What Are the Tradeoffs of PLUS Loans and Private Student Loans?
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By Mark Kantrowitz

May 21, 2020

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.

CharacteristicParent PLUS LoansPrivate Student Loans
LenderU.S. Department of EducationBanks, credit unions, state loan agencies, other financial institutions
BorrowerParent of a dependent undergraduate studentStudent
Degree LevelUndergraduateUndergraduate, graduate
FAFSA RequiredYesNo
Cosigner RequiredOnly if borrower has an adverse credit historyRequired 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 UnderwritingNo Adverse Credit HistoryCredit scores, debt-to-income ratios, income, duration of employment, no adverse credit history, other factors
Minimum Credit ScoreNoneTypically, 650 or 670
Loan LimitsAnnual: 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.

CharacteristicParent PLUS LoansPrivate Student Loans
Overall CostLess expensiveMore expensive, unless borrower or cosigner has excellent credit
Interest RatesSame for all borrowersBased on credit score of borrower and cosigner, if any
Interest CapitalizationOnce, when loan enters repaymentMay be as frequently as monthly
Loan FeesAbout 4%No Fees
AutoPay Discounts0.25% interest rate reductionNone, 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.

CharacteristicParent PLUS LoansPrivate Student Loans
In-School PaymentsFull deferment, immediate repaymentFull deferment, fixed payments ($25/loan/month), interest-only payments, and immediate repayment
DefermentsIn-school, grace period, economic hardship, unemployment, etc.In-school, grace period
ForbearancesMaximum of 3 yearsMaximum of 1 year
Repayment PlansStandard (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 ChangeYes5, 7, 10, 15 or 20 years, depending on lender
DischargesDeath (student or parent), Disability (parent), Closed School, Identity Theft, Unpaid Refund, False CertificationSome lenders offer death and disability discharges
Loan ForgivenessPublic Service Loan Forgiveness, other loan forgiveness optionsNone

There are no prepayment penalties on federal and private student loans.

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