How Student PLUS Loans May Help To Close The College Funding Gap

How Student PLUS Loans May Help To Close The College Funding Gap by Donald Saunders

As the cost of education has continued to climb in recent years students who have been depending on traditional Stafford loans have repeatedly found that they are no longer covering the majority of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is designed to assist in closing the gap between the monies available from college loans and the cost of education.

Though the interest rate is greater than that for other loans the limit on borrowing is much more flexible and PLUS 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% might look insignificant but can turn out to be very significant when viewed over the lifetime of an average loan.

With PLUS loans parents are allowed to borrow up to the total cost of education less the amount of any financial aid that the child is receiving. Although PLUS loans are not cheap they can frequently make a difference when it comes to choosing which school to attend or whether to attend at all.

However, as PLUS loans are not need-based, they do require a credit check before approval. Usually it is of course the parent's and not the student's credit that is checked since the parent is signing the promissory note and will be responsible for repayment of the loan.

In those cases where the credit history of the parent disqualifies him or her from a PLUS loan a co-signer can be brought into the equation and a relative or other third party can agree to guarantee repayment and take on the legal responsibility as a co-borrower. With the recent difficulties in the sub-prime borrowing area however those cases are less rare than they used to be. That suggests that in borderline cases the need for a co-signer is becoming increasingly likely.

Aside from interest rate changes another fairly recent alteration to the program is its extension to allow graduate and professional students to obtain PLUS loans. Identical interest rates and eligibility criteria apply and they must be studying at a suitable institution and on a qualifying program.

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

It is important to work out the costs of obtaining a PLUS loan very carefully and view it as a loan of last resort. Even a home equity loan might prove to be less expensive since the interest payments are tax-deductible.

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

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