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PLUS Loans – it's never too late to subsidize your
child’s
education cost
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 NextStudent. At NextStudent, we
believe that getting an education is the best investment you can
make, and we're dedicated to helping you pursue your education
dreams by making college funding as easy as possible. We invite
you to learn more on how Student loans are better than credit
cards at http://www.NextStudent.com.
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.
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