loan program comparison
Weighing Federal PLUS Loan Against Other Options
Federal PLUS Loans – Consideration of PLUS Versus Other Options
If there are educational expenses remaining after all other financial aid has been awarded, loans can be an option to provide the resources necessary to meet those expenses.
As an alternative to borrowing loans or to reduce the amount needed in loans, the Office of the Bursar offers a number of payment plans to families through Loyola’s partner, Installment Plans (iPlans). With a payment plan, you can spread one year’s tuition, fees, and room and board charges, less financial assistance, over a number of months. If you cannot pay the entire amount due for each semester, enroll in a payment plan. For more information about payment plans, visit: LUC.edu/bursar.
Comparisons of Loans
In general, Federal PLUS Loans are less expensive than other types of educational loans, such as alternative loans. There are considerations that many students and families make in making decisions between the educational loans, or other loans (such as home equity loans):
Borrower/responsible party – If borrowed for a dependent undergraduate student, the parent is responsible for repaying the PLUS loan. In contrast, many alternative loans make the student responsible for repayment. However, those loans often require the parent to cosign the loan, making the parent responsible for repaying should the student fail to make timely payments on the loan.
Interest Tax Deduction - Interest paid on home equity loans is tax deductible, if the taxpayer itemizes deductions on Schedule A of the 1040. On the other hand, the taxpayer can deduct up to $2,500 a year in student loan interest even if he or she doesn't itemize since the federal student loan interest deduction reduces the adjusted gross income (AGI). Note: Parents with questions about which option is better from a tax perspective should discuss with a tax professional.
- Availability– Across the country, more than 75% of parent borrowers will qualify for a PLUS loan. The adverse credit history requirement of these loans is not as stringent as the criteria used for private student.
If a parent is denied a Federal PLUS loan for credit reasons, the dependent undergraduate student becomes eligible for higher Federal Stafford loan limits (up to $4,000 additional for freshman and sophomore students; up to $5,000 additional for junior and senior students). Complete the PLUS Denial/Request for Unsubsidized Stafford Loan Form and forward with a copy of the denial notice for consideration.
In-School Deferments - Parents often want to be able to defer payments while the student is in school. The Federal PLUS loan program only allows deferments when the parent is in school, not when the student on whose behalf the loan was borrowed. (Graduate PLUS Loans may be deferred while the graduate student is enrolled. Contact the lender for more information.)
Borrowing from retirement plans - this is merely a substitute for the money it would have earned from being invested. There are also significant restrictions on borrowing from your retirement plan. If you don't repay the money on time, it can lead to severe tax penalties. Interest paid on the loan is not tax deductible. Generally speaking, borrowing from your retirement plan is one of the worst options available.