Comparing Loans? Here Are the Pros and Cons of Parent PLUS and Private Loans (2024)

FAQs

What is the difference between parent PLUS loans and private loans? ›

Whereas Parent PLUS loan rates are fixed for the life of the loan, private loan rates can be fixed or variable. You may want to choose a variable rate if you plan on repaying the loan quickly while rates are low, but variable rates come with the risk that your monthly payment will rise over time.

Private student loans may offer higher borrowing limits and potentially lower interest rates compared to federal loans. Private student loans may also be tax deductible, but they can carry the risk of not being discharged in bankruptcy and potentially persisting after death.

The parent, not the student, is responsible for repaying the PLUS loan. PLUS loans don't qualify for all of the income-driven repayment plans that student loans do. PLUS loans have large borrowing limits, making it possible to take on too much debt.

Parent PLUS Loans typically have higher interest rates than a student's federal student loans. This means that over the life of the loan, you could end up paying significantly more in interest with a Parent PLUS Loan compared to a federal student loan taken out by a student.

However, federal parent PLUS loans offer a standard fixed interest rate, regardless of credit score or income level. These loans also come with federal benefits and protections, like deferment, forbearance and Income-Contingent Repayment (ICR).

Parent PLUS loans can be forgiven under the Income-Contingent Repayment (ICR) plan and Public Service Loan Forgiveness (PSLF) program. Parents can become eligible for these forgiveness programs only if they consolidate their PLUS loans into a Direct Consolidation Loan.

The Pros of Private Student Loans

Private student loans have higher loan limits than federal student loans. Private student loans can be less expensive than Federal Parent PLUS loans if the borrower (and cosigner, if any) have excellent credit.

CON: You need to have good to excellent credit to qualify for a loan or the lender may require a co-signer. CON: Private student loans have fewer and repayment and forgiveness options than federal student loans.

You will lose repayment plan options and restart the clock on PSLF and other forgiveness programs. You can learn more about the consolidation process here . Act quickly to avoid default. Default can result in consequences like garnishment of your wages, federal tax return, or Social Security.

What are the advantages and/or disadvantages of being awarded a PLUS loan? ›

Can the loan be transferred to the student? No, a Direct PLUS Loan made to a parent cannot be transferred to the child. You, the parent borrower, are legally responsible for repaying the loan.

The maximum PLUS loan amount you can receive is the cost of attendance (determined by the school) minus any other financial aid received.

If you and your family still have a gap to fill between your child's expected cost of attendance and other funding sources, pursue the parent PLUS loan. But before you borrow any money, get organized. Calculate how much money you need. Use one of the loan calculators found online to determine your monthly payments.

Parents or guardians can take out a student loan for their child, which can be beneficial for several reasons. One key advantage is that you may qualify for a substantially larger loan amount than your child could on their own.

Private student loans are only forgiven when the borrower becomes permanently disabled or dies. Your relief options will depend on your lender and loan agreement. Contact your lender and discuss your financial situation before defaulting on your student loans.

Private lenders can offer much better rates.

In fact, borrowers with strong credit or well-qualified cosigners can often secure interest rates multiple percentage points below that of Grad PLUS Loans. Private lenders also offer fixed and variable rates, whereas federal loans have only fixed rates.

Parent PLUS Loan interest rates

The interest rate for Parent PLUS Loans first disbursed on or after July 1, 2024, and before July 1, 2025, is currently 9.08%. This rate is fixed for the life of the loan. There's also a 4.228% fee for loans disbursed on or after October 1, 2020.