How PLUS Loans For College Could Help To Close The Gap In College Funding

How PLUS Loans For College Can Assist In Close The Gap In College Funding

With the rising cost of education over the past few years students who have depended on traditional Stafford loans have repeatedly found that they do not meet most 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 provided by college loans and the cost of education.

Despite the fact that the interest rate is higher than other loans the cap on borrowing is much more flexible and PLUS loans are not need-based.

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

With PLUS loans parents are permitted to borrow up to the full cost of a child's education minus the amount of any financial aid which the child is receiving. Though PLUS money is not cheap it can frequently make a difference when it comes to deciding which school to attend or whether to attend at all.

However, since PLUS loans are not need-based, they do require a credit check before approval. In general it is the parent's and not the student's credit that is checked since the parent is the signatory to the promissory note and is responsible for meeting repayments on the loan.

In those cases where the parent's credit history makes him or her ineligible for a PLUS loan a co-signer may be brought into the equation and a relative or other party may agree to guarantee repayment and assume legal responsibility as a co-borrower. With the recent difficulties in the sub-prime borrowing arena however such cases are less rare than they have been. That means that the need for a co-signer is more likely in borderline cases.

Aside from interest rate changes another recent alteration to the program is its extension to permit professional and graduate students to obtain PLUS loans. The same eligibility criteria and interest rates apply and they need to be studying at an appropriate institution and on an eligible program.

In contrast to many college loan programs, repayment of a PLUS loan starts immediately and the initial payment is typically required within 30 to 60 days after the loan monies are disbursed. Interest starts accumulating from the time the first disbursement is made and both principal and interest has to be paid in regular monthly installments during the time that 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.

It is important to work out the costs of obtaining a PLUS loan carefully and view it as a loan of last resort. Even something like a home equity loan may well be less expensive as the interest payments are tax-deductible.

Comments? Questions? Email Here

© HowtoAdvice.com