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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 PLUS Loan and private loans.

Comparing Loans

Interest Rate

Federal Direct PLUS Loans for Parents

Fixed at 7.08% for the 2019-20 academic year.

Private Loans (For Students or Parents)

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

Federal Direct PLUS Loans for Parents

Parent. Loan is in parent's name. Loan is non-transferable.

Private Loans (For Students or Parents)

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

Federal Direct PLUS Loans for Parents

Up to the cost of student's education less other financial aid.

Private Loans (For Students or Parents)

Minimum and maximum borrowing limits vary from lender to lender.

Fees

Federal Direct PLUS Loans for Parents

4.236% origination fee

Private Loans (For Students or Parents)

Fees vary from lender to lender. May include origination and/or repayment fees.

Repayment Terms

Federal Direct PLUS Loans for Parents

  • Generally repayment begins within 60 days after full disbursement.
  • Length of repayment: 10 years from the start of principle payments.

Private Loans (For Students or Parents)

  • 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 10-25 years.

Qualifying

Federal Direct PLUS Loans for Parents

Based on credit history; debt-to-income is not considered, making it easier to qualify.

Private Loans (For Students or Parents)

Varies from lender to lender but often debt-to-income ratio is considered in credit decision.

Effect on Credit Report

Federal Direct PLUS Loans for Parents

Will show as debt on credit report of parent.

Private Loans (For Students or Parents)

Will show as debt on credit report of student, parent borrower and cosigner.

Deferment/Forbearance

Federal Direct PLUS Loans for Parents

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 forbearance.

Private Loans (For Students or Parents)

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

Federal Direct PLUS Loans for Parents

Loan discharged if parent or student dies or if parent suffers total and permanent disability.

Private Loans (For Students or Parents)

Loan may be eligible to be discharged if borrower becomes disabled or deceased.