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 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 4/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* 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.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.24% – 13.24%1||Undergraduate and Graduate|
|4.07% – 11.32%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 11.35%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|6.08% – 7.22%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|