How to Find College Loans

Federal loans are no bargain. While students can borrow comparatively small amounts of money cheaply from the feds, parents are offered bigger but more expensive loans. The federally backed parent PLUS loan can cover the student's entire cost of college (less any other financial aid). But PLUS loans can cost as much as 8.5 percent a year plus a fee of 4 percent of the loan amount, for a total annual percentage rate of as much as 9.4 percent. Shoppers can find discounts, however. Those who borrow directly from the federal government and make automatic electronic payments are charged just 7.65 percent in interest. (After fees, the APR totals 8.55 percent.) And the eligibility criteria are comparatively forgiving, even for parents who are a little behind on their mortgages.

Nonprofits and colleges. Traci Smith of Highland, Calif., was heartbroken when she was turned down for a PLUS loan and it looked as if she wouldn't be able to send her daughter, Rhea, to the University of Redlands. When Traci called the school's aid office, however, the officer told her Redlands had joined a growing number of colleges making loans to recession-strapped parents. Redlands lent the Smiths the last $3,200 (at 8.5 percent) they needed to pay their bill. A few nonprofits, such as the Rhode Island Student Loan Authority, are offering local parents alternative loans with fixed rates below 8 percent.

Banks and private lenders. Many parents are enticed by sub-4 percent private loan interest rates advertised by banks and firms such as Sallie Mae. But Tim Ranzetta, president of Student Lending Analytics, recommends doing some homework: This summer, parents with good but not great credit were often looking at 12 percent plus. In addition, Ranzetta warns those rates are variable.

Luckily, several Web tools have emerged to help parents and students find and compare loans. Ranzetta has rated the most popular private loans based on their interest rates and consumer-friendly terms at studentlendinganalytics.com, and SimpleTuition.com lets shoppers compare a range of rates offered by several lenders.

Home equity loans. Troubles in the housing market have given parents with good credit and plenty of equity a chance to take cash out of their homes at near-record-low rates. After Krist shopped around, he realized he couldn't beat a home equity line of credit for a floating rate that started out at about 4 percent. And Krist says he doesn't mind taking on the debt for his daughter. After all, his parents borrowed so that he, too, could graduate debt free.

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