Difference between Private Student Loan and Federal PLUS Loan

Private student loans and Federal PLUS loans are both options available to students and their families to finance education expenses. However, there are several key differences between these two types of loans. Here are some important distinctions:

1. Source of Funds:

Private Student Loan: Private student loans are offered by private financial institutions such as banks, credit unions, and online lenders. These loans are not funded or guaranteed by the federal government. Federal PLUS Loan: Federal PLUS loans are federal loans available to parents of dependent undergraduate students or to graduate or professional students. They are issued by the U.S. Department of Education.

2. Borrower Eligibility:

Private Student Loan: Private student loans often require a credit check and typically consider the borrower's creditworthiness, income, and debt-to-income ratio. Students may need a co-signer if they have limited credit history or insufficient income. Federal PLUS Loan: Federal PLUS loans do not require a credit check for eligibility. However, borrowers with an adverse credit history may face additional requirements or need an endorser (co-signer) to qualify.

3. Interest Rates:

Private Student Loan: Interest rates for private student loans can vary based on the borrower's creditworthiness and market conditions. Some private lenders may offer both fixed and variable interest rate options. Federal PLUS Loan: Federal PLUS loans have a fixed interest rate set by the federal government for each academic year. The interest rate is generally higher than the rates offered for federal direct student loans.

4. Repayment Options:

Private Student Loan: Private student loans may offer various repayment options, including immediate repayment, interest-only payments, or deferred payments while in school. Repayment terms can vary among lenders. Federal PLUS Loan: Federal PLUS loans typically offer a deferment option while the student is enrolled at least half-time. After graduation or leaving school, borrowers have a six-month grace period before they are required to begin repayment. Federal PLUS loans also provide access to federal loan forgiveness and income-driven repayment plans.

5. Loan Limits:

Private Student Loan: Private student loans often have higher loan limits compared to federal loans. The maximum loan amount varies among lenders and is typically based on the cost of attendance minus other financial aid received. Federal PLUS Loan: The loan limit for Federal PLUS loans is determined by the cost of attendance minus any other financial aid received. The maximum amount is not as high as some private loans but can still cover a significant portion of education expenses.

6. Loan Forgiveness and Discharge:

Private Student Loan: Private student loans generally have fewer options for loan forgiveness or discharge. However, some private lenders may offer loan discharge or forgiveness in specific circumstances, such as death or permanent disability. Federal PLUS Loan: Federal PLUS loans are eligible for certain forgiveness and discharge programs, such as Public Service Loan Forgiveness (PSLF) and Total and Permanent Disability (TPD) discharge. It's important to carefully review the terms, interest rates, repayment options, and benefits offered by both private student loans and Federal PLUS loans. Compare the options available to you based on your specific financial situation, loan needs, and future plans to make an informed decision about which type of loan best suits your needs.

Student Loan Forgiveness Requirements

Student loan forgiveness refers to programs or policies that cancel or reduce the outstanding balance of student loans for eligible borrowers. The specific requirements for student loan forgiveness can vary depending on the type of forgiveness program. Below are some common student loan forgiveness programs and their general requirements:

1. Public Service Loan Forgiveness (PSLF)

Borrowers must work full-time for a qualifying public service organization or non-profit organization.

They must make 120 qualifying monthly payments while working for the qualifying employer.

The payments must be made under an eligible repayment plan (such as an income-driven repayment plan).

After meeting these requirements, the remaining loan balance is forgiven.

2. Teacher Loan Forgiveness

Teachers must work full-time for five consecutive years in a low-income school or educational service agency.

The type of loan and the subject taught will determine the amount of forgiveness.

3. Income-Driven Repayment Plan Forgiveness

Borrowers on income-driven repayment plans may qualify for forgiveness after making qualifying payments for 20 or 25 years, depending on the plan.

Any remaining loan balance after the specified period is forgiven.

4. Perkins Loan Cancellation

Individuals must work in specific public service fields or professions, such as teachers, nurses, or law enforcement officers.

Eligibility criteria and the amount forgiven may vary based on the profession and the length of service.

5. Closed School Discharge

Borrowers may be eligible for discharge of their federal student loans if the school closes while they are enrolled or within 120 days of withdrawal.

6. Total and Permanent Disability Discharge

Borrowers who are totally and permanently disabled may qualify for loan forgiveness through a discharge program.

Please note that these are general guidelines, and the specific eligibility criteria and requirements for each forgiveness program can change over time. It is crucial to verify the latest information from official sources and consult with the U.S. Department of Education or your loan servicer for the most up-to-date details on student loan forgiveness programs in 2023.

How To Choose Best Private Student Loans?

1. Interest Rate

The interest rate is one of the most important factors to consider when choosing a private student loan. The interest rate will determine how much you will pay in interest over the life of the loan. It is important to compare the interest rates of different lenders to ensure you are getting the best deal.

2. Repayment Terms

The repayment terms of a private student loan are also important to consider. Different lenders may offer different repayment terms, such as fixed or variable interest rates, repayment periods, and repayment options. It is important to compare the repayment terms of different lenders to ensure you are getting the best deal.

3. Fees and Charges

Fees and charges are another important factor to consider when choosing a private student loan. Different lenders may charge different fees and charges, such as origination fees, late fees, and prepayment penalties. It is important to compare the fees and charges of different lenders to ensure you are getting the best deal.

4. Loan Amount

The loan amount is another important factor to consider when choosing a private student loan. Different lenders may offer different loan amounts, so it is important to compare the loan amounts of different lenders to ensure you are getting the best deal.

5. Credit Score

Your credit score is another important factor to consider when choosing a private student loan. Different lenders may have different credit score requirements, so it is important to compare the credit score requirements of different lenders to ensure you are getting the best deal.

6. Co-Signer

A co-signer is another important factor to consider when choosing a private student loan. A co-signer is someone who agrees to take responsibility for the loan if you are unable to make payments. Different lenders may have different co-signer requirements, so it is important to compare the co-signer requirements of different lenders to ensure you are getting the best deal.

Private Student Loan Interest Rate Trend

Private student loan interest rates have been on the rise in recent years. According to the College Board, the average interest rate for private student loans has increased from 5.05% in the 2017-2018 academic year to 6.02% in the 2019-2020 academic year. This is an increase of nearly 20%. The increase in private student loan interest rates is due to a variety of factors. One factor is the rising cost of college tuition. As college tuition costs have increased, so have the interest rates on private student loans. Another factor is the increasing cost of living. As the cost of living has increased, so have the interest rates on private student loans. In addition, the Federal Reserve has raised interest rates in recent years, which has also contributed to the increase in private student loan interest rates. As the Federal Reserve raises interest rates, private lenders must also raise their interest rates in order to remain competitive. Finally, the increasing demand for private student loans has also contributed to the increase in interest rates. As more students take out private student loans, lenders must raise their interest rates in order to remain profitable. Overall, private student loan interest rates have been on the rise in recent years due to a variety of factors, including the rising cost of college tuition, the increasing cost of living, the Federal Reserve’s interest rate hikes, and the increasing demand for private student loans.