Best parent student loans: Private vs. PLUS

Determining the most cost-effective way to borrow for school is essential as college graduates worry about repaying the collective $1.6 trillion in outstanding student debt they owe.

Maxing out direct subsidized and unsubsidized loans first is advisable as these come with the best student loan interest rate, repayment plans, and borrower protections. But those loans have limits. Once they're met, there are only two primary options for undergrads: private loans and Parent PLUS loans.

For those looking to learn more about school loans, specifically parent student loans, read on.

Private student loans vs. Parent PLUS

What is the best student loan for parents? Well, it depends. But before you make any major decisions, it helps to understand which each offers.

Private student loans

Conversely, private student loans are available to parents, undergraduates, and those attending graduate school. A student loan interest rate varies by credit score and there's often no origination fee with the best private student loans. You can even shop for a competitive rate and chose between fixed or variable rate loans — but you must qualify based on credit and income or get a cosigner to guarantee the loans.

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Parent Plus loans

Parent PLUS loans are available through the Department of Education if students complete the Free Application for Federal Student Aid (FAFSA). Graduate students can also qualify for Grad PLUS loans in their own name but undergrads can't. However, while a PLUS loan is a federal loan, they're available only if you don't have adverse credit — and they don't offer all the advantages direct loans do.

Borrowers can pause payments on PLUS loans by putting them into student loan deferment or forbearance. And public service loan forgiveness (PSLF) is available after 120 on-time payments on an income-driven plan. There's also a choice of loan repayment plans, including graduated and extended plans to lower payments.

Unfortunately, PLUS loans are costly. The Parent PLUS loan interest rate is currently 7.08% and there's a 4.236% origination fee. Likewise, parents can't qualify for income-based loan repayment or PSLF without consolidating their school loans with the Department of Education first. Borrowers who extend their loan repayment time also end up paying more due to years of added interest costs (a student loan calculator can help you see how much more).

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What is the best student loan for parents?

Private student loans can be much more affordable than PLUS loans if you have strong credit and qualify for a low-interest student loan with no origination fee. However, student loan forgiveness isn't available and there are fewer options in cases of financial hardship. Student loan repayment terms won't change without refinancing and forbearance, if available, usually allows payments to be paused for a much shorter time.

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If you may need more time to repay debts or are at risk of an income loss, you may prefer the added protections PLUS Loans provide. And those who can qualify for loan forgiveness would be better off with PLUS loans — as long as parent borrowers are willing to jump through some hoops to get it.

Finally, if your credit score isn't stellar, PLUS loans may be both more affordable and available. While private lenders require good or excellent credit to qualify for low-rate loans, PLUS loans are available at the same rate for any qualifying borrower, regardless of credit score.

While you cannot qualify for a PLUS loan with adverse credit, narrowly defined to include things such as recent wage garnishments or large delinquent loan balances — even borrowers with black marks on their credit history can obtain PLUS loans after documenting extenuating circumstances or getting an endorser who promises to repay the loan if they can't.

Student debt is a big issue for most graduates and their parents. Although some grads carry a bigger debt burden than others. When borrowing is unavoidable, comparing features of ​Parent PLUS versus private student loans can ensure students — and the parents who help them — will find the option best suited to meet their needs.

If you think private student loans may fit your needs for college planning, be sure to shop around for the best student loan interest rate and loan term. Find the best student loan rate today.

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