First take any subsidized or direct federal loans that a school may offer based on student's financial need. These include:
Perkins Loans: Given to students with exceptional financial need. Fixed rate of 5%. Undergraduates can borrow $4,000 per year; 10-year repayment period after graduation.
Subsidized Stafford Loans: Fixed rate of 6% for loans in the 2008-2009 school year. Loans granted for a maximum of $3,500 in first year, $4,500 in second year, $5,500 in later years. Repayment begins after student graduates or leaves school.
Unsubsidized Stafford Loans: Fixed rate of 6.8%. Pay only interest while in school or defer payments until after graduation. Loan amounts up to $3,500 in first year, $4,500 in second year, and $5,500 in later years.
For the balance of education costs, parents may consider the following loan alternatives. Terms and conditions of each loan should be evaluated to see which best fits the family's needs:
Parent Plus Loans: Parents can borrow up to the cost of attendance minus any other financial aid received. Interest rates are fixed at 7.9% to 8.5%, depending on the lender.
Home equity loans: A homeowner can take out a second mortgage against the value of a home to pay for college bills. These loans may be harder to come by with the housing slump devaluing homes.
Private student loans: Offered by banks and many private lenders. Private loans may require higher credit scores and a cosigner. A good website for research: finaid.org.
Factors to consider when evaluating loans:
Impact on future financial aid
Loan origination and other fees
Interest rates.
Are rates variable or fixed? Rate reductions may be offered for automatic debit payment, on-time payments.
SOURCE: Karen Busanovich, a certified financial planner in Woburn
