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| Student Financial Aid
> Student Loans > Other Loan Options > PLUS Loan > PLUS vs Alternative Loans |
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PLUS vs.
Alternative Loans |
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PLUS
Loans |
Alternative Loans |
Home
Equity |
401K/Other Retirement |
Consumer Loans, Credit Cards, Other |
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| Pros |
- - Fixed interest rate of 8.5%
- - Interest rate capped at 9%
- - Minimal credit criteria – in general, resolved credit issues are
disregarded
- - Interest capitalized once at repayment
- - Deferments and forbearances may be available during times of
economic hardship
- - Generous repayment benefits available
- - No income verification or debt- to-income qualification
- - Interest may be tax deductible
- - Right to prepay without penalty
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- - Student responsible for loan repayment
- - Deferred payments while in school (interest is capitalized,
sometimes frequently)
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- - Interest is lower than credit cards and other consumer lending
- - Interest may be tax deductible
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- Convenient |
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| Cons |
- Parent
responsible for repayment |
- - Typically has a higher interest rate than federal educational
lending
- - Interest is capitalized more frequently
- - Limited deferment and forbearance options
- - More stringent credit criteria
- - Debt-to-income ratio factored into credit decision
- - Income verification required
- - Interest not tax deductible
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- - Parent responsible for repayment
- - Generally higher costs involved (closing cost; application fees,
etc.)
- - Can be more time consuming
- - Decreases equity in household
- - No deferment or forbearance options
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- - Parent responsible for repayment
- - Costs and risks can be significant
- - May jeopardize retirement
- - No deferment or forbearance
- - Withdrawals may be subject to high taxes
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- - Parent responsible for repayment
- - Fees can be considerably higher
- - Interest not deductible
- - No deferment or forbearance
- - Interest is typically compounded monthly
- - Limits family’s access to credit for emergencies
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