How College PLUS Loans Could Help To Close The Gap In Education Funding

As the cost of education has continued to rise in recent years students relying on traditional Stafford loans have regularly discovered that they are no longer meeting the majority of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was therefore introduced and is designed to assist in closing the gap between the sum provided by student loans and the actual cost of education.

Although the interest rate for PLUS loans is higher than other loans the limit on borrowing is much more flexible and PLUS loans are not need-based.

In the case of the FFEL program (Federal Family Education Loan) in which private lenders provide the funds 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%. This difference of just 0.6% might look insignificant but can be very substantial over the lifetime of an average loan.

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

But, because PLUS loans are not based upon need, they do require a credit check before approval. Usually it is the parent's rather than the student's credit which is considered since the parent is signing the promissory note and will be responsible for meeting repayments on the loan.

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 party can guarantee the loan repayment and take on the legal responsibility as a co-borrower. With the recent difficulties in the area of sub-prime borrowing however such cases are unfortunately less rare than they have been. This means that in borderline cases the requirement for a co-signer is becoming more likely.

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

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

It is important to calculate the costs associated with obtaining a PLUS loan very carefully and view it very much as a loan of last resort. Even something like a home equity loan Could prove to be cheaper since the interest payments are tax-deductible.