<p>My own school is really careful about steering people towards the Parent PLUS Loans and Grad PLUS Loans if at all possible, and the reason has less to do with interest (although that’s important) than with approval criteria.</p>
<p>PLUS Loan approvals aren’t dependent on your debt-to-income ratio. As long as they can make a reasonable judgment that your credit risk is good, and as long as you don’t have any ‘adverse credit events’ (bankruptcy, etc.) on your credit history, you will probably be approved as a PLUS Loan borrower. And, as long as you don’t default on your payments, you can probably be approved in future years, since the fact that you already have PLUS Loans isn’t a factor in whether you can get more PLUS Loans.</p>
<p>Borrowers and co-signers on a private loan are assessed much more stringently for creditworthiness by the bank offering the loan than PLUS Loan borrowers are assessed by the DoE. Just about all private lenders now consider debt-to-income ratio a major factor when approving someone as a borrower.</p>
<p>What this means for our kids is that their parents may be able to co-sign a loan for their freshman and sophomore year, and then junior year comes around and suddenly the parents’ debt (they co-signed, so the freshman and sophomore year loans are considered their debt) is so much higher than their income that they can’t get approved to co-sign again. So the kid either needs to find another co-signer, or they can’t afford to come back to school. It’s pretty terrible.</p>
<p>For this reason, we try very hard to steer families towards checking out the PLUS Loans first. Private loans may have lower interest rates, but that doesn’t do you any good if you have to repay them via whatever job you can get without the college degree you couldn’t afford to finish.</p>