<p>Repayment isn’t deferred until after graduation, interest rates are higher. The only difference is that a private loan is in the name of a student, and sometimes a co-signer is required. </p>
<p>So why exactly would anyone get a PLUS loan over a private loan?</p>
<p>for one- a PLUS loan is an education loan and as such, the interest can be deducted on taxes.
The loan can also be noted on future financial aid applications- and possibly taken into consideration when determining need, while otherwise, personal debt, isn’t usually considered.</p>
<p>A PLUS loan is taken out by parents, as a way to pay the EFC or fill the gap left by the aid package.
A PLUS loan should not be considered as part of the way that colleges help students meet their financial obligations as with a Perkins loan which is subsidized and can be forgiven</p>
<p>Another reason to choose a PLUS loan over a private loan is the interest rate itself. Currently, the interest rate on a PLUS loan is only 8.5%. Private lenders can vary the interest rate based on the person’s credit…and I have seen many private loans with an interest rate of over 16%. The savings can be HUGE!</p>
<p>For people that own houses, isn’t a home-equity loan a better option?</p>
<p>I am not sure. I think one complication with an equity loan is that you’d need to take out 4 years at once, since there are costs to an equity loan.
Then you’d have money in savings and that might raise your EFC. Not sure if it would make a major difference.</p>
<p>The most logical home equity instrument for financing would be a HELOC (home equity line of credit) – but income generally is adjustable on those, so they are risky when interest rates are rising, and there are substantial fees associated with the loan – usually a title check, often points or other loan origination fees. So unless the family already has a HELOC approved, it can be very expensive.</p>
<p>It can also be hard for a family with moderate income to qualify for a loan, because of their debt to income ratio.</p>