Federal PLUS or Private Loans - which is better?

Before borrowing any supplemental loan (PLUS or private), we recommend that all students utilize the federal subsidized or unsubsidized loans they have been awarded. Even though a student's federal loan eligibility may not provide the total amount needed to cover their remaining expenses, it is still in the student's best interest to take advantage of federal funding rather than securing one larger supplemental loan for the total amount needed. When deciding what type of supplemental financing to use in conjunction with a student's federal loan eligibility, we encourage families to consider the differences between the Federal Direct Parent PLUS Loan and other private educational loans.
 
FEATURE

FEDERAL DIRECT PARENT PLUS LOAN

PRIVATE EDUCATIONAL LOANS
Interest Rate Fixed at 7.21 percent for the 2014-15 academic year. Variable and fixed rates available, usually no cap. Many programs reset monthly or quarterly. Usually based on a consumer index (prime, commercial paper, LIBOR, etc.) plus a margin.
Borrower Parent. Loan is in parent's name. Loan is non-transferable. Student. While loan is in student's name, usually parent is included as a cosigner. Cosigner bears equal responsibility for the loan repayment.
Loan Amounts Up to the cost of student's education less other financial aid. Minimum and maximum borrowing limits vary from lender to lender.
Fees 4.288 percent origination fee Fees vary from lender to lender. May include origination and/or repayment fees.
Repayment Terms
  • Generally repayment begins within 60 days after full disbursement.
  • Length of repayment: 10 years from the start of principle payments.
  • Interest accrues while student is in school. Some programs require students to make minimum monthly payments or interest only payments while in school. If deferred, repayment usually begins six months after student graduates or leaves school.
  • Length of repayment varies, usually 10-30 years.
Qualifying  Based on credit history; debt-to-income is not considered, making it easier to qualify. Varies from lender to lender but often debt-to-income ratio is considered in credit decision.
Affect on Credit Report Will show as debt on credit report of parent. Will show as debt on credit report of student and cosigner.

Deferment/Forbearance

Parent borrows may request deferment of principle and interest payments as long as their student is enrolled at least half-time. Unemployment and economic hardship may also qualify parent for deferment or forebearance. Deferment of principle and interest is often available as long as the student is enrolled at least half-time. However, some lenders only offer deferment of principle. Some lenders may offer forbearance. Check with lender for details.
Cancellation Loan discharged if parent or student dies or if parent suffers total and permanent disability. Loan usually not discharged if student borrower becomes disabled or deceased.