Parent PLUS Loans vs. Private Student Loans: Which Is Better?

With college costs continuously rising, many parents are footing the bill to help pay for their child's education. As of 2022 Q3, 3.6 million parents turned to Parent PLUS Loans, with $106.3 billion currently outstanding.

Parent PLUS Loans are the only federal student loan option available for parents, but they aren't the only way to cover your child's education. Some lenders offer private student loans for parents. Although these options help lessen the financial burden for your children, there are pros and cons for each.

Keep reading to learn more about Parent PLUS Loans and private student loans for parents to determine if either option is right for you.

What is a Parent PLUS Loan?

Parent PLUS Loans are federal student loans for eligible parents who want to help pay for their child's undergraduate college education. These loans are considered direct loans through the U.S. Department of Education. Unlike other federal student loans, you'll need to meet certain credit requirements for a Parent PLUS Loan.

Parents can borrow up to the cost of attendance at their child's school minus any other financial aid received by their child. Unfortunately, for parents, PLUS Loans carry the highest interest rates of any federal student loan. The interest rate on PLUS Loans first disbursed on or after July 1, 2022, and before July 1, 2023, is 7.54%.

Does a Parent PLUS Loan require a credit check?

PLUS Loans are the only federal loans that require a credit check. You can still qualify for a Parent PLUS Loan with adverse credit in the following two ways:

• Using an endorser (similar to a cosigner) with good credit.
• Providing documented evidence that proves your adverse credit history is due to extenuating circumstances.

In either case, you must complete credit counseling through the Department of Education.

How to apply for a Parent PLUS Loan?

In most cases, you can apply for Parent PLUS Loans online through the Department of Education. Some schools might require you to apply through a different process. Check with your child's school to determine the correct method before proceeding with the application process.

Related: How to Strategically Choose Which Parent Should Apply for Parent PLUS Loans

Who’s responsible for repaying a Parent PLUS Loan?

Parents are responsible for repaying Parent PLUS Loans. You must be the parent of an eligible undergraduate student to qualify for a Parent PLUS Loan, but your child isn't financially obligated to pay off the loan.

The federal government also doesn't allow you to transfer the loans to your child. Some private lenders might allow you to refinance your PLUS Loans under your child's name.

Parent PLUS Loans: Pros and cons

Parent PLUS Loans may be an option in the right circumstances. Consider the following benefits and drawbacks to determining whether taking out a PLUS Loan makes sense.

Pros

• You can borrow up to the cost of attendance minus other financial aid your child receives.
• Several repayment options are available.
• Uses a fixed interest rate.
• You can potentially qualify for student loan forgiveness.
• You might be able to deduct student loan interest paid on your taxes.

Cons

• An origination fee applies.
• Requires a credit check.
• Repayment starts immediately.
• Higher interest rates than other federal student loans.

What is a private student loan?

Private student loans are loans made through banks, credit unions, and other private lenders. They aren’t associated with the federal government and aren’t eligible for federal benefits like student loan forgiveness programs, loan deferment and forbearance, and federal repayment plans.

Approval for private student loans is based solely on your creditworthiness. Private lenders perform credit checks to view your credit history and other financial information to determine whether you qualify for a private loan and to set interest rates.

Private student loans come in fixed and variable interest rates depending on the lender. Loans are available for undergraduate, graduate students, and parents. Some lenders also offer private student loans for advanced degrees, such as medical and dental school loans, law school loans and MBA loans.

Many college students haven’t had time to build their credit history to qualify for a private loan on their own. However, some lenders let students use cosigners to qualify for a private student loan. Parents are also eligible to take out a private student loan as a primary borrower to help cover the cost of college for their children.

Do you need good credit for a private student loan?

Generally, you need good to excellent credit to qualify for private loans, although some lenders offer private student loans with bad credit. Private lenders rely on credit reports and other financial information to determine a borrower's creditworthiness. Many lenders have higher underwriting standards to minimize their financial risk.

Some private lenders allow you to apply for a loan with a creditworthy cosigner. A cosigner is typically someone you trust, such as a family member or friend, that agrees to take on financial responsibility for the loan if you can't repay it.

How to apply for a private student loan?

You can apply for private student loans online through most lenders. Many lenders allow you to check rates or prequalify for a student loan through a soft credit pull, which doesn't affect your credit score.

When you apply for a private student loan, the lender performs a hard credit pull, which can cause your credit score to drop temporarily. You'll need to provide personal and financial information to verify your identity and help the lender assess your financial situation.

If approved for a loan, you might have the option to choose from a variable or fixed interest rate and loan terms. If you accept the loan, the lender disperses the loan funds to your child’s school.

Who’s responsible for repaying a private student loan?

Whomever's name is on the student loan is responsible for repaying it. If a parent borrows private student loans to pay for their child's education, the parent is responsible for repayment, not the child. Some lenders might allow you to refinance private loans into your child's name.

If you cosign on your child's private student loan, the lender might offer a cosigner release after your child meets specific requirements. Usually, this entails making a specific number of consecutive, on-time monthly loan payments.

Private student loans: Pros and cons

Private student loans are typically used to cover the gap between federal student aid received and the cost of attendance. Consider these pros and cons of private parent student loans when making your choice.

Pros

• High borrowing limits.
• May qualify for lower interest rates with excellent credit.
• No prepayment penalties.

Cons

• Requires a credit check.
• A cosigner may be necessary to qualify.
• Not eligible for federal student loan forgiveness programs.
• Some lenders may charge an origination fee.

Parent PLUS Loan vs. private loan

Choosing between parent PLUS Loans and private loans isn't easy, especially when neither presents a perfect borrowing solution. Here's a look at how these parent loan options stack up next to each other.

Eligibility requirements

Parent PLUS Loans and private student loans require a credit check. You must meet lender standards to qualify for a loan in either case. Both options also allow you to qualify for a loan through the use of a cosigner (endorser for PLUS Loans) with strong credit.

Application process

You can apply for Parent PLUS Loans directly through the Department of Education website unless your child's school utilizes a different process. Private lenders allow you to apply for student loans online. Both options comb through your credit and financial history to determine eligibility.

Loan repayment

Parent PLUS borrowers have access to three federal loan repayment plans:

• Standard Repayment Plan
• Graduated Repayment Plan
• Extended Repayment Plan

If you consolidate your PLUS Loans into a Direct Consolidation Loan, you can also access the Income-Contingent Repayment Plan. The government expects you to begin repaying PLUS Loans immediately, although you can also request deferment or forbearance in some cases.

Lenders set repayment guidelines for private student loans. Many lenders offer multiple repayment options, including interest-only payments (while attending school), deferred repayment and full payments.

Forgiveness

Private student loans aren't eligible for student loan forgiveness. Borrowers who’ve consolidated their PLUS Loans into a Direct Consolidation Loan have access to the ICR plan.

Monthly loan payments under ICR are based on 20% of your discretionary income. However, you can lower your monthly payments to 10% to 15% of your discretionary income by taking advantage of the Parent PLUS double consolidation loophole.

	Parent PLUS loan	Private student loan
Borrower	Biological or adoptive parents of undergraduate college students	Parent or student
Cosigner option	Yes	Yes
Credit check	Yes	Yes
FAFSA	Yes	No
Lender	Federal government	Private institution
Interest rate	Fixed 7.54%	Fixed or variable rates
Loan fees	4.228% origination fee	Varies
Annual loan limits	Up to cost of attendance minus other financial aid received	Up to cost of attendance minus other financial aid received
Repayment period	Varies	Varies
Forgiveness	Eligible	Not eligible
Discharge on death	Yes	Sometimes
Discharge on disability	Yes	Sometimes

Best private parent loans for college

Some lenders offer private student loans specifically for parents who want to cover all or a portion of their child's education bill. Here are some of the best private lenders for parent loans.

Citizens

Citizens offers private student loans for parents to help cover up to the cost of attendance minus other aid received. Loans are available with variable or fixed rates and several repayment plans. Citizens doesn't charge origination, application or prepayment penalty fees.

College Ave

College Ave parent loans come with variable or fixed interest rates and multiple repayment options (3). The lender also allows parents to receive up to $2,500 of the loan funds directly to help cover additional college-related expenses like books, supplies and more.

SoFi®

SoFi® offers competitive rates on parent student loans with no fees, with the option of making full payments immediately or interest-only payments while your child attends school. SoFi® members also gain access to other benefits beyond student loans, including rate discounts, financial advisors and more.

How to choose between a Parent PLUS Loan vs. private loan?

Covering all or a portion of your child's college expenses can help them avoid graduating with excessive debt. Choose the student loan option that best fits your current and future needs.

• Use a Parent PLUS Loan if: you meet loan requirements and want access to borrower protections like loan forbearance. It's also a good option if you think you might qualify for student loan forgiveness under PSLF.
• Use a parent student loan if: you want to pay for college expenses that aren’t covered by your child’s federal student loans or by an existing parent PLUS Loan. If you have excellent credit, you might qualify for a much lower interest rate than with Parent PLUS Loans.
• Cosign on your child’s private student loan if: you want to keep student loan debt as your child's responsibility. Cosigning on their loan might help them qualify, though there's still a financial risk if they don’t repay their private loan.

If you're unsure which loan option to choose, book a pre-debt consult with one of our student loan consultants. They’ll examine your goals and financial situation, and help you find the best path to support your child’s college education.