As the cost of education has continued to rise in recent years students relying on traditional Stafford loans have often found that they are no longer covering most 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 monies provided by college loans and the cost of education.
Though the interest rate is greater than that for other types of loan the limit on borrowing is far 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 provide the funds the interest rate is currently 8.5% and loans provided by the US Department of Education under the Direct loan program are currently charged at 7.9%. The difference of just 0.6% may look insignificant but can prove to 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 that the child is receiving. Although PLUS money is not cheap it can frequently 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 of course the parent's rather than the student's credit that 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 can come into play and a relative or other third party can guarantee the loan repayment and take on the legal responsibility as a co-borrower. With recent difficulties in the area of sub-prime borrowing however such cases are less rare than they used to be. That suggests that in borderline cases the requirement 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 qualify for PLUS loans. Identical eligibility criteria and interest rates apply and they need to be studying at an appropriate institution and on an eligible program.
Different from many college loan programs, repayment of PLUS loans begins right away and the first payment is generally required within 60 days of the loan monies are disbursed. Interest begins to build up from the moment the first payment is made and both principal and interest needs to be paid in regular monthly installments while the student is in school. 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.
Be sure to calculate all the costs of obtaining a PLUS loan carefully and view it very much as a loan of last resort. Even something like a home equity loan might well be less expensive because the interest payments are tax-deductible.
