With the rising cost of education in recent years students who have depended on traditional Stafford loans have often found that they do not meet the majority of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was thus introduced and is intended to help in closing the gap between the funds available from college loans and the cost of education.

Although the interest rate is greater than other types of loan 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 loans are funded by private lenders the interest rate is presently 8.5% and loans funded through the US Department of Education under the Direct loan program are presently charged at 7.9%. This difference of 0.6% might seem inconsequential but can be very significant when viewed over the lifetime of the average loan.

With PLUS loans parents are allowed to borrow up to the total cost of a child's education minus any other financial aid amount that the child is receiving. Although PLUS loans are not exactly cheap they can frequently make a difference when it comes to choosing which college to attend or whether or not to attend at all.

But, because PLUS loans are not need-based, they do need a credit check for approval. In general it is of course the parent's rather than the student's credit that is considered since the parent is signing the promissory note and will be responsible for repayment of the loan.

In those rare cases where the parent's credit history disqualifies him or her from a PLUS loan a co-signer may be brought into the equation and a relative or other third party may agree to guarantee the loan repayment and assume legal responsibility as a co-borrower. With recent difficulties in the area of sub-prime borrowing however such cases are unfortunately more common than they once were. That suggests that in borderline cases the need for a co-signer is becoming increasingly likely.

Aside from interest rate changes another fairly recent change to the program is its extension to allow professional and graduate students to qualify for PLUS loans. Identical eligibility criteria and interest rates apply and they must be studying at a suitable institution and on a qualifying program.

In contrast to many college loan programs, repayment of PLUS loans begins immediately and the initial payment is typically required within 30 to 60 days of the loan funds are disbursed. Interest begins accumulating from the time the first payment is drawn down and both principal and interest has to be paid in regular monthly installments during the time that the student is in college. Payments must be made to the private 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 very carefully and view it as a loan of last resort. Even a home equity loan may well be cheaper as the interest is tax-deductible.