*Parents will get more time to repay a PLUS loan if they want. Currently, they must start repaying 60 days after the final disbursement of the loan, which means they start repaying the loan in the spring. But the new law will allow parents to defer payments up to six months after their child graduates. Interest accrues while the student is in school and is added to the balance.
Help for lenders
Besides easing borrowing pressures for families, the law also attempts to get more money into the hands of lenders so they can continue making education loans. To do this, the federal government will be allowed to temporarily purchase loans from private lenders. The details of this are yet to be worked out. And it's unclear at this point how many lenders will participate.
Many financial aid experts like the changes, saying the extra $2,000 a year for student borrowers can make a big difference.
"It will benefit a lot of students," says Zhanna Goltser, director of financial aid for the College of Notre Dame of Maryland.
"A lot of students won't have to take out private loans," Goltser says. Private loans tend to have higher rates and less flexible repayment plans than federal loans.
The option of deferring payments on PLUS loans also will encourage more parents to take them out, some aid directors say. PLUS loans are used to make up any shortfall in tuition, fees, books and living expenses.
"Families have bills to pay and for some parents making payments on PLUS loans is not an option," Goltser says. Instead, they resort to private loans where payments can be deferred, she says.
Goltser's only regret is the timing of the law. The Baltimore college has sent out student aid letters to incoming freshmen and was getting ready to mail out those for returning students.
The school plans to send out e-mail and letters to students to notify them of the higher borrowing limits in case students want to increase their federal borrowing.
Concern about debt
Some aid directors are concerned that students will rack up more debt, even if it's borrower-friendly federal loans.
Sarah Bauder, director of financial aid at the University of Maryland, College Park, says she would have preferred that Congress increase the amount of grants, which is money that doesn't have to be repaid.
Mark Lindenmeyer, director of financial aid at Loyola College in Maryland, says he encourages parents first to try to pay for college on a monthly installment plan that doesn't charge interest. After that, the next best option is federal student loans, then PLUS loans and in the last resort, private loans.
If parents decide to defer PLUS loan payments, Lindenmeyer has another tip: Pay the interest on the loan while the student is in school. That way, the loan won't balloon into a much bigger debt over the years.
eileen.ambrose@baltsun.com
