Education loan focus : PLUS Loans

The United States Department of Education (EOD) offers parents and graduate students a PLUS Loan to fund college related expenses. For parents, this means an opportunity for them to pay for their child’s collegiate education without the hassle of taking on a second mortgage or other form of private funding. For graduates, who find themselves qualifying for less student aid once an initial bachelor’s degree is achieved, it means funding an education to earn a master’s or doctorate’s degree. The following is a brief breakdown of the pros and cons associated with the PLUS Loan.

Low Interest Rates
Because the EOD PLUS loan is a federally backed loan, it boasts a very low interest rate. Quite typically, the PLUS loan features a loan rate considerably lower than the student or parent’s other financing options.

Covers College Expenses
A PLUS Loan borrower can take out the total amount needed to cover all education expenses minus any other student aid awarded to the student.

Accommodating Repayment Plans
The federal government offers several repayment plans flexible in nature in an effort to make it easier for the borrower to repay the debt. The PLUS Loan repayment plan begins within two months after the first disbursement is made to the school.

Credit Check Needed
Unlike other EOD loan programs, the PLUS Loan does require the borrower to undergo a credit check. The borrower must have a positive credit score in order for the government to award him or her a loan.

Federal Application
As with all other EOD student aid, a PLUS Loan borrower must fill out a Free Application For Federal Student Aid (FAFSA). This loan process can be a bit long and extensive.

Numerous Borrowings
Federal student aid is a renewable process that takes place on an annual basis. The PLUS Loan program is no different. Students and parents taking out a PLUS Loan must reapply through the FAFSA each year in January. Once the student is out of college, he or she (or the parent) can opt to have the multiple borrowings consolidated into a lump sum for payoff.

For more on education loans for college, visit www.educationloans.org

If you have student debt and plan on filing bankruptcy anytime soon, don’t count of the government to bail you out of you education loans. Per federal law, education loans from both the private and federal sectors cannot be discharged in a bankruptcy. According to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, all education loans are protected from bankruptcy. Under certain circumstances, this restriction may not apply. However, the borrower must prove that he or she faces an “undue hardship” when making a loan payment. Unfortunately, the odds of actually proving undue hardship are quite low, so most borrowers end up repaying any education loan debt they may have.

If you have education loans, however, don’t give up just yet. Borrowers who file Chapter 13 bankruptcy can ask to have their loans consolidated with the rest of their bankruptcy debt. In a Chapter 13 filing, the borrower must repay the debt via a payment plan that lasts between three and five years. Most likely, the student loan debt will not be paid off during this timeframe, however it will lower the amount the borrower owes. A new repayment plan on the education loans will begin following the conclusion of the bankruptcy plan.

The borrower can also dispute the amount loan lenders claim is owed on the education loans. This is because an education loan that is transferred between lending institutions many times – which is not an uncommon practice – can lose its true amount due. By filing an objection to the institution’s claim, the borrower may convince the court to knock off some of the debt due on the loan.

Financial aid experts recommend borrowers who are struggling financially contact their lenders directly before heading to bankruptcy court. Most lenders offer flexible repayment plans, student loan consolidation options, and hardship deferments that can help keep the borrower afloat during a particularly touch time.

Learn more about education loans at EducationLoans.org