Student Loan vs Parent Loan

College costs add up fast. In 2025, the average in-state tuition was $9,750 per year, while the average out-of-state tuition was $28,386. Add in housing, books, meals and fees, and the total sum can put a strain on any family’s budget. For many students and their families, loans are a necessary part of making higher education possible.

But not all education loans work the same way. Some are taken out by the student. Others are issued to a parent or another creditworthy family member. Understanding the differences between student loans and parent loans can help you decide which option best fits your financial situation and how to plan repayment with confidence.

Let’s take a closer look at how each type works and what to consider before moving forward.

Loan type
Student loans are issued in the student’s name and are repaid by the student. These loans may come from the federal government or private lenders and are available for both undergraduate and graduate studies.

There are two primary types of federal student loans:

• Direct Subsidized Loans are designed for undergraduate students with financial need. The government pauses interest while the student is in school, through the six-month grace period after graduation and during periods of deferment.
• Direct Unsubsidized Loans are available regardless of financial need. Interest starts accruing immediately and continues throughout the life of the loan.

Because many students don’t yet have a credit history, federal loans typically do not require a credit check. However, private student loans, offered by banks and other financial institutions, usually do and may require a cosigner to qualify. These loans can have either fixed or variable interest rates and often come with fewer borrower protections than federal options.

Parent loans are a separate category. These are issued to a parent or another creditworthy adult, such as a grandparent or guardian, to help pay for a student’s education. Federal Parent PLUS Loans fall into this category and are available to parents of dependent undergraduate students. Private lenders may also offer parent loans, with eligibility based on credit and income.

Unlike student loans, parent loans remain the sole responsibility of the borrower. The student is not obligated to repay the loan, even if they benefit from the funds. That’s a key distinction, and a crucial factor when considering your family’s long-term financial strategy.

Borrowed amount
Federal student loans include annual and lifetime limits, based on the student’s year in school and dependency status. For most dependent undergraduates, the borrowing limits as of 2025 are:

• $5,500 for first-year students (up to $3,500 subsidized)
• $6,500 for second-year students (up to $4,500 subsidized)
• $7,500 for third year and beyond (up to $5,500 subsidized)
• $31,000 total undergraduate cap (no more than $23,000 subsidized)

Independent students and those whose parents don’t qualify for a Parent PLUS Loan may be eligible for higher annual limits. Graduate students can borrow up to $20,500 per year in unsubsidized loans, with a total cap of $138,500, including undergraduate debt.

Private student loans may offer higher borrowing amounts, but approval typically depends on credit and many students may need a cosigner.

Parent loans, including Parent PLUS and private options, are often more flexible in terms of borrowing amount. Parents or another creditworthy adult can typically borrow up to the full cost of attendance, as determined by the school, minus any other financial aid you’ve received. Minimum loan amounts may start around $1,000, offering flexibility for small or large funding gaps.

No matter who’s taking out the loan, it’s important to borrow only what’s needed and build a repayment plan that fits your future budget.

Interest rates
When comparing student and parent loans, interest rates can significantly affect the total cost of borrowing, especially over the life of the loan.

Federal Student Loans
Federal student loans come with fixed interest rates, meaning they won’t change over time. For the 2024–2025 academic year:

• Undergraduate Direct Loans: 6.53%
• Graduate Direct Unsubsidized Loans: 8.08%

Example: A student who borrows $5,500 in an unsubsidized loan at 6.53% and takes 10 years to repay it could end up paying around $2,000 in interest, assuming standard repayment.

Parent PLUS Loans
Parent PLUS Loans have higher fixed rates than student loans, 9.08% as of the 2024–2025 academic year, plus an origination fee of 4.228%. The interest begins accruing as soon as your loan is disbursed.

Example: If a parent borrows $20,000 through a PLUS loan at 9.08% and repays it over 10 years, they could pay more than $10,000 in interest alone.

Private Student and Parent Loans
Private loans vary widely. Rates can be fixed or variable and are based on credit history, income and the lender’s terms.

• Fixed rates typically range from 3.5% to 13%
• Variable rates might start lower (around 5%) but can rise over time

Borrowers with excellent credit may qualify for lower interest rates, but private loans usually lack the borrower protections and income-driven repayment options available with federal loans.

Example: A parent with excellent credit borrows $20,000 at a 6.5% fixed rate from a private lender and repays it over 10 years. In that scenario, they would pay around $7,200 in interest — a significant savings compared to the same loan at PLUS rates.

Eligibility

Federal Student Loans
Eligibility for federal student loans begins with completing the Free Application for Federal Student Aid (FAFSA®). From there, your school determines how much you can borrow based on your financial need, year in school, and dependency status.

• Subsidized loans are available only to undergraduate students who demonstrate financial need.
• Unsubsidized loans are available to both undergraduate and graduate students, regardless of financial need.

Parent Loans (PLUS and Private)
Parent PLUS Loans are available to biological or adoptive parents of dependent undergraduate students. Eligibility is not based on income or need, but a credit check is required, and borrowers must not have an adverse credit history.

Private parent loans can be issued by banks, credit unions or other financial institutions. These often have stricter requirements, including:

• Good to excellent credit
• Sufficient income to meet repayment obligations
• Debt-to-income ratio within lender guidelines

Private parent loans may also be available to other creditworthy individuals beyond parents, such as grandparents, guardians or even close family friends, adding more flexibility for families seeking support.

Repayment terms
How and when you begin repaying a loan will have a big impact on your budget, both during college and after graduation.

Federal student loans offer built-in flexibility. Most don’t require any payments while the student is enrolled at least half-time. After graduation or dropping below half-time, there’s typically a six-month grace period before repayment starts. Borrowers can also explore income-driven repayment plans, deferment or even loan forgiveness under certain circumstances.

Private student loans vary by lender. Some require immediate repayment, while others allow for deferred or interest-only payments during school. Repayment terms typically range from 5 to 20 years, and options may be limited compared to federal programs.

Parent loans are different. Repayment usually begins right away, unless the lender offers deferment until after the student leaves school. With federal Parent PLUS loans, parents can request to delay repayment while their child is enrolled at least half-time, plus six months after. But interest continues to accrue during that time. Some private lenders offer interest-only or full deferment options, but not all.

If you're deciding between a student or parent loan, be sure to look closely at the repayment timeline and structure. Consider when payments will begin, how long the repayment period lasts and what options you’ll have if your financial situation changes.

Lastly, Federal student and Parent PLUS loans never charge prepayment penalties, giving you flexibility to pay off debt faster if you’re able. Most private lenders also offer this benefit, but terms can vary, so it’s worth confirming before you commit.