Hampshire College

The interest rate should not be the sole factor in determing your PLUS loan lender. The selection of your lender depends on your individual needs and preferences. For example, if you do not like having automatic payments made from a checking account, do not borrow a PLUS loan where an incentive requires automatic payments. 

Listed below are some things to consider to help make your PLUS loan lender choice easier. Use these tips to compare PLUS loan lenders listed on this Web site along with lenders you find on your own. NOTE: due to the current economic situation, many of the features listed below may no longer apply. Most lenders are no longer able or willing to offer attractive borrower benefits. Most lenders are only offering the one quarter percent (0.25%) interest rate reduction if the monthly payments are automatically made from a bank account.

How will the benefit affect the monthly payment: Some lenders provide an interest rate reduction as their borrower benefit. There are two ways these reductions may affect your monthly payments. One method reduces the monthly payments based on the lower interest rate. The other method bases the payment on the full interest rate, but charges the reduced interest rate on the remaining principal. This method will allow for more of each month's payment to be applied onto the loan principal. This will shorten the length of the loan, and will decrease the total amount of interest paid. Be sure you understand which method will be used on your PLUS loan.

Automatic payments: If you prefer to make your monthly PLUS loan payments automatically through a bank account, consider a lender offering a payment incentive for this arrangement. Be sure that the incentive is available onthe 10 and 25 year repayment plans. Follow up and complete the necessary forms to activate the automatic payments. If you do not enroll in this service you will not receive the associated benefit.

Prefer to make payments by check: If you prefer not to pay your monthly PLUS loan payments automatically through your bank account, consider a PLUS loan, which offers an automatic borrower benefit or payment incentive other than the auto-pay incentive.

Reducing loan principal: If you usually make extra principal payments on loans, or plan to, to reduce the length and the total interest paid, consider a lender who will apply more of each payment towards the principal or a lender providing principal reductions instead of interest rate reductions. Realize that you are able, on your own, to pay down the principal on any PLUS loan at any time, which will reduce the length of the loan.

Banking relationship benefit: For the most part, being a checking or savings account customer of a PLUS loan lender does not carry any advantage for borrowing a loan. But some lenders may reward current customers with a borrower benefit. 

Timing of benefit or incentive: Realize that a forbearance is not a repayment period, so many borrower benefits or payment incentives may not be applicable during this period. If you are planning to use a forbearance while the student is enrolled, consider a lender with a borrower benefit occurring at disbursement, not at repayment. 

10 year vs. 25 year repayment plans: Note that some borrower benefits and incentives may only be valid if the borrower is paying on the ten year repayment plan. If you see an appealing borrower benefit, be sure to inquire if it is valid for the 25 year plan as well. You may think now that you will pay off the loan within ten years, but you may need the 25 year plan down the road. The 25 year repayment plan is for those who have borrowed over $30,000 through the same lender.

Early loan payoff: If you are planning to pay the PLUS loan off within a few years and not planning to take the full 10 or more years to pay it off, consider a PLUS loan which will give you an immediate borrower benefit such as a principal reduction at disbursement. 

A word of caution about payment incentives linked to making a number of on-time payments: Only a small number of borrowers actually benefit from this type of incentive, as there will be an occasional late payment now and then. If you select a loan with such a payment incentive you can ensure that payments will be made on time by arranging for automatic payments through your bank account.