Alternatives to a Federal PLUS loan

As a parent, you may be wondering if borrowing the money for your student's education is best done through Federal PLUS loans, or if you should pursue other avenues to borrow the money. The following are just some of the differences you'll find with private industry loans versus a Federal PLUS loan.

Home equity or private/personal loans

Collateral typically is required
Eligibility most likely is based on a full credit check
Interest rate typically is fixed and/or higher than that of a Federal PLUS loan
Closing costs may be high
Tax deduction benefits may be available on home equity loans, but generally are not on private/personal loans
Little or no options for payment postponement (deferment or forbearance) if you have problems repaying

Alternative/private student loans

Some students are opting to borrow alternative/private student loans instead of asking their parents to borrow Federal Plus loans. Alternative student loans can be used to cover the remaining cost of education after students have received all other forms of available financial aid.

The characteristics of these loans are usually very different from federal student loans:

Loans are credit-based, and student may not have enough credit of his or her own, which would require him or her to have a co-signer
Interest rate typically is based on the student's credit rating, so it may be high
Origination fees may vary, but typically are higher than those of federal student loans
Most have flexible repayment plans; however, postponement options are limited
Some, but not all, alternative loans offer grace periods
No interest subsidy on any of the alternative loans, so student is responsible for repaying all of the interest, including the interest that accrues while he or she is attending school

Can't consolidate these loans into a Federal Consolidation Loan.