Parent PLUS vs. Private Student Loans: Which Option Offers Better Rates?

student loan rates

As a parent, you’re committed to helping your child get through college and pay for the costs that come with it. Sometimes, that means turning to student loans for parents.

You have two main options to borrow for your child’s education: Parent PLUS Loans and private student loans. But which one will lead to lower student loan rates and costs?

Here’s your guide to figuring out if you’ll pay less with Parent PLUS Loans or private student loans for parents.

Parent PLUS Loan rates vs. private student loan rates

Let’s start with an overview of student loan rates and terms for Parent PLUS Loans and private loans:

Parent PLUS Loans Private student loans
Credit requirements No adverse credit history Good credit (a FICO score in the mid-600s or higher) or a cosigner with good credit
Interest rate 7.00% As low as 3.00% depending on the lender and the borrower’s credit score
Loan fee 4.264% Varies by lender
Annual loan limit Up to the cost of attendance after other financial aid is applied Up to the cost of attendance, but some lenders have their own loan limits
Option to cosign with student No Yes
Option to borrow in parent’s name only Yes Yes
Can be used for advanced degrees No Yes

As you can see, some parents could get lower rates on private student loans than they could get on Parent PLUS Loans. Specifically, parents with a good credit score and healthy credit history could pay less with private loans.

But how much less will you pay? That depends on the student loan you choose.

Private student loans have a variety of terms and options that can lead to lower student loan rates:

  • Maintaining a positive credit history and high credit score will help you qualify for the best student loan rates.
  • Choosing a variable rate can lower your interest rate, but it might rise in the future. Parent PLUS Loans have only fixed rates.
  • Opting for a shorter repayment term, such as five years, often will result in a lower interest rate.
  • Getting interest rate discounts for enrolling in autopay or for having other accounts with the lender can further reduce the interest you pay on private loans.

For well-qualified parents, private lenders can offer student loan rates that beat the 7.00% charged on Parent PLUS Loans.

That’s especially true when you take the Parent PLUS Loan fee into account. At 4.264%, it’s more than double the fees most private lenders charge, which are around 2.00%. And many private lenders don’t charge any student loan fees at all.

A cost comparison of Parent PLUS and private student loans

But let’s compare apples to apples and compare Parent PLUS Loans with a similar private student loan. Citizens Bank’s student loan for parents, with fixed rates starting at 6.74% APR when you borrow $10,000 for a 10-year term, fits the bill.

Assuming you choose to enter full repayment immediately, here’s how your costs would break down:

Loan fee Interest rate Interest costs on $10,000 Total loan costs
Parent PLUS Loan $426 7.00% $3,933 $4,359
Citizens Bank’s student loan for parents $0 6.74% $3,773 $3,773

With Citizens Bank, your student loan rate is only 0.26% lower, which might not seem to offer much savings. It’s true that the difference in interest charges is just $160, but when the loan fees are included in the equation, the difference is more significant. Private loans save you $586.

But chances are you’re borrowing more than $10,000. Most parents who borrow for their child’s education end up with over $40,000 in student loans, according to our recent survey. With a balance that high, even a small difference in interest rates and fees can help you save thousands of dollars.

Parent PLUS Loan are a better deal for fair or poor credit

Parent PLUS Loans can be a smart option for some parents despite their higher interest rates and fees.

Applying for Parent PLUS Loans does require a credit check, but the requirements are easier to meet than the requirements for private student loans are.

To qualify for Parent PLUS Loans, you must not have an “adverse credit history.” You might have an adverse credit history if you have:

  • Debt totaling more than $2,085 that is 90 or more days delinquent, is in collections, or has been written off in the past two years
  • Debt accounts that list a bankruptcy discharge, repossession, default, foreclosure, wage garnishment, or tax lien

But even if you have those negative marks, you might be able to get a Parent PLUS Loan through an appeal or by adding an endorser (similar to a cosigner) to your application.

It’s easier to get approved for Parent PLUS Loans than it is to get approved for private student loans. So if you have bad credit, Parent PLUS Loans might be your best bet.

When private lenders might offer you the best student loan rates

Private student loans for parents can be the more affordable way to finance college in the right circumstances.

You have great credit

To get some of the lowest student loan rates from private lenders, you’ll need to meet the following requirements:

  • Good or excellent credit
  • Solid credit report and repayment history
  • Debt-to-income ratio of 30 percent or lower

If that sounds like you, then get started on your private student loan shopping. You’re likely to get some of the best student loan rates out there.

The most accurate way to find out if you could pay less with a private student loan is to request rate estimates. Lenders often provide rate checks before you apply for a parent student loan and use a soft credit check that won’t hurt your score. You can compare these offers to Parent PLUS Loans to find the best deal for you.

You’re choosing a loan term shorter than 10 years

Lenders often will offer lower student loan rates for shorter loan lengths. The lender will make its money back faster, which lowers its risk — a good reason to offer you a better deal. If you’re able to pay off your loans quickly, you might be able to snag a better rate with a private lender.

Parent PLUS Loans, on the other hand, offer only a 7.00% rate and a standard 10-year repayment period. At disbursement, there are no options that lead to a lower rate on these loans.

Overall, both Parent PLUS and private student loan rates make it affordable to borrow for your child’s education. But which option offers the better deal will depend on you and your financial situation. Shopping around and comparing student loan rates is always worth your time.

Need a student loan?

Here are our top student loan lenders of 2018!
LenderRates (APR)Eligibility 

1 = Citizens Disclaimer.

2 = CollegeAve Autopay Disclaimer: The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of
Smart Option Student Loan customers.

3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3.92% -
Undergraduate, Graduate, and ParentsVisit CollegeAve
3.62% - 11.85%*3Undergraduate and GraduateVisit SallieMae
2.93% -
Undergraduate, Graduate, and ParentsVisit CommonBond
3.46% -
Undergraduate, Graduate, and ParentsVisit Citizens
4.21% - 9.69%Undergraduate and GraduateVisit LendKey
3.35% - 10.89%Undergraduate and GraduateVisit Connext
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