Office of Student Aid : Loans : Federal Direct Parent PLUS Loan : Federal Direct PLUS Loan vs Alternative Loan
Comparing the Federal Direct Parent PLUS Loan to an Alternative Loan
Many students and families need to borrow educational loans (in addition to the Federal Direct Stafford Loan) in order to finance their college education. The decision then becomes whether to borrow a Federal Direct Parent PLUS Loan or a private alternative loan. Keep in mind that whether a parent is a borrower on a Federal Direct PLUS Loan or a co-signer on a private alternative loan, the parent is agreeing to be responsible to repay the loan.
Federal Direct Parent PLUS Loan |
Alternative Loan |
Loan Terms and Conditions |
|
| Fixed interest rate of 7.9% as of July 1, 2009. | Variable interest rate--monthly or quarterly--may be as high as 18% to 21% |
| Delayed repayment options offered (annual application prior to repayment required). | Payments may be deferred while student is enrolled at least half-time. |
| Parent may borrow up to the cost of attendance less other aid. | Student (typically with a co-signer) may borrow up to the cost of attendance less other aid. |
| Credit check based on federal standards--no debt-to-income ratios or credit-scoring. A parent may have a better chance of being approved as a borrower on a Direct Parent PLUS Loan than as a co-signer on a private alternative loan. | Borrowers must pass comprehensive credit review process. |
Repayment |
|
| Parent is responsible for repayment. | Student is responsible for repayment. However, a co-signer is typically required and equally liable. |
| Accrued interest capitalizes once at final repayment. | Accrued interest may be capitalized monthly, quarterly, or once at repayment. |
| Federally insured against death and disability for both the parent and student. | Not federally insured against death and disability. |
| Opportunities available to consolidate Parent PLUS Loans--interest rate capped at 8.25%. | Limited consolidation options. |