Parent PLUS Loans vs. Private Student Loans
- Fixed interest rate - 7.21%
- Borrow up to the cost of education
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|
(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)||Credit Scores
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||7.21% Fixed as of July 2013||Depends on Borrower and Cosigner Credit|
|Interest Rate Reduction for Automatic Payments||0.25%||Varies by Lender|
|Loan Fees||4.288% (for all Federal Direct PLUS loans first disburded 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 - 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|
|In-School and Grace Period Deferment Options||Immediate Repayment
Fixed In-School Payments
|Forbearance Options||3-Year Limit
|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
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.
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.