How Student PLUS Loans Help To Close The College Funding Gap
With the rising cost of education over the past few years students who have been depending on traditional Stafford loans have regularly found that they do not cover most of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is intended to help 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 greater than that for other types of loan the cap on borrowing is considerably more flexible and PLUS 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 through the US Department of Education under the Direct loan program are currently charged at 7.9%.
The difference of just 0.6% may appear insignificant but can be very significant when viewed over the lifetime of an average loan.
The PLUS loans program is designed to provide loans for parents to pay for their kids school and under the PLUS loans program parents can borrow up to the full cost of a child's education less the amount of any financial aid that the child is receiving. Dept of Education parent loans are not cheap they can often make a considerable difference when choosing which college to attend or whether or not to attend at all.
However, since PLUS loans are not based upon need, they do require a credit check for approval. Usually it is of course the parent's rather than the student's credit that is considered since the parent is signing the promissory note and will be responsible for repayment of the loan.
In those rare cases where the parent's credit history disqualifies him or her from a PLUS loan a co-signer can come into play and a relative or other party can 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 more common than they once were. That means that the need for a co-signer is becoming more likely in borderline cases.
Aside from interest rate changes another fairly recent change to the program is the fact that it has been extended to permit professional and graduate students to qualify for 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.
Unlike many college loan programs, repayment of PLUS loans begins immediately and the first payment is typically required within 30 to 60 days after the loan funds are disbursed. Interest begins accumulating from the time the first payment is drawn down and both principal and interest needs to be paid in regular monthly installments during the time that the student is in college. Payments must be made to the specific lender in the case of FFEL loans and to a US Department of Education servicing center for Direct loans.
Make sure that you calculate all the costs associated with obtaining a PLUS loan very carefully and look on it very much as a loan of last resort. Even something like a home equity loan Could turn out to be less expensive because the interest is tax-deductible.
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