August 10, 2011

Parent PLUS or Private Loan: Which is Better?

Posted in Parent PLUS Loans, Private Loans, Stafford Loans, Student Loan News tagged , , , , at 4:56 PM by plusloans


One question that comes up a lot from parents is how to fund the remainder of your child’s education, after federal loans of course. There are a variety of options out there including Federal PLUS loans and private college loans. It can be difficult to decide on which loan is right for your family, so to help you in the process, I’ve explained some of the major benefits and drawbacks of each below.

Parent PLUS Loans

Parent plus loans are available through the government and offer a variety of benefits. Benefits such as deferment, forbearance, and even some cancellation options are a perk of PLUS loans that are not always available with private loans. However, the interest rate is a fixed 7.9%, and higher than some private loans.

One of the most common questions from parents about the PLUS loan is in regards to the credit check. The credit check for PLUS loans is minimal and it’s mostly to make sure that there is no recent bankruptcy or adverse history on record within the past 5 years. If you’re still concerned that your credit will hinder your ability to receive the loan, you should continue with the application process, as students whose parent’s get denied a PLUS loan are entitled to further Stafford loans (at lower interest rates than the PLUS).

>>Read more answers to Parent PLUS loan FAQs

Private Loans

Private loans may actually be a better option than the PLUS loan for some families. Interest rates are now very competitive and come in both fixed and variable. This would allow for less interest over the lifetime of the loan than the Parent PLUS. You should also note that while the loan holder in this case is the student, most loans will suggest that a parent cosign for the student, which is generally a good idea anyway, as it improves approval chances and may lower the interest rate for the loan.

A downside of private loans is that many of the repayment benefits that you find with federal loans are not all available, however, the lower interest rates could outweigh this point. There are also other benefits of private loans to consider, such as the disbursal method. Unlike federal loans, private loans get disbursed directly to the student, so they can pay for immediate expenses such as books, or room and board.

>>Compare private student loan options

There is no real answer to “what is the best loan” because this is too subjective and is different for everyone. There are a lot of different factors to consider when looking into funding your child’s education and it comes down to not which loan is the best, but which is best for your family. To help you decide, you’ll simply have to weigh the pros and cons of each option.

10 Comments »

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  4. May[privatestudentloans]Do said,

    You know what? Either set of loans could be a little bit scary to me. You certainly need to watch your back on the repayments. But if you’re covered you’re cool.

  5. Lee Wui (12 Month Loans Dept) said,

    Yes, with the world courting deep and long-winded global depression, we’re very concerned about the the student loans default situation as well.

    We think it must get worse as time goes by, and the spectre of a fully employed (or not) graduate body laboring the rest of their professional lives away, simply to repay hefty student loans, involving crippling interest rates, is the stuff of which horror movies are made. Then let’s not talk about those who struggle to find work, default their student loan and find themselves lumbered with bad credit scores for the next 7 years, unable to even scrape together a cell phone contract! it’s serious insomnia stuff!!

    And if it’s this bad in the US of A, what’s the prognosis of those in the land of the Acropolis?

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  7. Charles said,

    As you said, people hve different needs and thus different kinds of loans but I would go with private loans because they go directly to the student.

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