How to Apply for a Student PLUS Loan

Over the past few decades the cost of education had increased up to 10 times. With the rising cost of education, it is important to look for additional source of money apart from traditional Stafford loans that fail to cover the entire expense. To fill the gap PLUS (Parent Loans for Undergraduate Students) are highly relied upon. PLUS loan are not need-based and are more flexible towards the cap on borrowing however, the interest rates are comparatively higher.

The interest rate of about 8.5% is charged for the FFEL (Federal Family Education Loan) program, where the loan is funded by private lenders. Where as about 7.9% of interest is charged on direct loan programs from the US Dept of Education funds. Considering the amount that could be substantially high over the lifetime of the loan the difference of 0.6% is huge enough.

For instance over a 10 year loan of $25,000 the payment difference for the first year would be approximately $130 which is the difference of $2050 - $1920. To calculate more appropriate with exact numbers and correlate some sample scenarios, the loan calculator could be used at http://www.bankrate.com/brm/mortgage-calculator.asp

PLUS loans facilitate to cover the entire expense of education less than any other financial aid awarded to the student. Though PLUS loans are charged higher interest rates, the students may avail the entire money and also choose additional education programs.

PLUS loans do not perform any credit checks usually and they are not need based. Though the student’s credit history is not considered, the parent’s credit history is evaluated since PLUS loan promissory notes are signed by the parents and their credibility is important. If the parent’s credit score is bad and makes then ineligible, the loan can be approved if a co-signer can be participated in the loan. The co borrower takes the legal responsibility by agreeing to guarantee repayment. However with recent increase in the number of defaults by sub prime borrowers, such instances are getting harder to get worked out. For borderline cases co-signer may be required.

PLUS loan programs had incorporated some changes lately including the changes in interest rates and the availability of this loan to graduate and professional students as well. However when made available to such sector of students the interest rate as well as the eligibility criteria remains unaltered.

Like in other programs, these students must be enrolled in an educational program through a recognized institution and the course must be attended half day or more. The repayments starts right after 60 days from disbursal of PLUS loans unlike the Stafford loans which starts six months after leaving the school. The interest rates are included right from the disbursement. Regular monthly installments of the principal and interest should be paid while the student is still in school. In case of FFEL (Federal Family Education Loan) the payments are made to a private lender, whereas in the case of direct loans, the payments are collected by U.S Department of Education servicing center.

It is important to carefully analyse the charges and interest rate before obtaining a PLUS loan, and since the cost is higher it is better to choose only as a last resort. PLUS loans are costlier than a home equity loan since they are tax deductible.