Many students and families need to borrow educational loans (in addition to the Federal Direct Stafford Loan) in order to finance their college education. The decision then becomes whether to borrow a Federal Direct Parent PLUS Loan or a private alternative loan. Keep in mind that whether a parent is a borrower on a Federal Direct 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 Direct PLUS Loan and the Alternative Loan|
|Federal Direct Parent PLUS Loan||Alternative Loan|
Loan Terms and Conditions
|Fixed interest rate of 6.84% as of July 1, 2015.||
Monthly or quarterly fixed interest rates may range from 5.75% to 14%*
*Fees and interest rates vary depending on the borrower’s credit rating
|Delayed repayment options offered (annual application prior to repayment required).||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 Direct Parent PLUS Loan than as a co-signer on a private alternative loan.||Borrowers must pass comprehensive credit review process.|
|Parent is responsible for repayment.||Student is responsible for repayment. However, a co-signer is typically required and equally liable.
Some lenders may release co-signers after a specified number of on-time payments.
|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.||Some lenders have no death or disability benefits.|
|Opportunities available to consolidate Parent PLUS Loans--interest rate capped at 8.25%.||Limited consolidation options.|