Private Parent Loans vs. Parent PLUS Loans: How to Choose

Exploring loan options to help fund your student’s education can feel like a maze of decisions. At the heart of it, you’ll find two main loan types for parents: private parent loans and parent PLUS loans. Each loan option has its own set of rules, benefits, and downsides. Your choice will affect your finances and your student’s academic path. Getting a good grasp on these loan types is crucial to making a smart decision when investing in your student’s education.

What is a Private Parent Loan?

A private parent loan, often referred to as a parent student loan, can be an option for parents looking to bridge the gap between what federal loans and financial aid will cover to pay for their student’s education, including non-tuition expenses. 

Unlike private student loans, which students can apply for with or without a cosigner, private parent loans allow parents, guardians, and sponsors to apply for a loan without the student. While traditional student loans require students to meet certain eligibility requirements, such as credit score or proof of income, private parent loans can provide an alternative option for families who do not meet all of the loan requirements. 

Private student loans are funded by private financial institutions and may offer different terms than federal loans. While private interest rates can vary depending on the borrower’s creditworthiness, parent private loans may offer more competitive rates, compared to federal loans or private student loans. This makes them a compelling alternative solution if other forms of financial aid fall short.

A private parent loan can provide the additional funding needed to fully cover education costs. Although they may have stricter credit checks, they offer a way to meet financial needs when maximizing federal loans, and other financial aid doesn’t cover all education expenses. Some private loans offer flexible repayment options and allow borrowers to defer payments while the student is in school, enabling families to navigate their financial obligations.

Not all schools are eligible to certify a Parent Student Loan, so be sure to check with the student’s school before applying.

What is a Parent PLUS Loan?

Parent PLUS loans, now known as Direct PLUS loans, are federal loans with fixed interest rates and fees set by the US Department of Education. Parents of dependent undergraduate students can apply for these loans to cover education expenses. The fixed interest rate provides a stable repayment scenario, but often at a higher rate than you might find with private loans.

The eligibility requirements for a parent PLUS loan include:

• Being the biological or adoptive parent of a dependent undergraduate student
• Not having an adverse credit history
• Meeting the overall financial aid eligibility requirements

Private Parent Loans vs. Parent PLUS Loans: What’s the Difference?

Each loan type offers unique benefits and challenges that can significantly influence your financial roadmap. Here’s a comparative glance to help you navigate your options:

• Interest rates: Private loans may offer varying interest rates depending on your credit score, which could be higher or lower, while parent PLUS loans have a fixed interest rate set by the government.
• Fees: Both loan types may come with fees, but the specifics and amounts can differ, making it essential to understand the cost implications. An Ascent Parent Student loan has no fees, ever! 
• Repayment terms: Private parent loans may provide a few or a range of repayment options, depending on the lender. Ascent’s Parent Student loan features both Interest-Only and Immediate Full Principal & Interest (P&I) in-school repayment options.  Parent PLUS loans have three repayment options: Standard Repayment, Graduated Repayment, and Extended Repayment.
• Deferment options: Some private loans may offer deferment options while your student is enrolled in school. Parent PLUS loans also offer deferment options, though the terms may vary. Remember that during deferment, interest continues to accrue on the loan.
• Eligibility criteria: Private lenders may have unique credit and income eligibility requirements. Be sure to check the eligibility requirements when you are doing your research. For Parent PLUS loans, you cannot have an adverse credit history and you must meet general eligibility requirements. In either case, a hard credit check may be done.
• Loan amounts: The loan amounts for private parent loans can vary depending on your credit history, while parent PLUS loans allow you to borrow up to the full cost of your child’s education, including tuition, room, board, and other associated costs.

Comparing Costs of Private Parent Loans vs. Parent PLUS Loans

Understanding the difference between federal parent PLUS loans vs. private parent loans is a crucial first step to financing your student’s future. Here’s a quick side-by-side comparison of each:

Feature	Private Parent Loans	Parent PLUS Loans
Interest Rates	May vary; could be higher or lower based on creditworthiness.	Fixed, set by the government.
Fees	Varies by lender; could include origination fees, late payment fees, etc. (Ascent’s Parent Student Loan has no application, origination, or disbursement fees).	Fixed loan fee, determined by the government.
Repayment Terms	Variety of options per lender; may allow deferment while the student is in school. Some lenders (like Ascent) offer interest-only and immediate full principal & interest (P&I) options.	Fewer options; standard, graduated, and extended repayment plans available.
Deferment Options	May offer deferment or forbearance options based on the lender.	Deferment or forbearance options are available, though terms may vary.
Total Loan Cost Over Time	Depends on the interest rate, loan amount, and repayment term selected.	Often higher due to fixed interest rates and loan fees.
Monthly Payments	Dependent on loan terms and interest rates.	Determined by loan amount, interest rate, and repayment term.

How to Decide Between a Parent PLUS Loan and a Private Student Loan

Deciding between a parent PLUS loan and a private student loan is a pivotal financial decision. Here’s a simplified five-step guide to assist you:

1. Evaluate your financial situation: Assess your income, expenses, and credit score to understand your financial standing.

2. Compare interest rates and fees: Do your research and examine the interest rates and associated fees for both loan types.

3. Understand the repayment terms: Be familiar with the repayment terms, including the length of repayment and when repayment begins.

4. Calculate the total cost over time: Estimate the total cost of each loan over time to understand the long-term financial impact.

5. Seek financial counseling: Consult with a financial advisor to understand the implications of each loan type and make an informed decision.

Alternatives to Parent Student Loans

While parent student loans are a common solution for covering education costs, other options exist. Doing some research may uncover other financing options that fit your budget and needs to help cover your student’s school expenses.

For example, cosigned loans allow a parent or cosigner to share the financial responsibility for the loan with their student. Cosigned loans can make it easier for your student to qualify for a loan or secure a better interest rate, especially if you have a good credit history.

For a deeper dive into cosigning, check out our article: why do you need a cosigner?

Other financing options include:

• Researching scholarships: Explore private scholarships available for your child’s field of study or extracurricular activities.
• Discussing alternative financial aid options with your college or trade school: Engage early with financial aid offices at prospective colleges to understand all available options and ensure you maximize aid before exploring loans.
• Exploring savings plans: Consider establishing an education savings plan early to help offset future education costs. 
• Considering work-study programs: Work-study opportunities can help your family cover education costs while also providing your student with valuable work experience. You can check to see if you’re eligible for work-study programs by completing the Free Application for Federal Student Aid (FAFSA®).

Learn More with Ascent

Navigating the financial path to higher education can be challenging for parents and students, and understanding your options is the key to making informed decisions about your future and finances.

Whether you’re a parent, guardian, or a student borrower, Ascent is here to help you achieve your financial goals. For more tips and resources, check out our financial wellness center or follow our blog for new updates.