Whether your child is an upcoming Freshman or a returning Junior, it’s never too early to start planning for the upcoming college school year. Like most parents, you probably want to assist your child with the cost of college tuition beyond any scholarships, grants, or student loans of their own. If you need to borrow money, you may need to decide which is the best option for you – a Federal Parent PLUS Loan or a Parent Private Student Loan.
Which option is best? It’s different for each family. A Parent PLUS Loan will have the highest interest rate and fees, but you can borrow up to the total cost of attendance for your student. Parent Private Loans may offer a lower interest rate but won’t have repayment advantages like federal loans – income driven repayment or public service loan forgiveness.
While the cost of college tuition and room and board has skyrocketed in recent years, borrowing caps on most federal loans have stayed the same. As a result, more parents have been faced with question of taking out parent loans and determining which type to fill the cost gaps of borrowing limits.
How to decide between Parent PLUS Loans and private student loans
Interest Rate – Parent PLUS Loans currently have a fixed 7.08% interest rate for all borrowers regardless of credit. Private Parent Loans can offer both fixed or variable rates and are dependent on your credit rate, so you could pay much less than a Parent PLUS Loan or more.
FAFSA Requirement – Since Parent PLUS Loans are federal loans, they require the completion of the FAFSA first. Private Parent Loans do not require the FAFSA to be completed, but you may need to have your school certify the cost of attendance in order to determine how much you are eligible for.
Repayment – If you think you’ll need federal repayment benefits like deferment, forbearance, income contingency repayment and even public service loan forgiveness, then a Parent PLUS Loan can offer those. Private student loans are not eligible for any of these federal repayment options.
If you aren’t sure which loan option is best, here are some common scenarios:
- · Use Parent PLUS Loans if you intend to pursue Public Service Loan Forgiveness or take advantage of an Income Contingency Repayment plan.
- Use parent private student loans if you have good credit and can qualify for a lower interest rate.
- Use parent private student loans if you’d prefer a loan with a variable interest rate.
Navigating the waters of the college tuition and payment options can be very confusing for a parent who just wants to make sure their student has the best education and experience possible. If you have personal lending questions, we are always here to help!
Stephen Yonych Jr.
Assistant Vice President, Watertown Manager