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There are several advantages and disadvantages of Parent PLUS loans and private student loans. Depending on the parent’s circumstances, one type of loan may be better than the other.
Differences in Loan Eligibility
This table shows the differences in who is eligible for a Parent PLUS loan vs. a private student loan. Parent PLUS loans are generally more available than private student loans, since eligibility for a private student loan depends on the creditworthiness of the borrower and cosigner.
Characteristic |
Parent PLUS Loans |
Private Student Loans |
Lender |
U.S. Department of Education |
Banks, credit unions, state loan agencies, other financial institutions |
Borrower |
Parent of a dependent undergraduate student |
Student |
Degree Level |
Undergraduate |
Undergraduate, graduate |
FAFSA Required |
Yes |
No |
Cosigner Required |
Only if borrower has an adverse credit history |
Required for 90% or more of private student loans for undergraduate students and two-thirds of private student loans for graduate students. The cosigner is usually the parent. |
Credit Underwriting |
No Adverse Credit History |
Credit scores, debt-to-income ratios, income, duration of employment, no adverse credit history, other factors |
Minimum Credit Score |
None |
Typically, 650 or 670 |
Loan Limits |
Annual: COA – Aid Aggregate: None |
Annual: COA – Aid May also have fixed annual and aggregate limits that vary by degree level and major |
If a parent is denied a Parent PLUS loan due to an adverse credit history, the student becomes eligible for the higher unsubsidized Federal Direct Stafford loan limits available to independent students.
Differences in Loan Cost
This table highlights the differences in the cost of Parent PLUS loans and private student loans.
Characteristic
|
Parent PLUS Loans
|
Private Student Loans
|
Overall Cost
|
Less expensive |
More expensive, unless borrower or cosigner has excellent credit |
Interest Rates
|
Same for all borrowers |
Based on credit score of borrower and cosigner, if any |
Interest Capitalization
|
Once, when loan enters repayment |
May be as frequently as monthly |
Loan Fees
|
About 4% |
No Fees |
AutoPay Discounts
|
0.25% interest rate reduction |
None, 0.25% or 0.50% interest rate reduction |
Parent PLUS loans and most private student loans are eligible for the student loan interest deduction.
Differences in Loan Repayment
Repayment plans differ between Parent PLUS loans and private student loans. Repayment options are generally better for federal loans, but private student loans offer more in-school payment options.
Characteristic |
Parent PLUS Loans |
Private Student Loans |
In-School Payments
|
Full deferment, immediate repayment |
Full deferment, fixed payments ($25/loan/month), interest-only payments, and immediate repayment |
Deferments
|
In-school, grace period, economic hardship, unemployment, etc. |
In-school, grace period |
Forbearances
|
Maximum of 3 years |
Maximum of 1 year |
Repayment Plans
|
Standard (10 years), Graduated, Extended (12, 15, 20, 25, 30 years), Income-Contingent (if consolidated) |
5, 7, 10, 15 or 20 years, depending on lender |
Repayment Plan May Change
|
Yes |
5, 7, 10, 15 or 20 years, depending on lender |
Discharges
|
Death (student or parent), Disability (parent), Closed School, Identity Theft, Unpaid Refund, False Certification |
Some lenders offer death and disability discharges |
Loan Forgiveness
|
Public Service Loan Forgiveness, other loan forgiveness options |
None |
There are no prepayment penalties on federal and private student loans.
