Parents who want to take on the financial burden of college costs not covered by financial aid or scholarships have two options: the parent PLUS loan or a private loan.
Parent PLUS loans are federal student loans with fixed interest rates and repayment terms of 10 to 25 years. The rate is one-size-fits-all and never changes, so you don’t need a good credit score — every qualified parent gets the current rate.
Private student loans, meanwhile, have variable interest rates and repayment terms of 5 to 20 years. The rate changes annually, and your credit score determines the interest rate and origination fees. If you have bad credit, you might not qualify.
Here’s what you need to know about the differences between parent PLUS loans and private student loans.
Before taking out a parent PLUS loan, consider the details carefully because the financial burden could span the next 10 to 25 years. Remember how much you need for retirement or if you have other significant obligations, like a mortgage, before adding to your debt.
Here are three scenarios when a parent PLUS loan makes sense.
Parent PLUS loan interest rates don’t require a good credit score. Yes, it’s true that you can’t have an “adverse” credit history, marred by issues like default and bankruptcy, but if you qualify, you get the same rate as anyone else.
Private student loan interest rates do hinge on your credit score. If you have a bad credit score, you might not get approved — and even if you do gain approval, it will likely be for a relatively higher interest rate.
If you (the parent) work full-time for a qualified employer, such as a federal, state or local government agency or nonprofit organization, you could qualify for Public Service Loan Forgiveness. You must consolidate your loans, enter an income-driven repayment plan, and make 120 consecutive monthly payments to have your balance forgiven.
Parent PLUS loans may be eligible for deferment. This means you don’t have to make any payments while your student is enrolled at least half-time at an eligible educational institution. You can also receive a deferment for an additional six months after your child graduates or stops attending school.
Private student loans can be in the student’s name (usually with a parent cosigner) or the parents’ names. They typically have shorter terms, but more risks are involved, especially if you cosign for your child.
Here are three scenarios when a private student loan makes sense.
You might get significantly lower interest rates on private loans if you have great credit. In addition, you can save thousands of dollars in interest if you don’t mind forgoing government protections like deferrals or loan forgiveness.
Students aren’t responsible for parent PLUS loans, leaving parents on the hook for their child’s education long after graduation. Instead, private loans cosigned by a parent are the student’s responsibility. If the student doesn’t pay, though, the parent is responsible.
You can borrow private student loans with repayment terms as short as five years. If you only need to make up a small portion of your child’s college education costs, you may want it paid off fast, which is possible with private student loans.
Related: Learn more about getting a private student loan on Credible.com
As you determine how to pay for college, choosing a parent PLUS loan versus a private loan is a big decision. Understanding how each loan works and who is responsible for repayment can help you decide.
Parent PLUS loans have interest rates set by the U.S. Department of Education. The rates on PLUS loans are the highest out of any federal loans, but they include many government protections that can help you through repayment.
| APR for 2022-2023 | Origination fee | |
|---|---|---|
| Parent PLUS loan | 7.54% | 4.228% |
| Private loan for parents | Varies by lender; generally from 4% to 15%. | Varies by lender; Credible partners don’t charge origination fees on our platform. |
Private loans have varying interest rates based on the economy, market, and a borrower’s qualifications. Like with most loans from private lenders, your credit score is a driving factor. If you have excellent credit, opting for a private student loan could help you save a lot of money on interest compared to a parent PLUS loan.
To illustrate the potential savings, say, you borrow a $10,000 private loan (as opposed to a parent PLUS loan) with a 5.54% APR and agree to repay it over 10 years. You would pay an estimated $2,727 in interest with a total repayment of $12,727, saving you $1,206 in comparison to a parent PLUS loan.
| Interest rate | Origination fee | Monthly payment | Total cost of repayment | |
|---|---|---|---|---|
| Parent PLUS loan | 7.54% | 4.228% | $116 | $13,933 |
| Private loan for parents | 5.54% | 0% | $106 | $12,728 |
Moms and dads also have the option to cosign a private student loan for their children. This means the loan is in the student’s name, but the parent is responsible for repaying the loan if their kid stops making payments.
| Tip: If you plan on cosigning on your child’s private student loans, look for a lender that offers a cosigner release, which would remove you from the loan agreement. Lenders typically offer cosigner release once the primary borrower has made months’ worth of consecutive payments and can pass an independent credit check. |
If you have mediocre credit, you may be better off with a federal direct parent PLUS loan because the Education Department doesn’t consider your credit score to qualify you for the loan. You may be eligible if you can prove you can repay the loan and don’t have any recent foreclosures or bankruptcies.
On the other hand, you’ll likely get better interest rates with a private student loan if you have excellent credit.
Parents can be eligible for Public Service Loan Forgiveness (PSLF) with a PLUS loan. To become eligible,you must consolidate your PLUS loan into a Direct Consolidation Loan and repay it under an income-contingent repayment plan.
Parent PLUS loans are only for undergraduate degrees, but private student loans are for undergraduate and graduate degrees.
Parent PLUS loan interest rates can be much higher than private student loans. But it depends on your credit score. The lower your credit score is, the higher the interest rate a private lender will charge.
Parent PLUS loans don’t require a specific credit score. You can get approved with most credit scores. But you shouldn’t have any recent adverse credit events, including late payments, bankruptcies, tax liens, or foreclosures.
The standard student loan repayment plan is 10 years or 120 payments.
If your parent PLUS loan application is denied, you can file an appeal if you have extenuating circumstances that you feel shouldn’t affect your eligibility. If an appeal doesn’t work, your student’s unsubsidized borrowing limit will increase to that of independent students’ limits.
Parent PLUS loans are the responsibility of parents. Private student loans, especially cosigned loans, can go either way. The student can be responsible if it’s in their name, or parents can take out private student loans in their name.
Related: Learn more about getting a private student loan on Credible.com