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How PLUS Loans For College Can 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 found that they do not cover 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 monies provided by student loans and the actual cost of education.

Despite the fact that the interest rate is higher than other loans the cap on borrowing is a great deal more flexible and the loans are not 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%. This difference of just 0.6% may look insignificant but can be very substantial over the lifetime of the average loan.

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

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

In those rare cases 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 party may guarantee repayment and take on the legal responsibility as a co-borrower. With recent difficulties in the area of sub-prime borrowing however those cases are more common than they once were. That suggests that in borderline cases the requirement for a co-signer is becoming increasingly likely.

Apart from interest rate changes another fairly recent alteration to the program is its extension to allow professional and graduate students to qualify for PLUS loans. Identical interest rates and eligibility criteria apply and they need to be enrolled at a suitable institution and on a qualifying program.

In contrast to many student loan programs, repayment of PLUS loans starts right away and the first payment is generally 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 are paid in regular monthly installments during the time that the student is in college. Payments need to be made to the specific 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 work out the costs associated with obtaining a PLUS loan very carefully and view it as a loan of last resort. Even something like a home equity loan might well be less expensive since the interest payments are tax-deductible.