With the rising cost of education over the past few years students who have been depending on traditional Stafford loans have frequently discovered that they fail to meet most of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was therefore introduced and is designed to close the gap between the sum available from college loans and the cost of education. Despite the fact that the interest rate for PLUS loans is higher than other loans the cap on borrowing is considerably more flexible and PLUS loans are not need-based. For the FFEL program (Federal Family Education Loan) for which private lenders fund the loan the interest rate is presently 8.5% and loans funded by the US Department of Education under the Direct loan program are presently charged at 7.9%. The difference of just 0.6% may look insignificant but can prove to be substantial when viewed over the lifetime of an average loan. Under the PLUS loans program parents are allowed to borrow up to the total cost of a child's education less any other financial aid amount which the child is receiving. Though PLUS money is not cheap it can frequently make a difference when it comes to deciding which college to attend or indeed whether or not to attend at all. But, since PLUS loans are not need-based, they do need a credit check for approval. Normally it is 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 meeting repayments on the loan. Where the credit history of the parent 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 assume legal responsibility as a co-borrower. With the recent problems in the sub-prime borrowing area however those cases are unfortunately more common than they once were. This means that in borderline cases the need for a co-signer is becoming more likely. Aside from changes in interest rates another fairly recent alteration to the program is its extension to permit graduate and professional students to obtain PLUS loans. The same interest rates and eligibility criteria apply and they have to be enrolled at an appropriate institution and on a qualifying program. Unlike many college loan programs, repayment of PLUS loans begins right away and the first payment is usually required within 60 days of the loan funds are disbursed. Interest begins to build up from the moment the first disbursement is made and both principal and interest must be paid in regular monthly installments during the time that the student is in college. Payments are 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 associated with obtaining a PLUS loan carefully and view it very much as a loan of last resort. Even something like a home equity loan may well be cheaper since the interest is tax-deductible.
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