Updated June 20, 2025
College and graduate school are expensive, with average costs amounting to over six figures for a 4- or 6-year degree. Besides buying a home, earning a degree is one of the most costly (yet rewarding) investments.
Students often enter college at 18 or 19 years old. They likely have never worked full time before, nor have they established their credit histories. Those issues, combined with the high cost of tuition — an average of $27,146 per year for in-state students at 4-year public universities and $58,628 annually for private schools — many need their parents’ help to pay for college.
Parent PLUS loans or cosigning a private student loan are two top options for parents looking to help fund a child’s college education – but what is the difference, and which is right for you?
Parent PLUS Loans vs. Cosigning a Private Student Loan
Before deciding on a type of financing for college, it’s essential to understand the differences between Parent PLUS loans vs. cosigning a private student loan. Here’s what to know:
How Parent PLUS Loans Work
A Parent PLUS loan is a fixed-rate federal student loan that parents or guardians can borrow to help close a funding gap that other federal student loans won’t cover. These loans have relatively high interest rates compared to other types of student loans. For the 2025-2026 school year, Parent PLUS loan rates are set at 9.08%, and these loans also have a 4.228% disbursement fee.
To qualify for a Parent PLUS Loan, parents must meet the following requirements:
- The borrower must be the biological or adoptive parent (legal guardians and other relatives are not eligible)
- The parent must complete the Free Application for Federal Student Aid (FAFSA)
- The parent must not have an adverse credit history, meaning they cannot have a history of recent bankruptcies, foreclosures or repossessions.
If you opt for a Parent PLUS loan, you’ll be responsible for repayment unless you refinance with a new loan in your child’s name.
How Private Student Loans Work
By contrast, private student loans come from private lenders, like banks and credit unions. Most college students need a cosigner for private loans. In fact, approximately 90% of undergraduate student loans were cosigned for the current academic year. Why is that number so high? Private lenders have minimum income and credit requirements, and college students are unlikely to meet those requirements.
If the student isn’t eligible for a loan by themself, they might qualify with a parent cosigner if their parent meets the following criteria:
- An annual income of $35,000 or higher
- A credit score of 680 or better
- At least 36 months of credit history
When a parent cosigns a student loan, they’re responsible for repayment if the child defaults or makes payments late. Some experts caution parents against cosigning student loans due to potential credit score damage. However, it may be necessary if the student needs additional funding and cannot qualify for a loan based on their income or credit.
Which Is the Better Option?
In some cases, private student loans may be a better option than Parent PLUS loans. Private student loans may offer lower interest rates than Parent PLUS loans and the chance to choose between variable and fixed-rate student loans. Private student loans may have origination fees, though ELFI doesn’t charge these fees for its private student loans.
On the other hand, private student loans don’t offer all the same borrower protections as federal student loans. For example, borrowers can become eligible for Public Service Loan Forgiveness and Income-Driven Repayment (IDR) plans by consolidating their PLUS Loans with Direct Consolidation Loan. Afterward, they will be eligible for the income-contingent repayment plan and forgiveness programs. If you’re interested in pursuing federal loan benefits, then a Parent PLUS loan may be better for you.
Refinancing Federal & Private Student Loans
Once students have graduated and work full-time, they may be eligible for student loan refinancing. Refinancing the loan would allow them to release the cosigner from their obligation, and they’d take over sole responsibility for loan repayment.
Whether you’ve taken out a Parent PLUS Loan or a private student loan, one of the best ways to ensure financial success for you and your student is to make a post-graduation financial plan. Then after graduation, if you want to adjust your repayment plan, consider student loan refinancing. This option could reduce your interest rate and enable you to transition responsibility for the loan to the student.
