Private vs. PLUS Loans: 5 Key Differences

You have a lot of options for financing your child’s education. In fact, as you face a sea of pamphlets and brochures, you might think you have too many options.

To help you make the best decision for your finances and your college-bound teen, we compared two popular financing options: Direct PLUS Loans for parents and private student loans. Read on to learn more about these loans and how they fit into a family’s college financing plan.

5 key differences

Private loans and Direct PLUS loans for parents differ in five key areas:

1. Eligibility. To receive funds from Direct Parent PLUS loans, students must be enrolled at least half-time in a degree-seeking program. Depending on the lender, private loans can cover costs for a variety of students, including those seeking licensure or certification and those enrolled less than half-time.
2. Lender and borrower. With a Direct Parent PLUS loan, the federal government is the lender and the parent is the only borrower. Private student loans can come from a variety of lenders---banks, schools or private financial institutions, for example—and the student is the primary borrower, usually with a parent or other creditworthy cosigner.
3. Interest rates. Private loans offer fixed and variable rates. These rates depend on the borrower’s creditworthiness---the higher your credit rating, the lower your rate. Parent PLUS loans have a fixed interest rate for all borrowers (currently 5.3% for the 2020–2021 school year).
4. Fees. Like their interest rates, fees for Direct Parent PLUS loans are fixed for all borrowers. The fee for the 2020-2021 school year is 4.236%. Private student loans typically do not have fees but can range from 0-2%.
5. Repayment terms. Parent PLUS loans offer a standard 10-year repayment plan. Other repayment options are available via the federal loan servicing, including an extended repayment plan and an Income Contingent Repayment plan. Repayment terms for private student loan typically range from 15 to 25 years based on the balance and the lender’s guidelines.

Private loans and Direct Parent PLUS loans can both help you pay for college, but they have different features and benefits. Make sure to consider these and other options carefully as you and your child work to fund their education.