Author Topic: Student Loans: PLUS or Private  (Read 2535 times)

John G

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Student Loans: PLUS or Private
« on: July 09, 2012, 06:12:57 PM »
Hey Mustachians, long time/first time:

Hereís the story: my parents have asked for my advice on college loans for my younger sister, whoís starting college in the fall. Obviously, theyíll do subsidized Stafford loans first. After that, the choice is whether to use a Parent PLUS loan or a Sallie Mae private fixed-rate loan to cover the remainder (Theyíre not eligible for a Perkins).

When I was going to college several years ago, private student loans had a super bad reputation, and I stayed away from them. However, right now they look like a much better deal. The fixed interest rate is significantly better (5.75% versus 7.9% for the PLUS). In addition, the private loans donít come with any obvious catches, itís a normal 10 year note after graduation, no prepayment penalties, very flexible on what you pay while the studentís in school.

They also wouldnít benefit from most of the perks of a PLUS that I know of, i.e. Income based repayment, public service forgiveness. In addition, theyíre also not super concerned with whether itís my sister or my parents who legally hold the loan (my parents make the payments until we get a job, then the kids pay- itís worked well for me and my other siblings)

As long as my sister (likely with Parent co-signers) is eligible for the lower rate, Iím going to
tell her to go for the private loans. Am I missing something here? The only thing I can think of is that maybe the two types of loans are treated differently on the FASFA for subsequent years, potentially reducing aid eligibility?

Thanks!


TL;DR

Are there any major catches to a private fixed rate Student Loan?
« Last Edit: July 10, 2012, 04:57:18 PM by John G »

caleb

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Re: Student Loans: PLUS or Private
« Reply #1 on: May 22, 2019, 11:12:27 AM »
Wow, 7.9% for a government educational loan.  That's robbery compared to historical rates.

Beyond the interest rate, the one thing I'd check is whether the Parent PLUS is eligible for any sort of IBR or PSLF, although I doubt it.

At those sort of rates, you might be better off just going to a conventional bank for a loan.