How PLUS Loans For College Can Be Used To Close The Education Funding Gap

With the climbing cost of education over the past few years students depending on traditional Stafford loans have often found that they are no longer meeting most of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was therefore introduced and is designed to close the gap between the sum available from college loans and the actual cost of education.

Though the interest rate is greater than that for other loans the limit on borrowing is a great deal more flexible and the loans are not need-based.

For the FFEL program (Federal Family Education Loan) in which private lenders fund the loan the interest rate is currently 8.5% and loans funded by the US Department of Education under the Direct loan program are currently charged at 7.9%. The difference of 0.6% may seem insignificant but can be substantial over the lifetime of the average loan.

With PLUS loans parents are permitted to borrow up to the full cost of education less the amount of any financial aid which the child is receiving. Though PLUS loans are not exactly cheap they can frequently make a difference when it comes to deciding which college to attend or indeed whether or not to attend at all.

But, because PLUS loans are not based upon need, they do require a credit check for approval. Usually it is of course the parent's and not the student's credit that is considered since the parent is the signatory to the promissory note and is responsible for repayment of the loan.

In those rare cases where the parent's credit history disqualifies him or her from a PLUS loan a co-signer may be brought into the equation and a relative or other third party may agree to guarantee repayment and assume legal responsibility as a co-borrower. With recent problems in the area of sub-prime borrowing however those cases are unfortunately more common than they once were. That suggests that in borderline cases the need for a co-signer is increasingly likely.

Apart from changes in interest rates another fairly recent change to the program is its extension to permit graduate and professional students to qualify for PLUS loans. Identical eligibility criteria and interest rates apply and they have to be enrolled at an appropriate institution and on a qualifying program.

In contrast to many college loan programs, repayments on a PLUS loan starts immediately and the initial payment is generally required within 60 days of the loan monies are disbursed. Interest starts accumulating from the time the first payment is made and both interest and principal needs to be paid in regular monthly installments during the time that the student is in college. Payments must be made to the specific lender for FFEL loans and to a US Department of Education servicing center in the case of Direct loans.

It is important to calculate all the costs of obtaining a PLUS loan carefully and look on it very much as a loan of last resort. Even something like a home equity loan Could turn out to be cheaper because the interest payments are tax-deductible.

TheStudentLoansCenter.com is designed to help you to apply for a college loan and provides details of student PLUS loans