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With the climbing cost of education over the past few years students who have been relying on traditional Stafford loans have regularly found that they fail to meet most 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 monies available from student loans and the cost of education.

Despite the fact that the interest rate for PLUS loans is higher than other loans the ceiling on borrowing is considerably more flexible and PLUS loans are not restricted by being need-based.

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

Under the PLUS loans program parents can borrow up to the full cost of education less the amount of any financial aid which the child is awarded. Though PLUS loans are not cheap they can often 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 based upon need, they do need a credit check for approval. In general it is the parent's rather than the student's credit which is checked since the parent is the signatory to the promissory note and will be responsible for meeting repayments on the loan.

Where the parent's credit history makes him or her ineligible for a PLUS loan a co-signer may come into play and a relative or other party may agree to guarantee the loan repayment and assume legal responsibility as a co-borrower. With the recent problems in the area of sub-prime borrowing however those cases are unfortunately more common than they used to be. This suggests that in borderline cases the need for a co-signer is increasingly likely.

Apart from changes in interest rates another fairly recent change to the program is its extension to allow graduate and professional students to obtain PLUS loans. Identical interest rates and eligibility criteria apply and they must be studying at an appropriate institution and on an eligible program.

Different from many student loan programs, repayment of a PLUS loan begins immediately and the initial payment is typically required within 60 days after the loan funds are disbursed. Interest begins to build up from the time the first payment is drawn down and both principal and interest are paid in regular monthly installments during the time that the student is in college. Payments are made to the specific lender in the case of FFEL loans and to a US Department of Education servicing center in the case of Direct loans.

Be sure to work out all the costs of obtaining a PLUS loan carefully and view it very much as a loan of last resort. Even something like a home equity loan Could turn out to be cheaper because the interest is tax-deductible.