How Plus Loans For College Could Assist In Close The College Funding Gap

With the increasing cost of education over the past few years students who have been depending on traditional Stafford loans have regularly found that they do not meet most of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is intended to close the gap between the funds provided by college loans and the actual cost of education.

Despite the fact that the interest rate is higher than that for other types of loan the ceiling on borrowing is considerably more flexible and the loans are not need-based.

In the case of the FFEL program (Federal Family Education Loan) in which loans are funded by private lenders 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%. The difference of 0.6% may look insignificant but can turn out to be very substantial over the lifetime of an average loan.

Under the PLUS loans program parents are permitted to borrow up to the total cost of a child's education minus the amount of any financial aid which the child is awarded. Although PLUS loans are not cheap they can frequently make a difference when choosing which school to attend or indeed whether to attend at all.

However, because PLUS loans are not need-based, they do need a credit check before approval. Normally it is of course the parent's and not the student's credit which is checked since the parent is the signatory to the promissory note and is responsible for repayment of the loan.

Where the parent's credit history 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 assume legal responsibility as a co-borrower. With the recent problems in the sub-prime borrowing arena however those cases are unfortunately less rare than they have been. That means that in borderline cases the need for a co-signer is increasingly likely.

Apart from interest rate changes another recent alteration to the program is the fact that it has been extended to permit graduate and professional students to qualify for PLUS loans. The same eligibility criteria and interest rates apply and they must be studying at an appropriate institution and on an eligible program.

Unlike many college loan programs, repayments on PLUS loans starts immediately and the first payment is generally required within 30 to 60 days after the loan funds are disbursed. Interest starts to build up from the moment the first payment is drawn down and both principal and interest are paid in regular monthly installments while the student is in school. Payments are 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 very much as a loan of last resort. Even a home equity loan might turn out to be less expensive as the interest payments are tax-deductible.