The End of a Sweet Deal on College Loans
Rates are going up sharply, so you'll need to borrow smarter
By Carolyn Bigda

(MONEY Magazine) – The cost of borrowing for college is about to get steeper. Starting July 1, rates on new federal loans for students and parents will rise 1.5 to 2.4 points and be fixed instead of variable. Rates on existing variable loans are due to be reset by July 1 as well and will likely rise to comparable levels. To keep your payments manageable, take these steps.

• MAX OUT STUDENT LOANS FIRST Even with the new rate hikes--rates will rise from 5.3% now to 6.8%--loans for students (called Stafford loans) will be far cheaper than borrowing options for parents. So have your child borrow in his own name first (you can always help with payments later on). Next year, loan limits will increase to $3,500 from $2,625 for freshmen and to $4,500 from $3,500 for sophomores. Lifetime cap: $23,000.

• SHOP AROUND Look for lenders that don't charge origination fees and that offer repayment incentives such as reducing your rate if you agree to have payments automatically deducted from your bank account. You can compare college lenders online at finaid.org.

• CONSIDER A PLUS LOAN Rates on these loans for parents will rise from 6.1% to 8.5%. Still, that's not much more than current rates on home-equity lines of credit--and you're not risking your house. Then too, you don't need stellar credit to qualify, and you can deduct up to $2,500 a year in interest without itemizing.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.