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Despite the fact that the interest rate for PLUS loans is greater than that for other loans the ceiling on borrowing is much more flexible and the loans are not need-based.
In the case of the FFEL program (Federal Family Education Loan) in which private lenders provide the funds the interest rate is presently 8.5% and loans provided through the US Department of Education under the Direct loan program are presently charged at 7.9%. This difference of just 0.6% might seem inconsequential but can prove significant over the lifetime of an average loan.
With PLUS loans parents are allowed to borrow up to the full cost of education less the amount of any financial aid which the child is awarded. Although PLUS money is not cheap it can frequently make a considerable difference when choosing which college to attend or whether or not to attend at all.
However, because PLUS loans are not need-based, they do require a credit check before approval. Usually it is the parent's and not the student's credit which is considered since the parent is signing the promissory note and will be responsible for meeting repayments on the loan.
Where the credit history of the parent disqualifies him or her from a PLUS loan a co-signer may be brought into the equation and a relative or other party may agree to guarantee the loan repayment and take on the legal responsibility as a co-borrower. With recent problems in the sub-prime borrowing area however those cases are unfortunately more common than they once were. This means that the need for a co-signer is becoming increasingly likely in borderline cases.
Aside from changes in interest rates another recent alteration to the program is its extension to permit graduate and professional students to qualify for PLUS loans. Identical eligibility criteria and interest rates apply and they have to be enrolled at a suitable institution and on a qualifying program.
In contrast to many student loan programs, repayment of a PLUS loan starts immediately and the initial payment is generally required within 30 to 60 days after the loan funds are disbursed. Interest starts to build up from the time the first disbursement is made and both interest and principal must be paid in regular monthly installments during the time that the student is in college. Payments need to be made to the specific lender for FFEL loans and to a US Department of Education servicing center in the case of Direct loans.
Make sure that you calculate the costs of obtaining a PLUS loan carefully and view it as a loan of last resort. Even something like a home equity loan may turn out to be less expensive as the interest is tax-deductible.
Category: Reference and EducationHow PLUS Loans For College May Assist In Close The College Funding Gap was written by:Author:Donald SaundersAdded: Sat, 13 Oct 2007 04:39:57 -0400 This Article Has Been Read 148 times View all Donald Saunders's articlesAbout the Author: TheStudentLoansCenter.com provides information on a range of topics including school loans that don't require a co-signer and no credit check alternative student loans |
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