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

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With the increasing cost of education over the past few years students depending on traditional Stafford loans have frequently discovered that they fail to cover most of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is designed to close the gap between the funds provided by student loans and the actual cost of education.

Although 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) for which private lenders fund the loan 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 substantial over the lifetime of the average loan.

Under the PLUS loans program parents are allowed to borrow up to the full cost of education minus the amount of any financial aid which the child is awarded. Though PLUS money is not cheap it can frequently make a difference when it comes to choosing which school to attend or indeed whether to attend at all.

But, because PLUS loans are not need-based, they do need a credit check before approval. Usually it is of course the parent's rather than the student's credit which is considered since the parent is the signatory to the promissory note and will be 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 participate in the loan and a relative or other third party may agree to guarantee the loan repayment and take on the legal responsibility as a co-borrower. With recent problems in the area of sub-prime borrowing however such cases are less rare than they used to be. That suggests that the need for a co-signer is becoming more 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 studying at a suitable institution and on a qualifying program.

Different from many student loan programs, repayment of a PLUS loan starts right away and the initial payment is usually required within 30 to 60 days after the loan funds are disbursed. Interest starts to build up from the time the first payment is drawn down and both interest and principal must be paid in regular monthly installments while the student is in school. Payments must be made to the private lender for FFEL loans and to a US Department of Education servicing center in the case of Direct loans.

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

Article Source: http://depositarticles.com/

TheStudentLoansCenter.com is designed to help you to apply for a college loan and provides details of student PLUS loans

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