PLUS vs. Alternative Student Loans
What is a PLUS Loan?
The Federal PLUS Loan is designed for parents of dependent undergraduate
students. The parent must first go through a pre-approval process to determine
if the parent shows creditworthiness. Lenders do not look at the parent’s
debt-toincome ratio. Parents who are approved can borrow up to the full
cost of the student’s education minus all other financial aid. Parents,
who are U.S. citizens or permanent resident aliens, may take out a PLUS
Loan if the student is:
- An undergraduate, dependent student
- A U.S. citizen or permanent resident alien
- Enrolled in an eligible program and school
- Attending school at least half-time
- Making satisfactory progress
- Under 24 years of age
PLUS Loan Terms
- Fixed interest rate of 7.9% to 8.5%
- Parents are responsible for repayment
- No debt-to-income ratio requirement
- May borrow up to the total Cost of Education minus financial aid
- Deferment and forbearance privileges available
- Federally insured against death and disability
- Eligible for a Federal Consolidation Loan
- Repayment begins during enrollment (parents can check with lender
for deferment option)
- Parents without positive credit history who want to take out a PLUS
Loan, may obtain a cosigner (also called an endorser) with positive
- An endorser does not have to be a family member
- The endorser is responsible for repaying the PLUS Loan if the
parent is not able to repay the debt
|If a parent does not qualify for a PLUS Loan, the student may be
able to borrow additional funds under the unsubsidized Federal Stafford
Loan program or an alternative loan program.
What is an alternative student loan?
Beyond the Federal Stafford Loan, students may apply for additional loan
money through alternative student loans. Alternative student loans are
private loans offered by banks, savings and loan institutions, or non-profit
agencies that are specifically targeted to address educational costs.
Many lenders require that an undergraduate student with
a limited positive credit history, have a cosigner for this type of loan.
Alternative Loan Terms
- Variable interest rates (no interest rate cap)
- Student or cosigner may be responsible for repayment
- Credit approval process is more comprehensive (may look at debt-to-income)
- May borrow up to the Cost of Education minus financial aid received
- Limited deferment and forbearance options
- Not federally insured against death and disability
- Not eligible for the Federal Consolidation Loan program (may consolidate
through private programs)
- In-school deferment options vary by lender
If the student is denied an alternative loan based on the cosigner’s
credit, the student can reapply with a different cosigner. In addition,
students should manage their credit very carefully.
If a student’s credit has been damaged, very few lenders will loan
more money, even if the cosigner has good credit.