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Parent PLUS Loans vs. Private Student Loans

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An educational SlideShare comparing Private Student Loans to Parent PLUS and their impact on overall college costs and savings.

An educational SlideShare comparing Private Student Loans to Parent PLUS and their impact on overall college costs and savings.

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  • Need Date
  • 2003-2014 1 year

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  • 1. Parent PLUS Loans vs. Private Student Loans Which Should You Take?
  • 2. Why Parent PLUS Loans vs. Private Student Loans? • For most students Federal Direct Loans do not cover the balance of attending school • With constant messaging that students should “only take federal loans,” families often consider the Parent PLUS loan as the only additional option
  • 3. Why Reconsider Parent PLUS? For families with good credit – a Private Student Loan (PSL) is often a more affordable option to fund education than a Parent Plus Loan!
  • 4. What is the Parent PLUS Loan Program? • A loan provided from the U.S. Department of Education for undergraduate school purposes • PLUS loans are not offered directly to undergraduate students, rather they are offered directly to parents of eligible students.
  • 5. Why was Parent PLUS created? • To supplement loans that were maxed out in the student’s name, and not serve as the primary source of education funding • To help cover the cost of attendance for families with poor credit • For parents to help students pay for college
  • 6. Who is Eligible for a Parent PLUS Loan? Parents who are borrowing on behalf of a dependent, who is enrolled at least half time in school. Parents are subject to a credit check for the following….
  • 7. Loan Terms of Parent PLUS Loans • Limited to the cost of attendance per school • No grace period • Repayment begins 60 days after disbursement or deferred until 6 months after the student graduates • Interest Rate fixed at 7.21%, with an Origination Fee of 4.288% (expected to rise to 4.292% before years end) • 10 year Repayment Plan, and like all student loans can not be discharged in bankruptcy
  • 8. Know Your Credit • With good credit, Private Student Loans often provide better rates and terms for borrowers with cosigners • Families who receive PLUS loans end up paying more due to relatively expensive loan terms, which is why it is so important to know your credit
  • 9. What are Private Student Loans? • Credit based loans offered by private lenders at both variable and fixed interest rates • The loan is in the student’s name • A cosigner is usually required • Cosigner release is often available with on-time payments
  • 10. Who is eligible to take advantage of PSLs? Students should first fill out the Free Application for Federal Student Aid (FAFSA) to determine federal aid available…. If you are a parent of a prospective college student who…. Is attending an institution that is eligible for student loans Has a difference in financial aid funding available than the amount needed to pay for school Has excellent credit You are likely eligible to take advantage of the cost savings of a Private Student Loan over a Parent PLUS.
  • 11. Private Student Loan Terms Loan Terms cuScholar Loans Borrowing Limits Cost of attendance – financial aid Interest Rate Variable interest rate based on 3-Month Repayment Term 10 years Origination Fee No Origination Fee Cosigner Release Co-signer released after 24 on-time Eligibility requirements received Libor + 3.24% to 9.24% payments (Interest + Principal)  Be enrolled at least half time in an undergraduate program at an eligible school  Be a US citizen or Permanent Resident  Creditworthy * Terms and Eligibility requirements vary by lender
  • 12. Private Student Loan Repayment Terms 12 Types of Payments cuScholar Loans In school Repayment (Up to 5 years) $25 minimum Proactive monthly payments In Repayment Period (Begins 6 months after graduation or when enrolled less than half-time) $50 Minimum monthly payments
  • 13. Private Student Loan Benefits • Students can start making minimal monthly payments while in school to reduce the cost of borrowing and help build credit • Interest rates are usually based on the borrower and cosigner’s credit history, which can result in better rates for borrowers with good credit • Provides families the funding needed to fill the financial gap between the cost of attendance and any financial aid received • Allows students to have “skin in the game”
  • 14. Comparing Loan Terms Parent PLUS Loan • Fixed interest rate of 7.21% + a 4.288% origination fee. • Immediate repayment after 60 days of disbursement date • Standard Repayment- Fixed payments for 10 years ($50 minimum payments) • Graduated repayment- Increasing monthly payments over the course of 10 years • Extended Repayment cuScholar Private Loan • Variable interest rate based on the 3 Month Libor + 3.24% to 9.24% • No origination fee • $25 minimum proactive payments while in school • Minimum $50 payment once in repayment period • 10 year repayment term • Ability to cover 90 days past due balances with schools
  • 15. Comparing Loan Benefits Parent PLUS Loan • Multiple repayment plans and terms • Minimum $50 payment • No interest rate reductions • No cosigner release • Ineligible for Federal Student Loan Forgiveness, Income-based repayment • Ineligible for future loan refinancing cuScholar Private Loan • Minimum $25 payment while in school • 1% interest rate reduction after 1/10th of the loan is paid off • 0.25% interest rate reduction with automatic ACH payments • Cosigner release • Eligible for future loan refinancing
  • 16. So, why don’t more people with good credit take Private Student Loans? • Many people are often advised to only take private loans out as a last resort • However, private loans often provide more benefits at lower costs to those with good credit.
  • 17. Historical Rates: Parent Plus vs. Private 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Historical Rates: PLUS vs. Private 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Rates Federal Direct PLUS Loans 3-Month LIBOR + 3.24% 3-Month LIBOR + 9.24% Historically a private student loan (borrower with good credit— receiving low interest rates), offers better rates in comparison to the fixed rate of Parent PLUS Loans
  • 18. Repayment Comparison Repayment Options cuScholar Loan ParentPlus Party Responsible Student Parent Held accountable for loan Standard Level monthly payment Graduated Initial low monthly payments & increases over time Consolidation Combine separate loans into one Deferment Temporary postpone principle and/or interest payments Forbearance Postpone or reduce payments due to economic hardship Past Due Balances Funds may be used for past due balances       X     X
  • 19. Yearly Amortization Schedule cuStudentLoans Loan Year Private 1 $333.54 $851.46 $9,148.54 PLUS 1 $729.10 $740.06 $9,707.08 Loan Year Cumulative Interest Cumulative Interest Cumulative Principle Cumulative Principle Balance Balance Private 5 $1,356.76 $4,568.26 $5,431.74 PLUS 5 $3,051.26 $4,294.26 $6,152.60 Loan Total Paid Total Interest Paid Private $11,849.34 $1,849.34 PLUS $14,692.28 $4,692.28 Parent PLUS Loan Amount $10,000 Interest Rate 7.21%** Origination Fee 4.288% Monthly Payment $122.43 Loan Term 10 years Loan Year Cumulative Interest Cumulative Principle * Based on 3 month LIBOR rate and good credit ** Fixed Rate for loans first disbursed on or after 7/1/14 and before 7/1/15 Balance Private 10 $1,849.34 $10,000.00 $0 PLUS 10 $4,245.37 $10,447.14 $0 Loan Amount $10,000 Interest Rate 3.47%* Origination Fee 0% Monthly Payment $98.75 Loan Term 10 years
  • 20. Private vs. Parent PLUS Loan Savings Comparison cuScholar Loan Parent PLUS Loan Loan Balance $10,000 $10,000 Loan Interest Rate 3.47%* 7.21%** Origination Fee 0% 4.288% Loan Term 10 years 10 years Monthly Loan $98.75 $122.43 Payment Number of Payments 120 120 Total Interest Paid $1,849.34 $4,692.28 Total Principle and Interest Paid $11,849.34 $14,692.28 * Based on 3 month LIBOR rate and good credit ** Fixed Rate for loans first disbursed on or after 7/1/14 and before 7/1/15
  • 21. Where and How to Apply? If you have a good credit score and are looking to save money over the life of a loan, consider taking out a Private Student Loan. cuScholarPrivate Student Loan is available at: www.apply.custudentloans.org