Loan Comparison: PLUS vs. Alternative

The graduate PLUS loan presents an interesting alternative to private education loans. Here are some of the key differences:

Eligibility

Eligibility for private education loans typically depends on your debt-to-income ratio and FICO score. Eligibility for the PLUS Loan does not depend on these factors. You can get a PLUS loan even if you have a bad credit score, so long as you don't have an adverse credit history (i.e., no more than 90 days late on any debt and no defaults, bankruptcies or other adverse action on any Title IV debt).

Interest Rates

Most private education loans are variable rate loans with an interest rate that depends on the borrowers (and/or co-borrower's) credit score. The PLUS loan has a fixed interest rate of 7.99% that does not depend on your credit score. Generally, the PLUS loan will be less expensive than most private student loans.

Loan Fees

The loan fees on a PLUS loan total 4.004%, while the loan fees on private education loans depend on your credit score and can be as high as 11%.

Consolidation

Grad PLUS loans can be consolidated with other federal education loans, such as the Stafford and Perkins loans. Private loans cannot. Also, the Grad PLUS loan balance will count toward the economic hardship deferment, while private education loans do not.

Borrower

Both the Grad PLUS and private student loans are student obligations. With the Grad PLUS a parent may be added to the loan as an endorser if the student has an adverse credit history or if the parent wants to help pay for the loan. With private student loans the parent can cosign the loan if the student has bad credit or if they have better credit (cosigning often reduces the interest rates and fees).

FAFSA

Graduate and professional students who borrow the Grad PLUS loan must submit the Free Application for Federal Student Aid (FAFSA) and max out the Stafford Loan first. Private student loan borrowers do not need to submit the FAFSA.

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