Federal vs. Private Student Loans
If you need to borrow, look at federal student loans first and then consider private loans if you still have a gap. "Federal loans are cheaper, more readily available and have better repayment terms than private student loans," says Mark Kantrowitz, founder and publisher of FinAid.org, one of the most comprehensive sources of student financial aid information.
Interest rates on federal student loans are fixed at 6.8% and loan maximums range from $5,500 for freshmen (dependent students) to $7,500 for seniors. If you're eligible for a need-based federal loan, interest rates are lower this year at a 4.5% fixed rate.
Private student loan rates are often variable and not all private loans are created equally. Look around and consider the total cost over the life of the loan, Kantrowitz suggests. Also, paying all or partial interest while in school and finding a loan with a shorter-loan term can save you significantly.
Living off-campus (if not at home) can be a huge savings on room and board. Hit the books for less by renting books online at sites like Bookrenter.com and Chegg.com. Half.com (a subsidiary of eBay) offers textbooks for a fraction of their retail cost and you can sell them at the site too. Students on a meal plan should opt for one for the allows more flexibilty by covering meals for the semester, rather than a weekly allotment. And, cut back Starbucks and Jamba Juice runs for that energy boost. A $4 drink per day, five days a week, 40 weeks a year translates to a cost of $800 a year!
Don't overlook income tax credits. The Hope Scholarship Tax Credit offers a credit of up $2,500 for tuition, fees and books and supplies for the 2010 tax year. But there are income limitations -- $90,000 for single filers, $180,000 if you file a joint return. Go to www.irs.gov to see if you're eligible.
Build a Plan!
Most important, make sure your plan covers the student's entire college stay and consider what the starting salary will need to be after graduation to keep loan payments manageable. A general rule of thumb: "A student's debt at graduation should not exceed their starting salary over the first few years," Baum says.
Calculators atwww.finaid.org, www.collegeboard.comandwww.salliemae.com/investcan help parents and students figure out how to budget for college costs.