How College PLUS Loans May Be Used To Close The Education Funding Gap
By: Donald Saunders | Posted: 02nd November 2007
As the cost of a college education has continued to increase in recent years students who have been relying on traditional Stafford loans have frequently found that they do not cover most of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is designed to assist in closing the gap between the sum available from college 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 the loans are not need-based.
In the case of the FFEL program (Federal Family Education Loan) in which funds are provided by private lenders the interest rate is currently 8.5% and loans provided 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 inconsequential but can prove substantial over the lifetime of the average loan.
Under the PLUS loans program parents are allowed to borrow up to the total cost of education less the amount of any financial aid which the child is receiving. Though PLUS loans are not exactly cheap they can frequently make a difference when it comes to deciding which school to attend or whether or not to attend at all.
But, as PLUS loans are not based upon need, they do require a credit check for approval. In general it is the parent's rather than the student's credit that is checked since the parent is the signatory to 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 can be brought into the equation and a relative or other party can agree to guarantee 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 have been. This suggests that the need for a co-signer is increasingly likely in borderline cases.
Aside from changes in interest rates another fairly recent alteration to the program is the fact that it has been extended to permit professional and graduate students to obtain PLUS loans. Identical interest rates and eligibility criteria apply and they need to be enrolled at an appropriate institution and on an eligible program.
Unlike many college loan programs, repayment of PLUS loans starts immediately and the first payment is normally required within 30 to 60 days of the loan monies are disbursed. Interest starts to build up from the moment the first disbursement is made and both interest and principal needs to be paid in regular monthly installments during the time that the student is in school. Payments need to be made to the private lender in the case of FFEL loans and to a US Department of Education servicing center for Direct loans.
Make sure that you calculate the costs of 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 as the interest payments are tax-deductible.
TheStudentLoansCenter.com is designed to help you to apply for a college loan and provides details of PLUS loans for college
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Tags: rare cases, college education, private lenders, loan program, repayments, education loan, direct loan, stafford loans, college loans, co signer, co borrower, promissory note, legal responsibility, cost of education, federal family education, us department of education, parent loans