Magazine article Newsweek

Borrowing 101

Magazine article Newsweek

Borrowing 101

Article excerpt

Byline: Jane Bryant Quinn

It's panic time for a lot of families whose students head to college next month. Maybe your job suddenly feels insecure or the money you saved for tuition lies buried in the stock market.

For a crying towel, call the experts at the college aid office. This time of year, they're handing out lists of fast-money sources as if they were hankies.

You don't necessarily need a loan. At most schools you can gain some breathing room by paying your bill in monthly installments rather than writing a single, fat check when each semester starts. No interest is charged. If you owe $10,000, you might arrange for 10 monthly payments of $1,000 each. Your paycheck gets squeezed (for college parents, what's new about that?), but it often beats borrowing. Tuition-payment plans are usually managed by outside firms, such as Academic Management Services in Swansea, Mass., and Tuition Management Systems in Newport, R.I.

If borrowing seems inevitable, there couldn't be a better time. Interest rates on college loans have fallen to historic lows. Some parents make a combo choice, says Maureen McCarthy Mello, senior vice president for Academic Management Services. You pay part of the bill through a monthly plan and borrow the rest in a low-cost supplemental loan.

So which loan? By now, students should have their basic, government-backed Stafford Loan in hand. Undergraduates can borrow $2,625 to $5,500 a year, depending on how far along they are in school. The interest rate on Staffords just dropped to an amazing 4.06 percent for those repaying now (rates change each July 1). Payments are deferred as long as you're in school.

Homeowners love home-equity loans. Currently, you'd pay about 5 percent on a variable loan or 7 percent for a fixed rate--all tax-deductible.

If that's not an option, consider the government-backed PLUS loan for parents. …

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