Parent PLUS v. Private Student Loans: Which Should You Choose?

Trish Sammer Updated on July 5, 2018

If you’re considering taking out a loan to help your son or daughter pay for college, you obviously want to get the best deal possible.

However, with so many options, it can be hard to know how to get an apples-to-apples comparison on different loan types.

We’re here to help. In this article, we’ll look at the Parent PLUS loan and discuss how it stacks up against loans from private lenders.

Should you take out a parent loan?

Most likely, you’re considering a parent loan to take the burden of paying for college tuition off your child’s shoulders. However, keep in mind that student loans often offer better interest rates and more flexible payment terms.

That means, in many cases, that it might be a better decision to help your child select from student loan options, and then simply make the payments for him or her. That way, you can help your child while also getting the best-possible loan deals.

However, if you’re interested in federal or private parent loans for other reasons, here’s what you need to know.

Parent PLUS loans: Higher interest rates and fees 

For students who are looking for loans, we always advise that they exhaust all their federal loan options before turning to private lenders. There’s one simple reason for that: federal student loans nearly always have better interest rates. That goes for both subsidized and un-subsidized student loans.

However, that advice does not hold true for parent loans. The plain fact is, you’re likely to find better deals for parent loans with private lenders.

The federal Parent PLUS loan, also known as the Direct Plus Loan is currently offering interest rates of 7% for fixed APR loans. Several private lenders are offering parent loans at rates closer to 6% for both fixed and variable APRs for borrowers who have good credit histories. (See loans from Sallie Mae, College Ave and Citizens One as examples.)

And, as we stated above, you’re likely to find even lower interest rates for student loans.

Parent PLUS loans also come with some rather hefty fees. Loans disbursed after October 1, 2018 will be charged fees of 4.248%. By contrast, student and parent loans from private lenders often have no origination fee.

  Parent PLUS Loan Parent Loans Student Loans 
Borrower Parent Parent Student
Fixed Fixed or Variable
Depending on lender
Fixed or Variable
7.60% APR 4.96% - 12.87% APR* 3.74% - 12.11% APR*
Fees 4.248% APR
As of Oct 1, 2018
No fees No fees

 *Note:  Interest rates based on preferred Nitro lender interest rates, as of July 2018. Borrowers with excellent credit usually receive lower rates. 

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Pros of Parent PLUS loans

Parent PLUS loans do have some pros, however. The fixed interest rate means that you won’t have to worry about getting blindsided with loan and payment increases during the life of your loan.

While Parent PLUS borrowers are expected to have good credit histories, there are some ways to get approved if your credit is less than stellar. You can apply with an endorser, which is similar to a cosigner, who agrees to pay the loan if you default. You can also appeal to the U.S. Department of Education, which will give you the opportunity to explain any extenuating circumstances that might have affected your credit.

You may also have the option to defer payments until six months after your child graduates. However, know that interest will still accrue during that time, so the total amount of your loan, as well as your payments, will increase.

Cons of Parent PLUS loans

We’ve already discussed the biggest cons, which are interest rates and fees.

On top of that, Parent PLUS loans do not offer the flexible payment options that you may see from many private lenders. For example, some private lenders allow you to make flat payments or interest-only payments while your child is in school.

You will also be unable to transfer responsibility for loan payments to your child, even after he or she graduates. In rare instances, you may be able to make a case for having your loan discharged, but keep in mind, loan forgiveness on federal loans is notoriously difficult to obtain.

Final analysis

When funding a college education, free money is always your best choice. Be sure to start with the FAFSA (or Free Application for Federal Student Aid) so your child can scoop up any federal grants that might be available to him or her. Scholarships are your next best bet.

Then, if you still need funds for college, shop around for the best deals on private student loans. Remember, you can always make payments on behalf of your child, so there’s no need to forego attractive loan options in favor of parent loans.

Finally, if you decide that parents loans are the right fit for you, be sure to shop around with private lenders before taking out a Parent PLUS loan. Getting better interest rates and lower fees are worth the extra effort.

As a time saver, view our preferred picks for the best lenders for private student and parent loans.

Published in: Private Student Loans

About the Author
Trish Sammer

Trish Sammer is Nitro's managing editor. Her work has appeared in Woman’s Day, Redbook, Huffington Post, TechCrunch, and Forbes. She has also written for various corporate clients, including the tech giant SAP, The Franklin Institute, and PSE&G. When Trish isn’t busy acting as a writing ninja for other people, you can find her … well, writing about other stuff, like divorce and blended family life. She lives outside of Philadelphia with her husband, their combined brood, and the world’s laziest dog. Read more by Trish Sammer

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