With the fall semester starting soon, it’s time to finalize how you’ll pay for college.
After scholarships and grants, the average cost for one semester is about $7,000 at public colleges and about $13,000 at private colleges.
Most families uses a mix of savings, income and loans to cover the remaining cost.
Borrowing money should be the last resort. If you're just short of being able to cover the total cost upfront, find out if the college offers a way you can pay in installments.
"There's still time to take out a loan, but you want to do it sooner rather than later," said Kalman Chany, the author of Paying for College Without Going Broke, an annually updated book from The Princeton Review.
If you've suddenly realized the bill is bigger than expected, there are three borrowing options: federal loans that students borrow, federal loans that parents borrow, and loans from a private lender.
Use federal loans for students first
The federal Direct Loans for students come with low interest rates, flexible repayment options, and students are automatically eligible regardless of income or credit history.
The interest rate is fixed and the same for every student. It's 4.45% for the 2017-2018 school year.
For some low-income students, there's another benefit. Their Direct Loans won't start accruing interest until six months after graduation. For everyone else, the interest starts accruing immediately.
But there's a limit on how much students can borrow. Direct Loans are capped at $5,500 during your first year of college, $6,550 during your second year, and $7,500 during your remaining years. (These loans also have a 1.1% origination fee. So you'll receive closer to $5,440 during your first year.)
Federal Parent PLUS Loans
For some, the capped federal loans for students may not be enough to cover the remaining cost of college. Parents may have to step in to borrow the money themselves from the federal program or a private lender.
The federal PLUS Loan program for parents should offer enough money to cover the remaining cost of attendance (including things like books and transportation) after using other financial aid.
But parents must pass a credit check to receive the federal PLUS Loan. They must not have an "adverse credit history," which means they cannot be delinquent on other debts. In most cases you can apply for the loan at StudentLoans.gov, but some colleges have a different process, Chany said.
The interest rate is fixed and the same for each borrower. This year it's 7%.
Parents are expected to start repaying the PLUS Loans immediately unless they request a deferment while their child is still in school. They come with several repayment options.
If a parent fails the credit check, there is some good news. The student will automatically be able to borrow an additional $4,000 in Direct Loans.
But some parents with good credit might be able to find a lower interest rate from a private lender.
What to look for in private student loans
Private student loans come from a variety of lenders, including big banks, credit unions, a handful of states, and lenders that work specifically with students and their parents to pay for college like Sallie Mae, CommonBond, and College Ave Student Loans.
The terms and rates can widely vary. Some lend to parents and some lend to students, who will likely need a parent cosigner.
"Parents should be shopping around for more than just the interest rate when it comes to private loans," Chany said.
And borrowers rarely qualify for the lowest rate advertised by a lender, he said.
Ask these questions before borrowing a private loan:
1. What's the interest rate and is it fixed or variable?
2. Are there other fees? (PLUS loans have a 4.3% origination fee.)
3. When do you have to start paying the loan back?
4. Are flexible repayment plans offered if you experience financial hardship?
5. Is the loan discharged in the case of death or disability?
It might take longer for the money to come in from a private lender than the federal program. If you're running up against the deadline, be sure to call the college's financial aid office two weeks beforehand to make sure everything is in order. The school could block a student from registering for classes or moving into the dorm if the money isn't there yet, Chany said.