Federal Direct Student Loans Compared: Stafford vs. PLUS

There are federal direct loans for students that help finance higher education expenses for students. Two of the most popular programs are the Stafford loan and PLUS loan programs. Both programs are sponsored by the Federal government and provide a way to get funding to deserving students and their families to pay tuition and other education related expenses.

Stafford Loans
The Stafford loans have rates that are adjusted annually. The amount of money that a student can borrow is on sliding scale, or the loan amount is determined by the year the student is in school. The amount available in the first year is 1/2 the amount available to the student in years 3 and 4. Graduate students receive a higher amount under the program to fund their education.

The government subsidizes Stafford loans. A federal subsidy is when the government pays the interest due on the loan while the student is enrolled in school. The loan does not have to be paid by the student until 6 months after they graduate or leave from school.

PLUS Loans
A PLUS loans is available to both students and parents. With a PLUS loan, the student’s parents have to have a good credit rating. The rates are capped in a similar manner as the Stafford loan. Unlike the Stafford, there is no limit to the amount of money that can be borrowed. Also, the loan is unsubsidized so the parent’s have to pay back the loan principal and interest while the student is in school.

Stafford vs. PLUS Loans
A student can choose to borrow either a Stafford or PLUS loans. Requirements for students to max out a Stafford loan before borrowing a PLUS have been eliminated. This makes it easier for students and parents to receive the level of funding necessary to meet their needs. Having the ability to defer interest and payments until after graduation may be important for some borrowers. Other borrowers may have a need for more money than what is available under the Stafford loan program. In either case, it is important to factor in these differences in order to make the appropriate loan choice.

A Stafford loan tends to have a lower interest rate than a PLUS. This is because a Stafford loan is subject to a borrowing cap whereas the PLUS loan does not have borrowing limit. This could an important consideration for parent’s looking to lower their loan interest costs if the amount they are borrowing is the same as the amount needed for a Stafford.

As a parent, or student, you need to decide which program offers the greatest flexibility and benefit for you in order to fund your education. Compare the Stafford and PLUS loan programs and obtain any additional information to determine which will help pay for college the best.


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