Parent PLUS Loans vs. Private Student Loans: Compare Your Options

Parents who want to help their children pay for college may have invested in a 529 college savings plan or reviewed a school’s financial aid package. But often, the total cost of attendance — not just tuition, but also books and room and board — isn’t fully covered by savings or financial aid.

In some cases, parents may consider borrowing student loans on their child’s behalf to bridge the financing gap. There are two primary college borrowing options for parents: federal Parent PLUS loans and private student loans.

About 3.8 million borrowers have federal Parent PLUS loans, with an outstanding balance of $112.2 billion as of the fourth quarter of 2023, according to the U.S. Department of Education. That doesn’t even include parent student loans that are offered by private banks and lenders rather than the federal government.

If you’re trying to decide whether you should borrow federal or private loans on behalf of your college student, this guide can help you choose the best option for your unique needs.

[Read: Best Private Student Loans.]

Federal vs. Private Parent Student Loans

Parent PLUS Loans Private Student Loans
Interest Type Fixed Fixed or variable
Interest Rate 8.05%* Around 4.5% to 16%**
Loan Origination Fee 4.228%* Varies, but many private lenders don’t charge fees
Loan Repayment Term 10 years (Standard Repayment Plan) or up to 25 years (Extended Repayment Plan) Typically 5 to 20 years
Borrowing Limits Up to the school’s cost of attendance minus federal financial aid Up to school’s cost of attendance; some lenders have set limits
Credit Requirements No recent derogatory marks like foreclosure or bankruptcy Good credit (mid-600s) or well-qualified co-signer
Degree Type Can only be used for undergraduate Can be used for undergraduate or advanced degree
Option to Co-sign With Student No Yes
*Federal student loan interest rates and fees for the 2023-24 academic year. **Depending on loan terms and creditworthiness. Includes auto pay discount.

[Read: Best Parent Student Loans: Parent PLUS and Private.]

How to Decide Between a Parent PLUS Loan and a Private Student Loan

There’s no one-size-fits-all college borrowing solution for parents. The best type of parent student loan will depend on your household’s unique financial situation.

First, you should thoroughly read your child’s financial aid award letter, which outlines the total cost of attendance and any federal loans or grants they will receive. You’ll also need to consider your own credit score and income, as well as your ability to afford the monthly student loan payments.

The factors below may help guide you in choosing between a federal or private parent loan.

When to Choose a Parent PLUS Loan

You have fair credit. Since federal PLUS loan interest rates depend on when the loan is borrowed — and not the applicant’s creditworthiness — a poor credit score won’t result in higher rates. However, you will need to prove that you don’t have an adverse credit history, like a recent foreclosure or bankruptcy.

You plan to use federal protections. While Parent PLUS loans aren’t eligible for income-driven repayment plans on their own, you may be able to qualify by consolidating into a new federal student loan. Direct consolidation loans can be repaid under an income-contingent repayment plan.

You’re a public servant or nonprofit worker. If you borrowed a Parent PLUS loan on behalf of your child, you may still be eligible for the Public Service Loan Forgiveness program, or PSLF. Eligibility is based on the borrower’s qualifying employer rather than the student’s employer.

When to Choose a Private Parent Loan

You have very good or excellent credit. Private student loan interest rates are based in part on the applicant’s creditworthiness. Parents with excellent credit and a low debt-to-income ratio will qualify for the lowest student loan rates available — which may be much better than Parent PLUS loan rates.

You want a variable interest rate. Whereas Parent PLUS loan rates are fixed for the life of the loan, private loan rates can be fixed or variable. You may want to choose a variable rate if you plan on repaying the loan quickly while rates are low, but variable rates come with the risk that your monthly payment will rise over time.

You want a shorter loan repayment period. Federal parent loans come with a standard 10-year repayment period, but private parent loans can be repaid in as little as five years. A shorter loan length leads to lower borrowing costs over time, since you’re making fewer interest payments. Keep in mind that you can also repay federal student loans early without penalty.

Compare Federal and Private Student Loan Costs

Repaying a $10,000 Parent Student Loan
Repayment Term Interest Rate* Loan Fee Monthly Payment Interest Costs
Federal Parent PLUS Loan 10 Years 8.05% $423 $122 $4,591
Short-Term Private Loan 5 Years 6.24% As low as $0 $194 $1,667
Mid-Term Private Loan 10 Years 7.54% As low as $0 $119 $4,269
Long-Term Private Loan 15 Years 8.94% As low as $0 $101 $8,193
*Estimated private student loan interest rate based on good credit.

Alternatives to Parent Student Loans

While many parents borrow student loans on behalf of their children, it might not be the right strategy for your family. Paying for your child’s college may make it more difficult for you to save for retirement, invest in your future net worth or improve your own financial situation. Here are a few alternatives to borrowing parent student loans:

Be a Co-signer for Your Child’s Student Loans

When borrowing a parent student loan, you’ll be solely responsible for repaying this debt. In other words, your child would have no legal obligation to help you repay the debt, and you’ll be the only party required to make the monthly payments.

You might instead consider having your child apply for their own private student loan, with you as a co-signer. This can help your dependent qualify for a private student loan with more favorable borrowing terms, such as a lower interest rate. It means that both parties are responsible for repaying the debt, not just the parent. In the long run, acting as a student loan co-signer could also help your child build a better credit history.

If your child has been making consistent on-time student loan payments, you could be removed as a co-signer from the loan. Known as a co-signer release, this would eliminate your financial obligation on the loan.

[CALCULATE: Your Monthly Personal Loan Payment.]

Pay Out of Your Income or Savings

The vast majority of families — 72% of them — use parent income and savings to help pay for college, according to Sallie Mae. If you have the cash necessary to help your child cover college expenses, this option is a better financial alternative than taking out student loan debt in your own name.

By tapping into a college savings fund, you’ll avoid paying the interest and fees charged by student loan lenders. It also ensures you don’t add an extra debt payment to your monthly budget. Just make sure you don’t drain your retirement nest egg or emergency fund to pay for your child’s college.

Opt for a More Affordable Schooling Option

For some families, the right solution may be to cut college costs rather than borrow more money. You should exhaust all of your options for grants and scholarships, in addition to considering these strategies:

Start your child off at a community college. Many states offer low-cost or tuition-free community college for certain students. Some even offer two-year community college paths that guarantee students admission into an in-state public school if they meet select requirements. As a bonus, your child may be able to live at home during enrollment, which can cut down on overall housing and food costs.

Find a lower-cost school. Opting for a public school over a more expensive private college may help set your student up for financial stability after graduation. The average cost of tuition and fees at a ranked private college was $42,162 for the 2023-24 academic year, according to a U.S. News analysis. In comparison, annual public college costs at ranked schools were $10,662 for in-state students and $23,630 for those out of state.

Encourage a part-time job or work-study program. With the rising cost of college, it’s not likely that your child will be able to pay the way through college with a part-time job alone. But earning even a modest paycheck can certainly make a dent in overall expenses, and a work-study program can help your student make connections within a field that can last well into a professional career.

More from U.S. News

How Inflation Can Impact Your Loan Interest Rates

Private Student Loans vs. Federal Student Loans: What’s the Difference?

Ways to Lower Your Student Loan Interest Rate

Parent PLUS Loans vs. Private Student Loans: Compare Your Options originally appeared on

Update 05/09/24: The story was previously published at an earlier date and has been updated with new information.

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