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

Feb 05, 2025 | By: Ascent
Category: For Parents and Cosigners

If college savings or financial aid falls a bit short, you may find yourself exploring different loan options to help fund your student’s education. However, that can feel like navigating through a wild maze of options. Thankfully, there are loans to help you support your student, including two loan types for parents: private parent loans and federal parent PLUS loans.

These loan options have their own set of rules, benefits, and downsides and the choice you make could affect your finances and your student’s academic path. Understanding federal parent PLUS loans vs. private loans can help you make smart financial decisions that meet your needs while ensuring that your student gets a great education.

At a Glance: Parent PLUS Loan vs. Private Loan

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

Feature	Private Parent Loans	Parent PLUS Loans
Type of Interest	Fixed or variable	Fixed
Interest Rates	3.39%-17.99% (Source)	9.08% for 2024-25 school year (Source)
Origination Fees	Varies by lender; Ascent’s Parent Student Loan has no application, origination, or disbursement fees	4.228%
Repayment Terms	Varies by lender; typically 5-25 years	Varies by loan balance and repayment plan; 10-25 years
Deferment Options	May offer deferment or forbearance options based on the lender	Deferment or forbearance options are available, though terms may vary
Borrowing Limits	Up to cost of the school’s attendance; some lenders have set borrowing limits	Up to the cost of the school’s attendance minus federal financial aid
Credit Requirements	Varies based on the lender; typically above 600	Additional application requirements for those with adverse credit histories
FAFSA Requirement?	No	Yes
Degree Type	Undergraduate or advanced degrees	Can only be used for undergraduate degree

What Is a Parent PLUS Loan?

Parent PLUS loans, now known as Direct PLUS loans, are federal loans with fixed interest rates and fees currently set by the U.S. Department of Education. Parents of dependent undergraduate students can apply for these loans to cover education expenses for college and select trade schools, or other career training institutions. The fixed interest rate provides more stable repayment options but can come with a higher interest rate compared to private student loans.

To be eligible for a parent PLUS loan:

You need to be the biological or adoptive parent of a dependent undergraduate student (legal guardians or grandparents are only eligible if they legally adopt the student).
You must meet minimum credit requirements based on a credit check.
Students must meet the overall financial aid eligibility  requirements.
Students must be a U.S. citizen or eligible non-citizen.
The student can’t have student loan defaults unless resolved or consolidated into another federal loan.

What Is a Private Parent Loan?

A private parent loan, often referred to as a parent student loan, can help parents secure a loan to cover any costs that exceed what federal loans and financial aid cover for your student’s education, including non-tuition expenses. 

When comparing private parent student loans vs. private student loans for students, a private loan:

Allows a legal guardian to apply if their student is working toward an undergraduate or a graduate degree, or certification education at an eligible school.
Gives other options for families who do not meet all the loan requirements.
Can offer more competitive rates.
Can provide the additional funding needed to fully cover education costs but may have more stringent credit requirements.
May offer flexible repayment options and allow borrowers to defer payments while your student is in school.

Not all schools are eligible to certify a parent student loan, so be sure to check with the student’s school before applying. You can check your rate with Ascent without impacting your credit score here.

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

Each college student loan type offers unique benefits and challenges that can influence your financial roadmap. Below is a summary comparison of parent PLUS loans vs. private student loans:

Interest rates: Private student loans may offer varying interest rates depending on your credit score, while parent PLUS loans have a fixed interest rate set by the government.
Fees: Both loan types may come with fees, but the types of fees and amounts can differ. It’s important to understand what fees you may incur, so you’re not paying more than you need to. (An Ascent Parent Student loan has no fees, ever.)
Repayment terms: Private parent loans may provide 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, so check the eligibility requirements to make sure you qualify. You cannot have an adverse credit history with Parent PLUS loans and 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 a parent PLUS loan amount is limited to the full cost of your child’s education, including tuition, room, board, and other associated costs.

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

Choosing the right student loan option will depend on your financial situation and unique needs. Before deciding, consider the financial aid package your student may receive, which will outline the cost of attendance and the federal loans and/or grants they’re eligible for.

Your creditworthiness, income, and budget are also important factors that may influence your decision between a parent PLUS loan vs. a private loan.

When a Parent PLUS Loan Might Make Sense

A parent PLUS loan may be a good option if:

You have an average or mediocre credit score: Since parent PLUS loans are based on when you borrow, rather than on creditworthiness, you don’t have to have good or excellent credit to benefit. You must show that you don’t have an adverse credit history that includes issues like bankruptcy.
You work for a nonprofit or are a public servant: You may be eligible for the Public Service Loan Forgiveness (PSLF) program if you took out a parent PLUS loan.
You want to consolidate into a federal student loan: Many people with federal loans make use of income-driven repayment plans, but those apply to federal student loans, not parent PLUS loans. However, you may consolidate into a federal loan if you are eligible and thus qualify for income-driven repayment plans.

When a Private Loan Might Make Sense

A private loan may be a good option if:

You have a good to excellent credit score: Interest rates for private loans are partially based on the borrower’s creditworthiness. When comparing parent PLUS loans vs. private loans, you’ll likely get a better rate on a private loan if you have great credit.
You prefer a shorter loan term: Private loans often have more repayment term options.
You can pay the loan quickly: Private loans may offer variable interest rates. If you borrow while rates are low and can pay it back quickly, you could capitalize on those low interest rates.
You are trying to build your credit: Borrowing private student loans can help build and improve your credit history when managed responsibly. Since private student loans are reported to credit bureaus, making on-time payments consistently can strengthen your credit score over time. A strong credit profile can open doors to better interest rates on future loans, credit cards, and even housing opportunities.

Alternatives to Parent Student Loans

While parent student loans are a common solution for covering education costs, other options are available. Research may uncover other financing options that better fit your budget and needs to help cover your student’s school expenses. Other financing options include:

Cosigned loans: This allows 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?
Researching scholarships: Explore private scholarships available for your child’s field of study or extracurricular activities. Ascent has awarded over $330,000 in scholarship giveaways to date.
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 to ensure you maximize available aid.
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 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^®).
Choosing an affordable school: Consider colleges or trade schools that fit your budget, so you don’t have to borrow as much. In-state institutions, public universities, and trade schools may be more affordable if you’re on a tighter budget.

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 student borrower, Ascent is here to help you decide between a parent PLUS loan vs. a private loan so you can achieve your financial goals. For more tips and resources, check out our financial wellness center or follow our blog for new updates.

FAQ

What Are the Negatives About Parent PLUS Loans?

Potential drawbacks of a parent PLUS loan are that they are non-transferable, may have higher interest rates, and have no grace period (parents are expected to start paying on the loan within 60 days of loan disbursement).

Do Parent PLUS Loans Get Forgiven When a Parent Dies?

Yes, if a parent, or the qualifying student, dies, the loan will be discharged.

Do Parent PLUS Loans Have Lower Interest Rates?

No, parent PLUS loans typically have higher interest rates because eligibility isn’t based on creditworthiness. If you have good credit and desire lower interest rates, private lenders may offer better rates for student loans.

What Disqualifies You from a Parent PLUS Loan?

An adverse credit history may disqualify you for a parent PLUS loan. Adverse history occurs if you have issues like bankruptcy or foreclosure on your record. You may be able to appeal or add a cosigner to receive a parent PLUS loan.

Is It Better for a Parent or Student to Take Out a Private Loan?

Generally, if the parent has a good credit score, they may qualify for better interest rates and terms. However, if your student qualifies for financial aid and federal student loans, it may be beneficial to start there so you’re only taking out additional loans for what you need.