<p>You’d also have to calculate the impact of Income Based Repayment and Loan Forgiveness for graduates who take public interest (government or nonprofit) jobs. That’s probably hard to project out, but a certain percentage of loans won’t get paid back in full because of that. </p>
<p>That amount might grow somewhat, because it seems to me that some graduate schools push the idea that large graduate PLUS loans are affordable because of the IBR system-- so I can see students at the graduate level taking on more than they can ever hope to pay back based on that rationale.</p>
<p>As to the question, “if I need a loan, is it a better deal than using a private lender?” – it depends. A parent can usually borrow against their home equity for a much lower rate (3% or less), but rates for unsecured loans are higher. Some private lenders do offer student loans for slightly lower interest than the government rate – but then you have to look at whether the various protections (like IBR) are worth paying a couple of points more interest. (Every once in a while we read a story of a parent stuck paying private loans after their recently graduated child has died in a tragic accident; the government lets the parents out in that situation – so on the PLUS loan end of things, you might do the math to factor in the cost of life insurance for the student on top of the loan).</p>