Federal PLUS vs. Private Loans
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 private loans and the Federal Direct PLUS Loan for parents.
Compare the Differences
| Federal Direct PLUS Loans for Parents | Private Loans (For Students or Parents) | |
|---|---|---|
| Interest Rate | Fixed at 9.08% for the 2024-25 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 | 4.228% 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 10-25 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. |
| Effect on Credit Report | Will show as debt on credit report of parent. | Will show as debt on credit report of student, parent borrower 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 forbearance. | 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 may be eligible to be discharged if borrower becomes disabled or deceased. |