How College PLUS Loans May Be Used To Close The Gap In College Funding


Education: College PLUS Loans

As the cost of education has continued to increase in recent years students relying on traditional Stafford loans have frequently discovered that they are no longer covering 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 funds available from student loans and the cost of education.

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

For 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%. The difference of just 0.6% might appear inconsequential but can prove to be significant when viewed over the lifetime of the average loan.

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

However, since PLUS loans are not based upon need, they do require a credit check before approval. Generally it is of course the parent's rather than the student's credit that is considered since the parent is signing the promissory note and is responsible for repayment of the loan.

Where the parent's credit history makes him or her ineligible for a PLUS loan a co-signer may come into play and a relative or other third party may guarantee repayment and assume legal responsibility as a co-borrower. With recent problems in the area of sub-prime borrowing however those cases are unfortunately less rare than they used to be. This means that in borderline cases the requirement for a co-signer is becoming increasingly likely.

Apart from changes in interest rates another fairly recent change 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.

Unlike many student loan programs, repayment of PLUS loans starts immediately and the first payment is typically required within 60 days of the loan monies are disbursed. Interest starts accumulating from the time the first disbursement is made and both principal and interest are paid in regular monthly installments while the student is in school. Payments are made to the specific lender in the case of FFEL loans and to a US Department of Education servicing center for Direct loans.

Be sure to work out all the costs of obtaining a PLUS loan carefully and view it very much as a loan of last resort. Even a home equity loan may well be cheaper since the interest is tax-deductible.

TheStudentLoansCenter.com provides information on all aspects of college loans and grants and provides details of student PLUS loans


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