Private Loans vs. Parent Plus Loans | 07.02.08

Posted in FAFSA, Private Student Loans, Student Loans By Student Loan Network Staff

So, your child wants to go to that private University costing $45,000 per year and you’re wondering how on earth you’re going to pay for it.

They have worked hard thru High School, received a merit scholarship, have taken their PSAT, SAT, & ACT exams to prepare themselves and are excited about this new chapter in their young adult lives.

You on the other hand are a little less excited, and not because empty nest syndrome has set in prematurely. How am I going to pay for this you are thinking to yourself? It is the million dollar question. I just hope the million dollar question doesn’t cost me a million when my son is of age in 18 years.

Here are a few things to consider. FFELP Parent Plus loans are currently fixed at 8.5% which is really high in relation to private student loans, which many can get in the mid 6% range with good credit these days. The fed funds rate has dropped precipitously over the past several months which have spurred these lower private interest rates and has swung the pendulum in favor of private loans for many.

Both loans can be repaid after the student graduates, which are nice benefits, but you are only delaying the inevitable while interest continues to capitalize. If you can at least afford to make interest only payments while the student is in school it would certainly be in your best interest.

Another thing parents often ask me is who is responsible for the payment on these loans when the student graduates? The parent plus loan is linked to the parent’s social security number, so the parent is responsible for that one. The private student loans are generally in the students name with the parent listed as a co-signer. This would be the student’s responsibility and after 36-48 months of on-time payments you can get your named removed as a co-signer.

The parent plus loan also holds a tax benefit. You can write off the interest provided you do not earn more than $70,000 if you are single and $140,000 for joint filing. On a side note many parents with a joint income exceeding $140K are actually looking at home equity loans. Interest rates are so low on equity loans currently and they can write off the interest at the end of the year.

As you can see you have a few options, but only you know what is right for you. Happy spending.

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10 Responses to “Private Loans vs. Parent Plus Loans”

  1. jenny says on September 22, 2010 at 5:25 pm:

    How much is too much when borrowing money for college? Is it better to get a private lenders loan or a parent PLUS loan?

    Reply To This Comment
  2. Bruce Scoville says on April 22, 2009 at 5:31 pm:

    What I find amazing is the attitude of a lot of college aged folks these days. Somehow they believe a college education is owed to them by their parents even if they can’t afford it. What ever happened to the co-op program. It takes 5 instead of 4 years to graduate but you still have your college education. All you have to do is work a quarter go to school for a quarter and repeat as many times as necessry, or how about night school? You have a regular job during the day and go to night school. I went to night school part of the time and it is not the most fun ever, but you still end up with a degree. You see these ads on television where the kid is all excited because they have been accepted into a nice college. Then they get a sad downtrodden look on their face and say I know you can’t afford to send me there. I guess I won’t be able to get a degree. How very sad they don’t feel like working for it. Last week on television a 17 year old girl was accepted into a state university with a scholarship. She did not want to go there because it was to close to where her family lived. She wanted a private school in another state, even though it cost about ten times as much for her to go there. It did not seem to matter to her she was going to break her family financially. How very sad and self centered. The work ethic in this country is sure not what it once was, and the younger generation has become known as the me generation. It did not bother her at all she might brek hr family financially as long as she got what she wanted. This I am sad to say is a very self centered attitude.

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    • Meghan says on June 9, 2010 at 1:51 pm:

      I'm sorry but I feel like you are making a huge generalization about my generation. Just beacuse you see some kids acting this way does'nt mean that the whole youth of America is the same. I myself am a teenager about to enter into college, and it was just as much stressful for me as it is for my parents for me to pay for college. I have taken on alot of stress in my life because I have a constant reminder that I am causing my parents stress. I would also do anything to help my parents, and make it so I could pay myself through college, but I know that may be impossible, not because I am lazy, but because I am just a young teenager trying to enter into an adult world that maybe I wasn't prepared enough for. So I am sure there are alot more people out there who are just like me. Next time don't make a generalization about my generation or any other group of people for that matter because it's not an accurate representation of all of the population. Thankyou!

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  3. C. Snow says on January 6, 2009 at 11:30 am:

    What if you cosign for your boyfriend’s child and the child who promised to pay defaults? Can I as a person not related but the cosigner on the student load who has been making the loan payments for the last 2 years write this off on my taxes?

    Reply To This Comment
    • David Bonvie says on January 23, 2009 at 9:47 am:

      If the lender sends you a 1098e form (interest deduction notification) than yes. Usually these forms will only go out if you have reached $600 in accrued interest on the year. You should also consult a qualified tax attorney.

      Reply To This Comment
  4. Diana says on December 30, 2008 at 11:06 pm:

    What if the parent is not the parent whoclaims the child on their taxes; can the loan still be taxed deductable?

    Reply To This Comment
    • David Bonvie says on January 5, 2009 at 11:55 am:

      Yes. The parent who has the parent plus loan in their name is eligible for the tax deduction regardless of whether they are claiming the student on their taxes. The maximum education-loan-interest deduction is $2,500. Income limits and other conditions apply to the education-loan-interest deduction.

      Reply To This Comment
  5. shay says on October 27, 2008 at 1:54 pm:

    very good

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  6. Jessica Conner says on July 13, 2008 at 9:48 am:

    Is this student loan attainable for a private Christian college?

    Reply To This Comment
  7. carla says on July 9, 2008 at 4:54 am:

    whats a student to do that has no cosigner or parents to cosign but still needs loan to manage the living expenses books ect…

    Reply To This Comment

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