As the cost of a college education has continued to climb in recent years students who have depended on traditional Stafford loans have often found that they do not meet the majority 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 provided by college loans and the actual cost of education.
Despite the fact that the interest rate is higher than other types of loan the cap on borrowing is much more flexible and PLUS loans are not restricted by being need-based.
In the case of 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 inconsequential but can prove to be substantial when viewed over the lifetime of the average loan.
Under the PLUS loans program parents are allowed to borrow up to the total cost of a child's education less the amount of any financial aid which the child is receiving. Although PLUS money is not exactly cheap it can often make a considerable 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 need a credit check before approval. Normally it is the parent's rather than the student's credit which is checked since the parent is the signatory to the promissory note and is responsible for repayment of the loan.
Where the parent's credit history makes him or her ineligible for a PLUS loan a co-signer can come into play and a relative or other third party can guarantee repayment and assume legal responsibility as a co-borrower. With recent problems in the area of sub-prime borrowing however those cases are unfortunately less rare than they used to be. This means that in borderline cases the need for a co-signer is becoming more likely.
Apart 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. The same interest rates and eligibility criteria apply and they have to be enrolled at a suitable institution and on an eligible program.
Different from many college loan programs, repayment of PLUS loans begins right away and the initial payment is generally required within 30 to 60 days after the loan funds are disbursed. Interest begins accumulating from the moment 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 are made to the private lender in the case of FFEL loans and to a US Department of Education servicing center in the case of Direct loans.
Be sure to calculate all the costs of obtaining a PLUS loan carefully and view it as a loan of last resort. Even a home equity loan Could prove to be less expensive since the interest is tax-deductible.
Author Resource:-
TheStudentLoansCenter.com provides information on all aspects of student loans and provides details of PLUS loans for college
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