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PLUS Loans – It's Never Too Late To Subsidize Your Child’s Education Cost
By: Vanessa McHooley
PLUS Loans – it's never too late to subsidize your child’s education cost
Rising. Soaring. Skyrocketing. These are the words that seem to begin every
article about college tuition costs – and they are words guaranteed to make
every parent cringe. According to the College Board, costs for the 2004-2005
school year at four-year private colleges are up 6%, while costs at four-year
public colleges are up 10.5%. Scary? Yes. Impossible to handle? No!
The good news is that there is more financial aid available than ever before.
One of the most interesting financial aid options is the Parent Loan for
Undergraduate Students, or PLUS Loan.
What is a PLUS Loan?
PLUS Loans are federal loans taken out by parents to help pay their children’s
college costs. PLUS Loans offer several advantages:
• Interest rates are adjusted each year, but are consistently kept low. For the
2004-2005 school year, the interest rate is 4.17%. It is capped to never exceed
9%.
• Financial need is not a determining factor in receiving a PLUS Loan.
• No collateral is required.
• There is no penalty for early repayment.
• Loans can be consolidated.
• If you are eligible, up to $2000 in interest may be tax-deductible under the
Hope Education Tax Credit.
Who is eligible for a PLUS Loan?
If you are a parent with dependent students attending college at least
part-time, you are eligible to receive a PLUS Loan. You do need to have a good
credit history. The following credit issues will reduce your chances of getting
a PLUS Loan:
• Bankruptcies
• Defaulted loans
• Payments overdue by 90 days or more
• High debt-to-income ratio
If you are turned down for a PLUS Loan because of poor credit history, you can
find someone to co-sign the loan with you and then apply again.
How much can I borrow with a PLUS Loan?
You can borrow up to the total cost of undergraduate education expenses, minus
other financial aid already received. Expenses can include tuition, room and
board, supplies, lab expenses, and travel.
How do I apply for a PLUS Loan?
You can apply for a PLUS Loan through the Federal Family Education Loan (FFEL)
Program or through the William D. Ford Federal Direct Loan (Direct Loan)
Program. FFEL loans come from private lenders or loan servicers, such as your
bank. PLUS Loan applications are available from your school or your lender. To
apply for an FFEL PLUS Loan, you complete the application and then submit it to
your school. The school completes its portion of the application and sends it to
the lender for approval.
Direct loans come from the U.S. Department of Education’s Direct Loan Servicing
Center. To apply for a Direct PLUS Loan, you complete a Direct PLUS Loan
application and promissory note and submit it to your school’s financial aid
office. This form is available from your school’s Financial Aid Office.
You can take out one loan per enrollment period for each eligible student in
your family.
PLUS Loans do require an application fee of up 4% of the principal of the loan.
These fees are deducted from the loan principal, so no up-front money is
required. The fee includes a 3% origination fee charged by the federal
government and a guarantee fee of up to 1% charged by the guarantee agency.
However, most guarantors waive the guarantee fee.
How are PLUS Loan funds disbursed?
Funds are sent directly to the school’s financial aid office for scheduled
payments over the course of the academic year. As with other federal loans,
there are usually at least two disbursements, one for each school term.
The funds are first applied to tuition, fees, room and board, and other school
charges. If any money remains, you can receive it as a check or you can put it
in your student’s school account. This remaining money must be used for
education expenses.
When do I repay PLUS Loans?
You start paying back PLUS Loans 60 days after the final disbursement of the
school year. So, if the final disbursement is made in January, as is typical,
repayment generally begins in late February or early March. PLUS Loans are the
financial responsibility of the parents, not the student. If the student agrees
to make payments on the PLUS Loan but fails to make the payments on time, the
parents are held responsible.
What is the difference between PLUS Loans and other student loans?
The other student loan generally available to students is the Stafford Loan. The
table below illustrates the similarities and differences between these two loan
programs:
PLUS Loan
Federally guaranteed
Made to parents of dependent students
Interest rate is low, but not as low as a Stafford (currently 4.17%)
Repayment begins 60 days after final disbursement for the academic year
Loan borrowing can be up to 100% of college education costs
Stafford Loan
Federally guaranteed
Made to students themselves
Interest rate is lowest available (currently 3.37%
Repayment begins six months after graduation or leaving school
Loan borrowing is capped:
• $2,625 for first-year undergraduates
• $3,500 for second-year undergraduates
• $5,500 for third- and fourth-year undergraduates
Loan can be needs-based and requires a FAFSA
Interest charges do not begin until repayment begins, after graduation
This article is distributed by http://www.NextStudent.com.
About the Author:
My goal is to help every student succeed - education is one of hte most
important things a person can have, so I have made it my personal mission to
help every student pay for their education. Aside from that, I am just a pretty
average girl from SD. |
