With the climbing cost of education over the past few years students depending on traditional Stafford loans have repeatedly found that they are no longer covering the majority of their expenses. The PLUS program (Parent Loans for Undergraduate Students) was therefore introduced and is designed to help in closing the gap between the funds provided by student loans and the actual cost of education.

Though the interest rate for PLUS loans is greater than other types of loan the cap on borrowing is a great deal more flexible and the loans are not need-based.

For the FFEL program (Federal Family Education Loan) in which funds are provided by private lenders the interest rate is currently 8.5% and loans provided through the US Department of Education under the Direct loan program are currently charged at 7.9%. This difference of just 0.6% may seem inconsequential but can be very significant over the lifetime of the average loan.

With PLUS loans parents are allowed to borrow up to the full cost of education minus any other financial aid amount which the child is awarded. Although PLUS money is not exactly cheap it can often make a difference when it comes to choosing which school to attend or whether to attend at all.

But, because PLUS loans are not based upon need, they do need a credit check before approval. Normally it is of course the parent's and not the student's credit that is checked since the parent is the signatory to the promissory note and is responsible for meeting repayments on the loan.

In those cases where the credit history of the parent makes him or her ineligible for a PLUS loan a co-signer can be brought into the equation and a relative or other third party can guarantee the loan repayment and take on the legal responsibility as a co-borrower. With the recent problems in the sub-prime borrowing area however those cases are less rare than they have been. That means that in borderline cases the requirement for a co-signer is increasingly likely.

Apart from interest rate changes another recent change to the program is the fact that it has been extended to allow professional and graduate students to qualify for PLUS loans. The same interest rates and eligibility criteria apply and they have to be enrolled at a suitable institution and on an eligible program.

Unlike many student loan programs, repayment of PLUS loans begins right away and the first payment is typically required within 30 to 60 days of the loan funds are disbursed. Interest begins to build up from the time the first payment is drawn down and both interest and principal needs to be paid in regular monthly installments while the student is in school. Payments have to be made to the specific 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 very carefully and look on it as a loan of last resort. Even a home equity loan might well be less expensive because the interest payments are tax-deductible.