The limits for PLUS loans are defined as the total cost of attendance minus any other financial aid, including scholarships, grants and federal loans. Private loans are not subject to the same limitations; the amount of credit extended to you is determined by the lender.
A moderate credit review is needed to determine if parents or graduate students are eligible for a PLUS loan. You cannot have adverse credit issues, including accounts being more than 90 days late or bankruptcy or defaults in the past five years. Students whose parents who are denied a PLUS loan are eligible for increased amounts of Stafford loans, a government-backed loan that is issued to the student rather than the parent.
Private loans generally have more stringent requirements, including reviewing your annual income, debt-to-income ratio and more thorough credit checks. Most private lenders require credit scores of at least 650.
PLUS loans charge a standard origination fee of 4 percent and have a fixed interest rate for the life of the loan. As of 2009, PLUS loan interest rates hovered around 8 percent. No matter which lender services your PLUS loan, you will have the same rate. However, some may offer bonuses for paying on time.
When interest rates are low, home-equity rates may be lower than PLUS loans, but they often have variable rates, so there is no guarantee the rates will remain that low. The fees and rates will vary from lender to lender, so it pays to shop around.
Private loans almost always have higher interest rates and fees than PLUS loans.
Repayment of PLUS loans issued to parents begin 60 days after the loan is issued. The parents can file for a deferment, in which case they can wait until six months after the student leaves school to start repayment, but the interest will accrue. Graduate students who take out PLUS loans can wait until they graduate to begin repayment, but the interest will still continue to accrue. PLUS loan typically are repaid over 10 years, but that time frame can be extended for up to 25 years if you have more than $30,000 in PLUS loans from the same lender.
Home-equity loans usually are repaid over 10 to 15 years but can be extended to 30 if you refinance it into a mortgage. Private student loan repayment schedules can range from 15 to 30 years, but most cap the length of the loan at 20 or 25 years.
Interest on student loans, whether it is on a government-backed student loan or a private student loan, is an above-the-line deduction, up to $2,500 per year. The interest on the home-equity loan is also deductible, but only as an itemized deduction. If you file a single return, you can deduct the interest on the first $50,000; if you file a joint return, you can deduct the interest on the first $100,000.