If your child’s federal student loans won’t cover the cost of college, it can be tempting to take out a Parent PLUS loan to close the funding gap. These federal student loans are available to eligible parents and caregivers with decent credit, though either you or your child will need to complete the Free Application for Student Aid (FAFSA) to qualify.
A Parent PLUS loan might seem like the ideal solution if your child needs additional funds for school, but these loans have some drawbacks; and you may not have considered alternatives such as private parent loans. Here’s everything to know before you make a long-lasting decision.
What Are Parent PLUS Loans?
Parent PLUS loans are loans that parents or caregivers borrow on behalf of their student, most often to close a funding gap for school. Unlike many other federal student loans, these loans require a credit check and are borrowed in your own name, as opposed to your child’s. This means you’ll be on the hook for repaying the loan balance unless you refinance, and repayment terms can be 10-25 years, depending on your loan balance.
Your interest rate will also be relatively high with a Parent PLUS loan—the current rate is 9.08%, which is significantly higher than the rates for Direct loans. Parent PLUS loans also have a fee of 4.228%, which is deducted from your loan before disbursement. The high rate and fee make a Parent PLUS loan a relatively expensive borrowing option, so it can be smart to compare alternatives before applying.
How Do Parent PLUS Loans Compare to Private Options?
One alternative is a private parent loan, which is offered through a private lender like ELFI. Private parent loans may be less expensive to borrow, depending on your lender. If you’re wondering whether a Parent PLUS or private parent loan is a better option, here’s an at-a-glance comparison of the two.
Note: For the purposes of this table, we’ll focus on ELFI private parent loans, as terms, fees, rates, and other loan details vary based on the lender you choose.
| Parent PLUS | ELFI parent loan | |
| Loan amount | Up to the total cost of your child’s education | Up to the total cost of your child’s education |
| Repayment term | 10-25 years, depending on your balance | 5-10 years |
| Fees | 4.228% upfront fee | None |
| Interest rate | 9.08% (fixed) | As low as 3.69% (fixed) As low as 5.00% (variable) |
Private parent loans can be a great alternative to Parent PLUS loans, as private loans may be less expensive. But again, this depends on your lender. Some may offer lower rates and fees that could reduce your total borrowing costs.
Student loan refinancing is another long-term choice to consider when deciding between federal and private loan options. Refinancing involves replacing one loan with another, typically a loan that offers a lower rate or a term that aligns better with your monthly budget. With Parent PLUS Loans, federal loan refinancing is not an option; however, private student loan refinancing is possible for both federal and private loans, whether you decide to get the loan yourself or with your child.
That said, other alternatives to Parent PLUS loans are also worth considering if your child’s financial aid package isn’t enough.
Cosigning on Your Student’s Loans
Another option you have as a parent is to cosign on a student loan with your child. A common misconception about cosigning a loan is that the cosigner will be solely responsible for its repayment. In reality, being a cosigner means that the cosigner and the student are jointly responsible for paying the balance of the loan, making this a tenable option for families considering all of their financial options.
Learn More: Parent PLUS Loans vs Cosigning Private Student Loans
Financing Your Family’s Education
When it comes to covering the cost of college, families have a lot of choices to make. Start with federal and institutional assistance, such as scholarships, grants, and work-study programs. If you need help with the remaining balance, explore all of your financing options, including Parent PLUS loans, private student loans, and other alternatives, such as cosigning on your student’s loan.
Have questions? The ELFI team is standing by to assist you as you navigate your private loan options, including student loan refinancing. Contact us or begin exploring your potential rate and repayment options online anytime!
