Parent PLUS Loans vs Private Parent Student Loans for College

Paying for college is one of the biggest expenses a parent plans for, and it can seem overwhelming. At times, you might find yourself saving up for your kid’s future education while also trying to save for your own retirement, fund a house down payment, and pay off your own debt.

With the average cost of college tuition and fees for the 2024-25 school year at $11,610 for public in-state students, $30,780 for public out-of-state students, and $43,350 for private school students, it’s no wonder parents are taking out loans to help pay for their child’s undergraduate education.

Parents can rely on both Parent PLUS Loans and private student loans to help pay for college. Keep reading to learn the differences between the two and how to determine which type of loan may be best for you.

What Are the Different Loans for College?

There are four types of federal Loans offered by the U.S. Department of Education:

•   Direct Subsidized Loans are loans offered directly to the student, where the interest on the loan is paid by the U.S. Department of Education while the student is in school and during a six-month grace period after graduation. Thus, they are subsidized.

•   Direct Unsubsidized Loans are also offered directly to the student, but the interest is not paid by the federal government and it accrues while the student is in school.

•   Direct PLUS Loans are loans for professional or graduate students, or for parents of undergraduate students.

•   Direct Consolidation Loans allow you to consolidate all federal loans into one loan with an interest rate that’s a weighted average of all your federal loans’ interest rates, rounded up to the nearest eighth of a percent.

The main difference between student loans offered to undergraduates and Direct PLUS Loans offered to parents is that certain Direct Loans (Direct Subsidized Loans) for undergraduates are awarded based on financial need, whereas PLUS Loans are not awarded based on financial need, but do require a credit check when applying.

In addition to federal loans, there are also private student loans available both for students and parents. Private student loans are loans from banks or private lenders, which set their own interest rates and terms.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than Federal Parent PLUS Loans. Federal PLUS Loans also come with an origination fee.

What Can These Loans Be Used For?

When a student’s financial aid package and other sources of funding aren’t enough to cover the cost of college and other educational expenses, Parent PLUS Loans and private student loans can help fill in the gaps. They can be used to cover expenses like tuition, room and board, books, and other supplies related to the total cost of attendance.

While they can both be used to cover the same expenses, they each have different benefits and terms, so it’s worth considering your options as you determine how to pay for your child’s college education.

Parent PLUS Loans vs Private Student Loans Compared

Beyond the major difference that Parent PLUS Loans are federal student loans and private student loans are borrowed from individual lenders, there are other similarities and differences to consider.

Similarities

Here’s an overview of the major similarities between these two types of loans.

Primary Borrower

Both Parent PLUS Loans and private student loans can be borrowed by parents of undergraduate students to help them pay for their education. On both a Parent PLUS Loan and a private student loan borrowed by a parent, the parent will be considered the primary borrower on the loan.

Interest Accrual

While the application processes for these loans will be different, both loan types will accrue interest. The interest rates for Parent PLUS Loans are set annually by congress. Interest rates on private student loans are set by the lender based on factors including the applicant’s credit score, income, and financial history, among other factors.

Loan Disbursement

Regardless of loan type, most student loans are disbursed directly to the school where they pay for the cost of tuition and room and board. Any leftover money from Parent PLUS Loans is given to the parent, not the student.

Differences

Here’s an overview of the major differences between Parent PLUS Loans and private student loans.

Application Process

One of the major differences between these loans is the application process. Because Parent PLUS Loans are a type of federal student loan, students must first fill out the FAFSA®. Then, parents are able to apply for a Parent PLUS Loan through the Federal Student Aid website.

Private student loans are administered by private lenders. To apply for a private student loan, parents will need to review the application requirements at their chosen lender.

Recommended: FAFSA Guide

Interest Rate

While both PLUS Loans and private student loans will require a credit check during the application process, it will not impact the interest rate available for PLUS Loans. Applicants with a strong credit history could potentially qualify for a more competitive interest rate with a private student loan than with a Parent PLUS Loan, which, as mentioned, has an interest rate that is set annually by Congress.

Repayment Plans

Parent PLUS Loans are eligible for federal repayment plans. The repayment plan for a private student loan will be set by the lender.

Pros and Cons of Parent PLUS Loans

Parent PLUS Loans can help parents finance their child’s college education when other aid options fall short. However, it’s important to weigh the advantages and disadvantages before committing to this type of federal loan.

Pros of a Parent PLUS Loan

From high borrowing limits to flexible repayment options, these federal loans provide key advantages for parents who qualify. Pros of Parent PLUS Loans include:

•   High borrowing limit: Parents can borrow up to the full cost of attendance (minus other financial aid), making it easier to cover tuition, housing, and other college expenses.

•   Fixed interest rate: These loans come with a fixed interest rate set by the federal government, providing predictable monthly payments.

•   Flexible repayment options: Repayment plans, including Income-Contingent Repayment (ICR) when consolidated, can help make monthly payments more manageable.

•   Deferment while student is in school: Parents can defer loan payments while their child is enrolled at least half-time, easing financial pressure.

•   Federal loan protections: Parent PLUS Loans are eligible for certain federal protections, like deferment, forbearance, and potential loan forgiveness under specific programs.

Cons of a Parent PLUS Loan

While Parent PLUS Loans can help families bridge the financial gap in paying for college, they also come with several drawbacks that are important to consider. Cons of Parent PLUS Loans include:

•  Credit check required: Unlike most federal student loans, Parent PLUS Loans require a credit check, which may limit eligibility for some borrowers.

•  Higher interest rates and fees: These loans typically have higher interest rates and origination fees compared to other federal student loans.

•  Parents are solely responsible: The parent, not the student, is legally responsible for repaying the loan, which could impact the parent’s long-term financial goals.

•  Limited income-driven repayment options: Parent PLUS Loans don’t qualify for most income-driven repayment plans unless they are consolidated into a Direct Consolidation Loan.

•  No subsidized interest: Interest accrues from the time the loan is disbursed, even if payments are deferred while the student is in school.

Pros and Cons of Private Student Loans

Private student loans can be a helpful resource when federal aid and other funding sources fall short. However, it’s important to weigh both the benefits and drawbacks before deciding if a private loan is the right choice for your college financing needs.

Pros of Private Student Loans

Here are some potential benefits of private student loans to consider:

•  Higher borrowing limits: Private lenders may allow you to borrow up to the full cost of attendance, helping to bridge large funding gaps.

•  Competitive interest rates: Borrowers with strong credit — or a creditworthy cosigner — may qualify for lower interest rates than those offered by federal loans.

•  Flexible loan terms: Private lenders often provide a range of repayment terms, allowing you to choose a plan that fits your financial goals.

•  Fast approval process: Many private student loans offer quick application and approval timelines, which can be helpful for meeting urgent tuition deadlines.

•  Choice of fixed or variable rates: Borrowers can typically choose between fixed rates for stability or variable rates for potential savings if interest rates drop.

Cons of Private Student Loans

While private student loans can help fill funding gaps, they also come with potential drawbacks that are important to understand before borrowing. These include:

•  No federal protections: Private loans do not offer income-driven repayment plans, federal forbearance, or loan forgiveness programs.

•  Credit and cosigner requirements: Approval often depends on the borrower’s or cosigner’s credit history, which can be a barrier for some students.

•  Variable interest rates: Some loans come with variable interest rates that can increase over time, making payments less predictable.

•  Limited repayment flexibility: Repayment terms are set by the lender and may not offer as much flexibility if financial circumstances change.

•  Interest accrual during school: Unlike subsidized federal loans, interest on private student loans often begins accruing as soon as the funds are disbursed.

The chart below illustrates some more general comparisons between Parent PLUS Loans and private parent student loans:

	Parent PLUS Loan	Private Parent Student Loan
Who is the primary borrower?	Biological, adoptive, or stepparent of a dependent undergraduate student.	Many lenders allow any adult sponsor of that child (parent, grandparent, friend, etc.) to borrow for a student.
Credit criteria for the borrower?	Parents may not have adverse credit history. Parents with adverse credit history can apply with a cosigner or submit documentation that outlines extenuating circumstances for adverse credit history.	Generally, a strong credit history and score are key factors. Exact requirements will vary by lender.
Is school certification required?	Yes	Yes
Is the FAFSA required?	Yes	No
Interest rate	For loans disbursed on or after July 1, 2024, and before July 1, 2025, the interest rate is fixed at 9.08%.	Varies by lender and is based on an individual borrower’s history and other factors. Rates can be fixed or varied.
Are there any loan fees?	PLUS Loans have a fee of 4.228% for loans disbursed on or after October 1, 2020.	Varies by lender.
Annual loan limits	Cost of attendance (COA) minus other student aid.	Cost of attendance (COA) minus other student aid.
Where are funds disbursed?	Funds are disbursed directly to the school.	Funds are typically disbursed directly to the school.
Are there any grace periods?	Payments are required immediately upon disbursement. However, you can request a deferment.	Options vary by lender.
Can the loans be consolidated?	Yes. Can be consolidated through a Direct Consolidation Loan.	Yes, private loans can be consolidated and refinanced through a private lender. New rates and terms will vary by lender and based partially on a borrower’s credit history.

The Takeaway

Choosing between Parent PLUS Loans and private parent student loans depends on your financial situation and priorities. Parent PLUS Loans, as federal loans, offer fixed interest rates and access to federal repayment plans, including options for deferment and forbearance. However, they come with origination fees and may have higher interest rates compared to some private loans.

On the other hand, private parent student loans, offered by private lenders, may provide lower interest rates for borrowers with strong credit profiles and often have no origination fees. Nevertheless, they lack the flexible repayment options and protections associated with federal loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Can Parent PLUS Loans be forgiven?

Parent PLUS Loans can be forgiven through certain federal programs, such as Public Service Loan Forgiveness (PSLF), but only after the loans are consolidated into a Direct Consolidation Loan. Eligibility requires meeting specific criteria, including working for a qualifying employer and making 120 qualifying payments under an eligible repayment plan.

Can a student pay off a Parent PLUS Loan?

Yes, a student can help pay off a Parent PLUS Loan, even though the parent is legally responsible for repayment. Families can arrange informal agreements where the student makes payments directly to the loan servicer or reimburses the parent, but the loan remains in the parent’s name and credit history.

Is a Parent PLUS Loan considered a federal student loan?

Yes, a Parent PLUS Loan is considered a federal student loan. It is offered through the U.S. Department of Education to help parents pay for their child’s college education. Unlike federal student loans for students, Parent PLUS Loans require a credit check and are solely the responsibility of the parent borrower.

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