~~~College PLUS Loans VS. Private "Alternative" Loans~~~

When trying to pay for college PLUS LOANS ARE MUCH BETTER THAN PRIVATE LOANS. Here's why:


Interest Rates - Private loans have higher interest rates that are not fixed.

PLUS = 8.5% FIXED
Private = Variable based on prime (typically prime rate plus 1%) Current prime rate (http://www.bankrate.com/brm/ratewatch/wsjPrimeRate.asp)




Interest Rate Caps - Private loan interest rates are not capped and can go as high as 22%!!!

PLUS = 9%
Private = NONE (some states will have general interest rate caps typically around 20%)




Repayment Options - Private loans do not offer the same flexible repayment options as federal PLUS loans.

PLUS = Standard, Graduated, Extended, Income-Sensitive
Private = NONE




Deferment Options - With federal PLUS loans borrowers can defer payments while in-school, during periods of unemployment and during periods of economic hardship.

PLUS = YES
Private = NO




Discounts - Borrowers can get discounts for borrowing federal PLUS loans!

PLUS = Interest rate reductions and principal reductions for on-time payments
Private = NONE


Useful links:

EFC (http://efc.org/about/borrower_benefits.cfm) - Provides information about state designated nonprofit lenders offering PLUS loans with discounted rates.

PLUS Loans for Graduate Students (http://www.studentlendingworks.org/loan_choices/grad_plus_loans.aspx)

PLUS Loans for Parents (http://www.studentlendingworks.org/loan_choices/parent_plus_loans.aspx)

If you can avoid private loans...do it! Any government loan will be better, especially with FIXED rates. Almost all private loans now are variable rates at LIBOR. So 8.5% plus an extra 1-3% spread based on your credit. So you can have rates upwards of 10% and they can grow to 15% or more!

Good advice, and stick with FIXED rate loans if you can! I have learned the hard way.


Tim

www.college-investor.com

Great advice about sticking with federal FIXED rate loans....especially for those considering consolidation. Federal loan consolidation can allow you to consolidate all your loans with a lower interest rate, thus lowering your monthly payments and overall debt. Also, in addition to lower interest rates, many consolidation lenders offer discounts or benefits that can further reduce your debt. When comparing discounts, look for lenders that offer permanent reductions. Non-profit lenders such as Student Lending Works (http://www.studentlendingworks.org) are a good place to start....these non-profit agencies generally have a lower cost of funds and often pass their savings on to the borrower in form of better discounts than most for-profit companies.

Another place to find a list of non-profit lenders is at Education Finance Council (http://www.efc.org)

That is really great advice, why do they make it so confusing...?