
Loan Fees 4.292% (for all Federal Direct PLUS loans first disburded on or after October 1, 2014) Varies by Lender and Borrower Credit
Typically, 0% to 5% of the amount borrowed
Prepayment Penalties None None
Interest Capitalization Once at Repayment Monthly, Quarterly, Annually or Once at Repayment
Annual Loan Limits Cost of Attendance - Aid Cost of Attendance - 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 Yes Yes
In-School and Grace Period Deferment Options Immediate Repayment
Full Deferment
Immediate Repayment
Interest-Only Payments
Fixed In-School Payments
Full Deferment
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
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Repayment Deferment Options

Federal PLUS loan borrowers may choose between two repayment deferment options:

  • Immediate Repayment. Full payments of principal and interest begin within 60 days after full disbursement of the loan.
  • Full Deferment. Full payments of principal and interest begin 6 months after the student graduates or drops below half-time enrollment. Interest continues to accrue during a deferment and is capitalized at the end of the deferment period, increasing the size of the loan. Federal Parent PLUS borrowers can defer repayment of Direct PLUS Loans first disbursed on or after July 1, 2008, while the student for whom the Federal Direct PLUS is obtained is enrolled at least half-time, and for an additional 6 months after the student graduates or drops below half-time enrollment (as determined by student's school). Federal Direct PLUS borrowers must separately request each deferment period. Borrowers may be able to defer repayment while enrolled in school on at least a half-time basis, even during a subsequent enrollment by the borrower (e.g., for graduate school)

Private student loan deferment options vary by lender, but may include one or more of the following 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 borrower is enrolled at least half-time in school and 6-month grace period, followed by full payments of principal and interest.
  • Fixed In-School Payments. Borrowers make fixed monthly payments of $25 per loan per month during the in-school and grace period, followed by full payments of principal and interest. Interest continues to accrue. The amount in excess of the fixed monthly payment will be capitalized, adding it to 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 accrue and will be added to the loan balance.

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.

Comparison Caveats

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.