Updated: May 3, 2013 12:14PM
Originally published: August 28, 2003
Have you finished your back-to-school shopping--for money? While retailers are consumed with selling school supplies and clothes, many students and their parents are desperately seeking money to pay college tuition. And help is available, even at this late date.
Most families incorrectly believe that the only people who get help with college costs are financially needy--a definition set by the College Board, and a definition that certainly does not include most middle-class families. But these families can be needy too, especially when it comes to the huge chunks of cash that must be handed over to colleges at the start of each semester. That’s why Congress created the PLUS loan program.
PLUS loans for parents
PLUS loans are made to parents, not to the student. And they are not based on financial need. All that’s needed is a good credit history, and the parent must be a U.S. citizen. The student must be less than 24 years old, unmarried with no dependents and enrolled at least half-time.
The interest rate on PLUS loans is definitely enticing. For the current year, the rate is 4.22 percent. That rate will change every July 1, based on the 91-day Treasury bill rate plus 3.1 percent. So for now, at least, PLUS loans are the cheapest way to borrow--less expensive than even a home equity loan, although the interest on PLUS loans is not deductible.
Parents can borrow up to 100 percent of the estimated cost of college, including tuition, books and room and board. The money is paid out directly to the school, in twice-yearly installments. Then the school disburses the money directly for tuition and other allowed expenses.
The repayment terms on PLUS loans are fairly generous, as well. Although interest starts accruing from the date the first funds are disbursed, parents have 10 years to make full repayment. That repayment period must begin within 60 days of the final loan disbursement in the student’s senior year (or in graduate school). There are no prepayment penalties.
PLUS loans carry a combined fee of up to 4 percent of the loan. That amount mostly goes to the federal government as an origination fee, and is deducted proportionately from each loan disbursement.
Where do you go to find out more? Contact your school’s financial aid department, or ask your bank. Or to make things really easy, you can get information and apply online at some of the major financial aid Web sites, including these:
**www.parentanswer.com. This is the PLUS loan section of the Sallie Mae Web site. Sallie Mae is the largest provider of student education funding. Its main Web site is accessed at www.SallieMae.com. Or you can call Sallie Mae at (800) 891-1410.
**www.cfsloans.com. The Collegiate Funding Service now waives 1 percentage point of the origination fee on PLUS loans. And you can apply directly online. Its toll-free number is (888) 423-7562.
**www.FinancialAid.com offers similar services. Its toll-free help number is (866) 854-PLUS.
One interesting note: Parents can apply for a PLUS loan retroactively to cover educational expenses they’ve already paid for in the current school year.
Sallie Mae signature loan
Some students don’t have parents who are willing to take out a loan on their behalf, or who may not have the required good credit history. Here’s a place where a student can get a loan based on his or her signature alone if the student has a good personal credit history. And having a willing co-signer (not necessarily a parent) can keep the interest rate down.
Sallie Mae created this loan as a private education loan, not subsidized in any way by the federal government. It is available to undergraduate, graduate and health profession students. Sallie Mae says more than 80 percent of loan applications are approved.
The interest rate on this loan is tied to the prime rate, currently 4 percent. There are no fees. But the prime rate can be very volatile, thus exposing the borrower to significant upside interest rate risk. For more information on this signature loan, go to www.SallieMae.com and look for “Signature Express Online” to learn more and to apply.
College tuition keeps rising every year. But so does the ultimate value of a college education in a world that is differentiated by jobs that require education and flexibility. So if you’re about to give up on going back to school solely because of money issues, you might want to do some research at the Web sites above and reconsider. The burden of debt is a heavy one, but it is almost always outweighed by the benefits of a college degree. And that’s The Savage Truth.
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange and McDonald’s Corp. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast, and can be reached at her Web site, www.terrysavage.com.