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Paying for College with Student Loans

Iowa Nonprofit Says Knowing the Interest Rate You Will Be Charged Is a Key to Determining Best Choices

June 15, 2023

Student loans are often in the headlines, but the most important information for families with college students is knowing how student loan options compare to each other, according to an Iowa nonprofit loan provider.

"We always encourage students to use savings and earnings, and other financial aid options like grants, scholarships and work-study, before borrowing," said Steve McCullough, president and CEO of ISL Education Lending. "Once those options are exhausted, families should consider federal loans for students and private loans offered by nonprofits like ISL Education Lending."

Private student loans offered by nonprofits should be considered before accepting the federal Direct PLUS Loan for parents, according to McCullough. "If you're relying on student loans to cover some of your student's college expenses this year," McCullough said, "you need to understand the best option for your family's own situation. And that often starts with interest rates."

While federal student loans are preferred over private loans for student borrowers due to the lower rates and benefits typically offered, the PLUS Loan will have an increased interest rate beginning July 1. According to the U.S. Department of Education, the fixed rate will rise again this year from 7.54% to 8.05%, an increase that creates additional financial stress for families helping students with college expenses. This stress is made worse by the upfront origination fee on PLUS loans, which is currently 4.228% of the loan balance.

"This jump in the PLUS Loan rate means that parents who take out loans in their own name to help their student pay for college may find the private student loans offered by nonprofits to be a better option," said McCullough.

In keeping with its nonprofit mission to help Iowa students and families obtain the resources necessary to succeed in postsecondary education, ISL Education Lending provides the College Family Loan, which offers creditworthy parents and family members a competitive alternative to the federal PLUS Loan for parents.

The College Family Loan is available with fixed interest rates of 3.95% APR to 8.01% APR with no upfront or origination fees. Interested applicants can pre-qualify to see their loan rate before applying, without impacting their credit score.

"This is the second year in a row that we've seen increases in the PLUS Loan rate at a time when families are looking for more assistance to help with college costs," McCullough said. "Private loans from nonprofits are a viable alternative for many families. However, families need to look carefully at rates; some for-profit entities charge rates as high as 18%."

How the Numbers Stack Up

The U.S. Department of Education does not provide an APR for its Federal Direct PLUS Loan program. As a guide for comparing costs, however, the highest rate for ISL Education Lending's College Family Loan entering immediate repayment is 7.85% APR, whereas the 8.05% interest rate on the Federal Direct PLUS Loan translates to a 9.05% APR when combined with an upfront fee of 4.228%. The following comparison can be made for every $10,000 borrowed on the College Family Loan's lowest and highest rate APRs compared to the PLUS Loan.

Comparing rates between the College Family Loan and the PLUS Loan
  College Family Loan PLUS Loan
  Immediate Repay
(Lowest APR)
Immediate Repay
(Highest APR)
Immediate Repay
Amount Borrowed $10,000 $10,000 $10,000
APR* 3.95% 7.85% 9.05%
Term (in years) 10 10 10
Monthly Payment $101 $121 $122
Interest Paid $2,120 $4,462 $5,011
Origination Fee N/A N/A $423
Total Cost $12,120 $14,462 $15,434
* Using the indicated PLUS Loan rate of 8.05% and the upfront fee of 4.228%, the APR for the PLUS Loan, which enters repayment immediately, would be 9.05%. The lowest APR for ISL Education Lending's College Family Loan with immediate repayment is 3.95% and the highest APR for the College Family Loan with immediate repayment is 7.85%. The College Family Loan has no origination fee.

Additional repayment options for the College Family Loan can be viewed at McCullough encourages families considering PLUS Loans for parents to compare them to private loans for families. "There are differences besides interest rate that might make one parent option more beneficial than the other, which is why we offer a comparison of the PLUS Loan to the College Family Loan on our website," he said.

"For the many borrowers that qualify for our lowest rates, the difference in rate compared to the PLUS Loan can equate to thousands of dollars saved for families," McCullough said. "A large portion of the education loan debt that students and families eventually repay is interest. It's critical we help them reduce future debt by offering the lowest rates we can without piling on extra fees."

Additional Resources Available

ISL Education Lending also offers a competitive private student loan option for student borrowers, often with creditworthy cosigners, called the Partnership Advance Education Loan.

Parent borrowers who may have borrowed the higher cost Direct PLUS Loan or private loans can take advantage of the Reset Refinance Loan offered by ISL Education Lending, which may offer a lower interest rate or monthly payment.

These private student loan options and ISL Education Lending's free online tools and resources to help families plan and pay for college can be found at

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