PLUS vs. Alternative Loans
Many students and families need to borrow educational loans (in addition to the Federal Stafford Loan) in order to finance their college education. The decision then becomes whether to borrow a Federal Parent PLUS Loan or a private alternative loan. Keep in mind that whether a parent is a borrower on a PLUS Loan or a co-signer on a private alternative loan, the parent is agreeing to be responsible to repay the loan.
Comparison of the Federal PLUS Loan and the Alternative Loan
Federal Parent PLUS Loan | Alternative Loan |
Loan Terms and Conditions | |
Fixed interest rate of 8.5% as of July 1, 2006. | Variable interest rate--monthly or quarterly--range from similar to Stafford Loan rates to as high as 18% to 21% |
For loans disbursed after July 1, 2008, payments may be deferred while student is enrolled at least half-time. | Payments may be deferred while student is enrolled at least half-time. |
Parent may borrow up to the cost of attendance less other aid. | Student (typically with a co-signer) may borrow up to the cost of attendance less other aid. |
Credit check based on federal standards--no debt-to-income ratios or credit-scoring. A parent may have a better chance of being approved as a borrower on a Parent PLUS Loan than as a co-signer on a private alternative loan. | Borrowers must pass comprehensive credit review process. |
Repayment | |
Parent is responsible for repayment. | Student is responsible for repayment. However, a co-signer is typically required and equally liable. |
Accrued interest capitalizes once at final repayment. | Accrued interest may be capitalized monthly, quarterly, or once at repayment. |
Federally insured against death and disability for both the parent and student. | Not federally insured against death and disability. |
Opportunities available to consolidate Parent PLUS Loans at a fixed interest rate. | Lender specific. Usually have scaled interest rates based on credit. |
