With so many different ways to pay for college, students and families may have a hard time trying to decipher which loan options are best for them. After scholarships, grants, as well as subsidized and unsubsidized loans, students can apply for other types of aid. Two options available to prospective students are Parent PLUS loans and private student loans; here's how to weigh the pros and cons of each before making a decision.

	Parent PLUS Loan	Private Student Loan
Federal or Private	Federal	Private
Interest Rates	Fixed; Congress adjusts annually	Fixed or variable; determined by lender and credit history
Repayment Terms	Upwards of 25 years	Typically 5 to 20 years
Credit Check	Yes, no adverse credit	Yes, good or excellent credit required
Eligible for Forgiveness	Yes	No
Usage	Undergraduate only	Any type of enrollment or degree
Deadline	Complete with FAFSA annually	Can apply any time throughout the year

Parent PLUS Loans

Parent PLUS loans are federal loans available to parents of dependent, undergraduate students. That means the parents are responsible for payments and loan management on behalf of the child who is benefitting from the loan funds.

Advantages of Parent PLUS Loans

• Covers up the cost of attendance: After all other aid has gone through and you still have funding gaps, a Parent PLUS loan can cover the rest, up to the cost of attendance. That gives you a chance to avoid borrowing other types of loans.
• Fixed interest rates: PLUS loans are the only federal student loan type that triggers a hard credit inquiry. But unlike private loans, your interest rate on Parent PLUS loans are not dependent on your credit score (only your approval is). All borrowers get the same interest rate, based on when you take out the loan.
• Federal benefits and protections: Like other federal student loans, Parent PLUS loans get the same benefits and protections. If you need an income-driven repayment (IDR) plan, it's eligible for income-contingent repayment (ICR). After 25 years of repayment, the remaining balance is forgiven. They also qualify for forgiveness under Public Service Loan Forgiveness (PSLF). You can also get deferment and forbearance options with Parent PLUS.

Disadvantages of Parent PLUS Loans

• Limited repayment options: While Parent PLUS loans can be repaid with an IDR plan, that’s the only such plan that this type of loan is eligible for.
  
• Higher interest rates: PLUS loans have higher interest rates compared to other types of federal loans. For the 2023–24 school year, PLUS loans have an interest rate of 8.05%. For direct subsidized and unsubsidized loans for undergraduates, the interest rate is 5.50%. That difference can add up when it comes time for repayment.
• Approval not guaranteed: PLUS loans are the only federal loan option that trigger a hard credit check. While most borrowers are approved even with fair credit, some folks might not be. You could be denied because of an adverse credit history, like debt that’s in default, foreclosures, or if you have a lot of debt that’s delinquent. There’s no pre-qualification option so you can’t see if you’re eligible before applying.
  

When to Choose Parent PLUS Loans

You might want to get a Parent PLUS loan if:

• You’ve maxed out all your other funding options, like scholarships, grants, as well as subsidized and unsubsidized loans.
• You’re eligible (or your parent is).
• You can afford to make payments on your dependent student’s behalf when they leave school or you’ve worked out a reasonable repayment plan with them.

Private Student Loans

Private student loans are school loans coming from private institutions, like banks, credit unions, and online lenders.

Advantages of Private Student Loans

• Can apply any time: You can only apply for federal student loans while the application period is open. This means once the window closes, you aren’t eligible for federal student loans for the rest of the year, including Parent PLUS loans. With private student loans, you can complete an application at any time throughout the year when you need it.
• Potentially lower interest rate: Borrowers with excellent credit might be able to get a lower interest rate with a private student loan than with a Parent PLUS loan.
• Shorter repayment term options: If you want to pay off your loan as soon as possible after you leave school, a private student loan might be the right choice. Repayment terms can start as low as five years (the shortest federal student loan repayment term is 10 years). While monthly payments are higher, you’ll pay it off much sooner than federal loans, which saves on interest in the long run.
  

Disadvantages of Private Student Loans

• No federal protections or benefits: Only federal loans offer forgiveness through PSLF or IDR plans. While some lenders may offer hardship programs, you’re not guaranteed for approval; if you are, it could be short term. There’s typically no automatic deferment or forbearance options with private student loans.
• Strong credit required: You’ll need good or excellent credit to not only qualify for a private student loan but also to get the lowest interest rate available. Interest rates aren’t guaranteed to be lower than federal options, so if you don’t have great credit, you could end up paying a higher interest rate with a private student loan compared to a Parent PLUS loan or other federal option.
• More expensive option: With potentially higher interest rates and shorter repayment terms, you could face higher monthly payments compared to other options. This could make it harder to maintain payments, and since private lenders don’t offer forbearance, you might become delinquent on your loans if you miss enough payments.

When to Choose Private Student Loans

You may want to choose private student loans if:

• You’ve exhausted all your federal student aid options.
• You have solid credit to secure a lower interest rate than what’s offered at the federal level.
• You don’t qualify for forgiveness or don’t mind forgoing federal benefits and protections.

The Bottom Line

Whether a Parent PLUS loan or a private student loan is the right fit for you or your child will depend on your needs and financial circumstances. Generally speaking, a Parent PLUS loan is worth taking out if you're eligible and have exhausted all other conventional means of paying for college. However, if you still need funds and have no federal student aid options left, then a private personal loan is worth considering for a student.