Personal Student Loan vs. Parental Loan PLUS: Which is Better for You? – Fox business | Vette Leader

Our goal here at Credible Operations, Inc., NMLS number 1681276, hereinafter referred to as “Credible”, is to give you the tools and confidence you need to improve your finances. Although we promote products from our partner lenders that reward us for our services, all opinions are our own.

Private Student Loans vs. Parents PLUS Loans: Both allow you to help your child finance higher education. (Shutterstock)

As a parent, you have two main options for financing your child’s college expenses: Parent PLUS Loans and Personal Loans student loans.

The federal government offers Parent PLUS loans that come with unique benefits. Personal loans come from private lenders and can have lower interest rates if you have good credit.

In this article, we’ll go over the main differences between the two types of loans so you can figure out which one might be right for you.

Believable lets you Compare interest rates on private student loans from multiple lenders, all in one place.

Parent PLUS Loan vs. Private Parent Loan

Both the parental loan PLUS and the private parental loan offer you the opportunity to do so Borrow money for your child’s higher education Costs. However, they differ significantly in how interest rates are set and how you pay them back.

Parents PLUS loan

The US Department of Education offers Parent PLUS Loans, more formally known as Direct PLUS Loans. Graduate or working students can avail these loans, as can parents of undergraduate students.

you in general apply for these loans online about the StudentAid.gov website. In most cases, you won’t qualify if you have a negative credit history, such as B. a bankruptcy or foreclosure within the last five years or a history of late or missed payments.

Eltern PLUS loans have a fixed interest rate set by the federal government, which is currently 7.54%. That means the interest rate doesn’t change as long as you have the loan.

You may borrow up to the full cost of attendance, as determined by your child’s school, less any other financial assistance the student may receive. When you take out the loan, you also pay a fee of 4.228% of the loan amount. To pay the fee, the government deducts a portion of the funds from each loan disbursement.

Private Parent Loans

Student loans for private parents do not have standard requirements. Instead, individual lenders set their own qualifications, interest rates, and repayment terms. But generally, lenders determine the interest rate based on your credit history. People with higher credit scores qualify for lower interest rates, while those with bad credit receive higher rates if they qualify.

You can find private parental loans with fixed or variable interest rates. Adjustable rate loans typically start at a lower APR, but this rate can increase over time. Fixed rate loans don’t change as long as you have the loan.

You usually have the option of making all principal and interest payments while your child is in school, or you can choose to make interest payments only to prevent interest from accumulating. Most personal parental loans must be repaid within 15 years, although loan terms may be shorter depending on the lender.

The best private parental loans have no loan fees. As with the Eltern-PLUS-Loan, you are solely responsible for the repayment of the private Eltern-Loan.

Co-signed student loans

A third way to help your child fund their college education is to co-sign their student loan. If you do so, your child will be the primary borrower of the loan, but you agree to be responsible for paying back the loan if your child defaults.

You may consider taking out a private student loan with your child. In many cases, students are unable to qualify for a loan themselves because they may have little or no credit history. By co-signing, lenders also take your credit history into account. Missed payments hurt both your and your child’s balance. Many lenders offer a co-signer release option that allows you to remove yourself from the loan once your child has made a certain number of consecutive, on-time payments.

A co-signer is generally not required for federal student loans.

If you need to take out personal student loans, visit Credible Compare interest rates on private student loans from different lenders in minutes.

When does it make sense to take out a Eltern-PLUS loan?

A Eltern-PLUS loan can make the most sense if you have a fair credit rating. With these federal loans, the interest rate is the same regardless of your credit rating. If you don’t have major credit problems but your score just isn’t the best, you might get a lower rate on a parental loan PLUS than on a personal loan.

A Parents PLUS Loan may also be your best bet if you want to take advantage of one of the government’s unique repayment plans:

  • Standard Repayment Plan — This is the standard amortization schedule, where you pay back the loan in equal monthly installments for 10 years.
  • Advanced Amortization Schedule — This plan offers terms of up to 25 years – significantly longer than most personal loans. This can get you a lower monthly payment than with a shorter loan.
  • Tiered Repayment Plan — This plan can be helpful if you expect a higher income in the future. Your payments start out low but increase over time. Ideally, your income will grow with your payment. You also have up to 10 years to repay your loan under this plan.

If your payments are still too high, you may have the option of combining any Parent PLUS loans you have into one federal direct consolidation loan, giving you the option to enroll in an income-based repayment (IDR) plan. With these plans, your monthly payment is capped at a certain percentage of your discretionary income. This can be a great option if your discretionary income is relatively low.

When does it make sense to take out a private student loan for parents?

If your child has exhausted all options for scholarships, grants, and federal loans, and you have excellent credit, a private parent student loan may make the most sense. You’ll likely be able to qualify for a lower interest rate than you would get with a Parent PLUS loan, saving you money on interest.

Personal loans can also be useful if you want to choose a variable interest rate. This option gives you a lower initial rate, but it can increase over time. However, if you believe the loan can be repaid quickly, you may be able to keep the lower interest rate and pay off the loan before it increases.

Personal loans can also be useful if you want a shorter loan term. The standard Parent PLUS loan term is 10 years, while private lenders often offer shorter terms, such as three, five, or seven years. This saves interest and frees you from debt faster.

With Credible it is possible Compare interest rates on private student loans without affecting your creditworthiness.

Leave a Comment