NextPath

Media headlines with the words “credit crisis” are enough to make anyone uneasy. With the rising cost of gas and higher food prices putting the squeeze on your budget, and home equity loans hard to come by, it makes sense to be concerned about where you’re going to get the money to help your children pay for college.

The truth is, you and your kids may have to make some tough financial choices. But it is possible to pay for college without mortgaging your family’s future or maxing out high-interest credit cards; you just need to do a little legwork.

Be Proactive: 3 Things You Can Do Now

1. Protect your credit.
   You’ll need it to qualify for a credit-based federal parent loan (PLUS loan) or to be a creditworthy co-signer for your kids on their private student loans. Avoid being turned down for credit-based loans by managing your debt and paying your bills on time.

2. Maximize your free money options.
   Help your kids look for grants and scholarships. (For a place to start, check out our list of places to find scholarships online, where you can search millions of dollars worth of scholarships absolutely free.) No matter how small an award is, encourage your children to apply. A scholarship for $500 from your local Rotary club could pay for a few textbooks or three months worth of gas.

3. Contact your financial aid office.
   Find out if your children’s schools participate in the Federal Direct Loan Program or the Federal Family Education Loan Program (FFELP). At direct-lending schools, students obtain their federal loans directly from the federal government. At FFELP schools, students must obtain their federal parent and student loans from third-party lenders.
   
   Due to disruptions in the student loan capital markets over the past six months, many FFELP lenders are suspending their federal student loan programs. You’ll want to make sure, if your children attend a FFELP school, either that you’re able to find a FFELP lender who’s actively making federal student loans or that the school has other lending and financing options available.

Play Reporter: Get Your Questions Answered

Call around and do your research. Don’t be shy about asking pointed questions to get the answers you need that will help you make an informed decision.

1. Do you anticipate a shortage of funds?
   Ask both schools and lenders this question. Some FFELP schools, foreseeing that their students might have trouble finding FFELP lenders who are still issuing federal student loans, have made the move to switch over to the Direct Loan program.
   
   If your school hasn’t taken this step, ask the financial aid office to provide you with a list of FFELP lenders still making federal loans to students. Then call those lenders and verify that they’re actively originating federal loans.
   
   Be frank: Tell the lenders you’re aware of what’s going on in the student loan market, and ask them if they anticipate any possibility of suspending their FFEL program in the coming months.

2. What if I don’t qualify for a PLUS loan?
   Federal PLUS loans, available to eligible parents of dependent undergraduates, require that your credit history be free of any adverse items for the past five years. If you don’t qualify on your own, you can apply with an eligible creditworthy co-signer.
   
   Your school or lender may also have other alternatives. One option: Undergraduates whose parents don’t qualify for a PLUS loan may be able to get an increased borrowing limit on their unsubsidized Stafford student loans, which currently carry a fixed interest rate of 6.8 percent and allow students to defer their payments as long as they’re enrolled in school at least half time.

3. What terms, rates, and benefits do you offer on private student loans?
   If you’re considering private student loans to help pay for college, call at least three lenders to shop around before you make a decision.
   
   Private student loans are non-federal credit-based loans that can help students pay for school when scholarships, federal loans, and other financial aid aren’t enough to cover all their education-related expenses.
   
   Although a private student loan is issued in the student’s name, since it’s a credit-based loan, if your children have little or no established credit, they may need you or another creditworthy applicant as a co-signer in order to qualify.
   
   Private student loans are typically variable-rate loans that can be subject to higher interest rates than federal student loans. And some private loans may not offer the same income-sensitive repayment or payment-deferment options that accompany federal student loans. As a general rule, you should consider private student loans only once you’ve exhausted all your federal financing options.