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How PLUS Loans For College Could Help To Close The College Funding Gap

As the cost of education has continued to rise in recent years students who have been depending on traditional Stafford loans have often found that they are no longer meeting the majority of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is intended to close the gap between the funds available from student loans and the cost of education.

Despite the fact that the interest rate for PLUS loans is higher than other loans the cap on borrowing is much more flexible and PLUS loans are not need-based.

In the case of the FFEL program (Federal Family Education Loan) for which private lenders provide the funds the interest rate is presently 8.5% and loans provided through the US Department of Education under the Direct loan program are presently charged at 7.9%. This difference of 0.6% may look insignificant but can turn out to be very significant over the lifetime of an average loan.

With PLUS loans parents can borrow up to the total cost of a child's education minus the amount of any financial aid which the child is awarded. Though PLUS money is not exactly cheap it can frequently make a difference when it comes to choosing which college to attend or indeed whether to attend at all.

But, since PLUS loans are not need-based, they do require a credit check before approval. Normally it is of course the parent's and not the student's credit which is considered since the parent is signing the promissory note and is responsible for meeting repayments on the loan.

In those rare cases where the credit history of the parent makes him or her ineligible for a PLUS loan a co-signer can come into play and a relative or other third party can agree to guarantee the loan repayment and take on the legal responsibility as a co-borrower. With the recent problems in the area of sub-prime borrowing however those cases are unfortunately more common than they have been. That suggests that the need for a co-signer is increasingly likely in borderline cases.

Aside from interest rate changes another fairly recent change to the program is the fact that it has been extended to allow graduate and professional students to obtain PLUS loans. Identical eligibility criteria and interest rates apply and they must be enrolled at a suitable institution and on an eligible program.

Unlike many student loan programs, repayment of PLUS loans begins immediately and the first payment is typically required within 30 to 60 days of the loan funds are disbursed. Interest begins accumulating from the time the first payment is drawn down and both interest and principal has to be paid in regular monthly installments while the student is in college. Payments must be made to the private lender in the case of FFEL loans and to a US Department of Education servicing center in the case of Direct loans.

Make sure that you calculate all the costs associated with obtaining a PLUS loan very carefully and look on it as a loan of last resort. Even something like a home equity loan Could turn out to be less expensive as the interest payments are tax-deductible.

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