4 Crucial Facts About Interest Rates on Parent PLUS Loans

 April 27, 2020
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Private Student Loan rates starting at 0.99% APR

0.99% to 11.98% 1
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1.13% to 11.23% 2
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0.99% to 11.44% 3
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  • Variable APR

Comparing student loan interest rates is important for parents who are helping fund their child’s college education. While the parent PLUS loan interest rate is 7.08% for the 2019-2020 year, parents might be able to find a lower rate on a parent loan from a private lender.

Since interest rates impact both your loan payments and the total cost of your loan, it’s crucial to research all your borrowing options. Read on to see how interest rates on parent student loans compare.

1. The parent PLUS loan interest rate is higher than the rate on other federal loans

One of the first things to be aware of when researching student loan interest rates is that Direct Subsidized Loans and Direct Unsubsidized Loans for undergraduate and graduate students have lower interest rates than parent PLUS loans.

How much interest is on a parent PLUS loan as compared to other federal loans? Use the chart below to compare.

Interest rates for 2019-2020 Who can qualify for the loan
Direct Subsidized Loans 5.05% Undergraduate students
Direct Unsubsidized Loans for undergraduates 5.05% Undergraduate students
Direct Unsubsidized Loans for graduate students 6.6% Graduate or professionals students
PLUS loans 7.08% Parents and graduate students

Lower interest rates often mean your monthly payments are lower. They can also mean more of each payment goes toward the principal balance. This can result in a lower cost to repay the loan.

However, as the table above shows, most of the loan options with the lowest interest rates aren’t available to parents.

Because the lowest rate loans from the Department of Education are only available to students, parents should make sure their children have borrowed as much as they can on their own.

2. Parent PLUS interest rates are fixed

While the parent PLUS loan interest rate is the highest within the federal loan program, there’s some good news: Parent PLUS loans have fixed interest rates. This means the interest rate will never change over the life of the loan.

Although many private lenders also offer fixed-rate loans for parents, they might also offer variable-rate loans. While the initial starting interest rate is often lower on a variable-rate loan than a fixed-rate loan, that rate can rise over time.

That means your monthly loan payment could increase, making it more difficult to budget or create a payoff plan.

3. Parent PLUS loans charge origination fees

When considering parent PLUS loan interest rates and costs, it’s crucial to consider fees, as well. For parent PLUS loans disbursed after Oct. 1, 2019 and before Oct. 1, 2020, there’s a 4.236% origination fee.

The origination fee is taken out of the parent PLUS loan before being disbursed. That means the amount of money disbursed to the school will be less than what you borrowed.

When you compare parent PLUS loans with other loan offers, take fees into account to understand the total cost of each loan.

4. The interest rate on federal Direct parent PLUS loans are always the same

Because parent PLUS loans have relatively high interest rates, parents should consider whether private loans are a better option. Private loans for parents are available from a variety of private loan lenders, including Citizens Bank and SoFi.

When you research private loans, you’ll typically see both variable- and fixed-rate loan offerings. You’ll also find that private lenders show potential borrowers a range of interest rates. For example, SoFi is offering variable APRs from 1.12% to 11.23% and fixed APRs from 4.13% to 10.66% when you enroll in autopay.

Private student loan companies provide a range because the interest rate for each loan is determined by different factors, including the borrower’s credit score, financial history and income.

When parents apply for parent PLUS loans, on the other hand, the interest rate is the same for all borrowers, regardless of their specific situation. While parents with an adverse credit history can be denied parent PLUS loans, those who are approved will all pay the same rate.

Parents who want to compare private student loans and PLUS loans will need to submit information to lenders to see rates. Some lenders make this easy with an instant online preapproval based on a soft credit check. If you submit a full application, you’ll likely be subject to a hard credit inquiry, which could impact your credit.

Why it’s important to understand parent PLUS loan interest rates

Taking the time to understand your student loan options is important. You don’t want to pay more than you need to for your child’s education.

Finding a loan at a lower rate could save you thousands of dollars over the life of the loan. Just be sure other loan terms, including your repayment options, are reasonable before you settle on a loan.

Rebecca Safier contributed to this article.

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