How Student PLUS Loans Could Help To Close The College Funding Gap - By: Don Saunders

As the cost of education has continued to increase in recent years students who have relied on traditional Stafford loans have frequently found that they do not cover the majority of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was therefore introduced and is intended to help in closing the gap between the funds available from student loans and the cost of education.

Although the interest rate for PLUS loans is higher than that for other types of loan 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) for 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 seem inconsequential but can be significant when viewed over the lifetime of an average loan.

With PLUS loans parents are permitted to borrow up to the full cost of education less any other financial aid amount which the child is awarded. Although PLUS money is not cheap it can often make a considerable difference when 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. Usually it is 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 repayment of the loan.

Where the parent's credit history disqualifies him or her from a PLUS loan a co-signer may come into play and a relative or other party may agree to guarantee repayment and assume legal responsibility as a co-borrower. With recent difficulties in the sub-prime borrowing arena however such cases are more common than they used to be. This means that the need for a co-signer is becoming increasingly likely in borderline cases.

Apart from changes in interest rates another recent alteration to the program is the fact that it has been extended to allow professional and graduate students to obtain PLUS loans. The same eligibility criteria and interest rates apply and they have to be enrolled at a suitable institution and on a qualifying program.

Different from many student loan programs, repayments on a PLUS loan begins right away and the initial payment is typically required within 30 to 60 days of the loan monies are disbursed. Interest begins accumulating from the moment the first payment is drawn down and both principal and interest has to be paid in regular monthly installments while the student is in school. Payments are made to the private lender for 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 of obtaining a PLUS loan carefully and view it as a loan of last resort. Even a home equity loan could well be cheaper as the interest is tax-deductible.

About the Author

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

Article Directory Source: http://www.articlerich.com/profile/Don-Saunders/17211

Additional Articles From - Home | Finance | Loans