Parent PLUS Loan vs. Alternative Education Loan
The Federal Direct Parent PLUS Loan is a low-interest education loan that allows a parent to fund the entire cost of their student's education minus financial aid already awarded. Before making a decision whether to apply for a Direct Parent PLUS Loan or co-sign an alternative education loan, please take a moment to consider the compelling differences between the two.
Parent PLUS Loan: Fixed at 7.9%
Alternative Loans: Variable (although some lenders offer the option for a fixed rate), usually no cap. Many programs reset quarterly. Varies from lender to lender. Usually based on a consumer index (prime, commercial paper, LIBOR, etc) plus a margin.
Parent PLUS Loan: The parent is the borrower and the loan is in the parent's name.
Alternative Loans: The student is the borrower. While the loan is in the student's name, usually a parent is included as a cosigner. Cosigner bears equal responsibility for loan repayments. Generally, a student might receive a better interest rate with a credit worthy co-signer.
Parent PLUS Loan: Up to the cost of the student's education minus other financial aid.
Alternative Loans: Minimum and maximum borrowing limits vary from lender to lender. Cannot exceed cost of attendance minus other financial aid.
Parent PLUS Loan: Loan forgiven if student or parent dies.
Alternative Loans: Not usually discharged if student dies. If there is a co-signer, co-signer will usually continue to be responsible for repayment of the loan.
Parent PLUS Loan: Parent may postpone payments until student is out of school six months (must apply with servicer each year). Interest accrued during the postponed period is capitalized. Parents may also choose to make interest-only payments while student is in school.
Alternative Loans: Interest accrues while student is in school. Some programs require the student to make minimum monthly payments or interest-only payments while in school. If deferred, repayment usually begins 6 months after student graduates or leaves school.
Parent PLUS Loan: Parent may defer payment on this loan until the student is out of school six months (must apply with servicer each year). To apply for this deferment, contact the Department of Education after the loan is disbursed.
Alternative Loans: Varies from lender to lender. Check with the lender for availability.
Parent PLUS Loan: Based on credit history; debt-to-income is not considered thus making it easier to qualify.
Alternative Loans: Varies from lender to lender but often debt-to-income ratio is considered in credit decision. Many lenders will require a credit-worthy co-signer.
Ease of Application
Parent PLUS Loan: Very easy. Parent must complete a Direct Parent PLUS Loan Master Promissory Note (Direct Parent PLUS MPN) when applying for their first Direct Parent PLUS Loan. Parent must also complete UW-L's Parent PLUS Loan Request Form.
Alternative Loans: On-line applications are available for most loans. Supporting documentation is generally required (proof of income, co-borrower addendum, etc).
Parent PLUS Loan: 4% Origination Fee
Alternative Loan: Fees vary from lender to lender. May include origination and/or repayment fees.
Parent PLUS Loan: Repayment begins 45-60 days after loan is fully disbursed although parent can request that the Department of Education delay repayment until after the student is out of school six months. Parent must apply for this deferment each year). 10 year repayment period.
Alternative Loan: Varies among lenders. Typically, 10 - 25 years.