Federal Direct PLUS vs. Private Loans – Know the Difference
If you’ve exhausted scholarships, grants, and Federal Direct Loans to cover college costs and are still left with funding gaps, you might be considering Federal Direct PLUS or private student loans. There are some key differences between the two loan types that are important to understand – we’ve outlined the top three below.
Who is the lender for each type of loan?
A lender is the entity who funds your loan – in other words, from whom you are borrowing and who you will need to repay.
- Federal Direct PLUS loans are issued by the U.S. government – the government utilizes various servicers to handle billing and other aspects of the loans.
- Private student loans are issued by credit unions, banks, and other finance companies, who may service the loans themselves or use another party for servicing.
Who is the borrower? (Whose name is on the loan?)
When you take out any type of loan, you are borrowing money that will have to be repaid. The borrower is the person legally responsible for repaying the loan.
- PLUS loans are issued to the parent of an undergraduate student (or to a graduate/professional student).
- Private student loans are issued in the student’s name but may require a co-borrower such as a parent to qualify or receive a lower interest rate.
What are the repayment terms?
Once your loan enters repayment (usually once you have graduated or otherwise separated from school), you will have a certain amount of time to repay the loan in monthly installments.
- Federal PLUS loans are eligible for the following repayment plans:
- Standard Repayment Plan (10 years)
- Graduated Repayment Plan (10 years)
- Extended Repayment Plan (25 years but must meet certain criteria)
- Private loan terms vary by lender but often have options for longer repayment terms. For example, a Student Choice line of credit has a repayment term of 20 or 25 years based on loan balance.
For a more detailed side-by-side comparison of these loan types, check out our helpful chart or contact our College Counselor, who provides free, one on one advice about planning and paying for college. You can also consult studentaid.gov to learn more about federal student loans.