Borrowing for College

How to Borrow for College

As the cost of college keeps rising, borrowing money to pay for school has become the norm. About two-thirds of students who graduate from a four-year university leave with some debt. Of them, graduating seniors carry an average of $23,186 in student loan debt into their post-college lives.1

You may not be able to avoid borrowing for college, but you want your child to accumulate as little debt as possible, says Mark Kantrowitz, publisher of, an online resource for college financial information and advice, and, a free scholarship matching service.

"The way families should think about loans is, 'What is this going to cost me?' " Kantrowitz says, "because the best time to reduce your debt is before you incur it."

After you familiarize yourself with the range of student loan options available, you can shop for the most affordable loan. There are three major types of college loans. Here's how they work:

Student Loans

These loans are made to the students, not to parents. Students obtain the loans through the school, but the government supplies the funds. To start the process, students fill out the Free Application for Federal Student Aid (FAFSA).

Federal Stafford loans are the most common type of student loan. They have a fixed-interest rate of 6.8 percent and come in two varieties: subsidized (the government pays the interest while the student is in school) and unsubsidized (the student pays the interest). Whether your student receives a subsidy depends on his or her financial need.1

Federal Perkins loans are another option, but only students with exceptional financial need qualify. The loans are subsidized and have a fixed-interest rate of 5 percent.1

Parent Loans

Parents can use the federal Parent Loan for Undergraduate Students (PLUS) to pay for college costs not covered by their child's financial aid. The loans have a fixed-interest rate of 7.9 percent.2 Parents, not students, are responsible for repaying the debt.

Private Loans

Banks and other private institutions offer these loans. Each has its own program and terms, with interest rates and fees usually determined by the borrower's credit score. A parent may be able to help the student receive a better deal by co-signing the loan, notes Kantrowitz.

SunTrust offers the Custom Choice Loan® SunTrust education loans to help fill the gap when federal loans, scholarships, grants and work-study programs don't quite meet your financial need.

But the best way to minimize debt is to save for college before your child gets there. Start saving early with a tax-advantaged account such as a 529 savings plan. "Every dollar you save -- or win through a scholarship -- is a dollar you don't have to borrow," Kantrowitz adds.

Most experts agree on one thing: Don't sacrifice your retirement savings to finance your child's education. While loans, financial aid, scholarships and grants are available for college, they're not for your retirement. 



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