Parent PLUS Loans vs. Private Student LoansWhich Should You Take?

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

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!

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.

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

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….

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

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

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

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.

Private Student Loan Terms

Eligibility requirementsBe 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

Loan Terms cuScholar Loans

Borrowing Limits Cost of attendance – financial aid received

Interest Rate Variable interest rate based on 3-Month Libor + 3.24% to 9.24%

Repayment Term 10 years

Origination Fee No Origination Fee

Cosigner Release Co-signer released after 24 on-time payments (Interest + Principal)

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

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”

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

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

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.

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

Historical Rates: Parent Plus vs. Private

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%Historical Rates: PLUS vs. Private

Federal Direct PLUS Loans

3-Month LIBOR + 3.24%

Rat

es

Repayment Comparison

Repayment Options cuScholar Loan ParentPlus

Party ResponsibleHeld accountable for loan

Student Parent

StandardLevel monthly payment

GraduatedInitial low monthly payments &

increases over time

ConsolidationCombine separate loans into

one

DefermentTemporary postpone principle

and/or interest payments

Forbearance Postpone or reduce payments

due to economic hardship

Past Due BalancesFunds may be used for past due

balances

X

X

cuStudentLoans

Yearly Amortization Schedule

Loan YearCumulative

InterestCumulative

PrincipleBalance

Private 5 $1,356.76 $4,568.26 $5,431.74

PLUS 5 $3,051.26 $4,294.26 $6,152.60

Loan Total PaidTotal Interest

Paid

Private $11,849.34 $1,849.34

PLUS $14,692.28 $4,692.28

Loan Amount $10,000

Interest Rate 7.21%**

Origination Fee 4.288%

Monthly Payment $122.43

Loan Term 10 years

Parent PLUS

* 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

Loan YearCumulative

InterestCumulative

PrincipleBalance

Private 10 $1,849.34 $10,000.00 $0

PLUS 10 $4,245.37 $10,447.14 $0

Loan YearCumulative

InterestCumulative

PrincipleBalance

Private 1 $333.54 $851.46 $9,148.54

PLUS 1 $729.10 $740.06 $9,707.08

Loan Amount $10,000

Interest Rate 3.47%*

Origination Fee 0%

Monthly Payment

$98.75

Loan Term 10 years

Private vs. Parent PLUS LoanSavings 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 Payment

$98.75 $122.43

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

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