How Student Plus Loans Might Help To Close The Education Funding Gap

With the rising cost of education over the past few years students who have depended on traditional Stafford loans have regularly discovered that they fail to meet most of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is designed to help in closing the gap between the funds available from student loans and the actual cost of education.

Although the interest rate for PLUS loans is greater than other types of loan the limit on borrowing is considerably more flexible and the loans are not restricted by being need-based.

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

With PLUS loans parents can borrow up to the full cost of education less the amount of any financial aid that the child is awarded. Although PLUS money is not exactly cheap it can often make a considerable 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. Generally it is of course the parent's and not the student's credit which is considered since the parent is the signatory to the promissory note and is 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 third party can guarantee the loan repayment and take on the legal responsibility as a co-borrower. With the recent problems in the sub-prime borrowing arena however those cases are unfortunately more common than they used to be. This means that in borderline cases the need for a co-signer is more likely.

Apart from changes in interest rates another recent change to the program is its extension to allow professional and graduate students to qualify for PLUS loans. The same eligibility criteria and interest rates apply and they must be studying at a suitable institution and on a qualifying program.

Unlike many student loan programs, repayment of PLUS loans starts right away and the initial payment is typically required within 30 to 60 days of the loan monies are disbursed. Interest starts to build up from the time the first payment is drawn down and both principal and interest must be paid in regular monthly installments during the time that the student is in school. Payments need to be made to the specific lender for FFEL loans and to a US Department of Education servicing center in the case of Direct loans.

Be sure to calculate the costs associated with obtaining a PLUS loan carefully and look on it as a loan of last resort. Even something like a home equity loan may well be cheaper since the interest payments are tax-deductible.