The sharp rise in applications to public schools is also making it much harder to get accepted, so students should carefully select safety schools, says DeFontaine. Meanwhile, private nonprofit four-year schools, which need to fill seats, have limited tuition and fee increases to an average 2.6% per year beyond inflation over the past decade (while the increase has been 5.6% for public schools).
Loan Considerations
Nearly half of all parents (48%) are looking to education loans to pay for college, according to the College Savings Foundation's (CSF) fifth annual 2011 State of College Savings Survey.
Federal government loans are currently the most attractive for their rate (6.8%) and terms, says Peter Mazareas, the chairman emeritus of CSF and the founder and president of Strategic Advancement Group Inc., a consulting firm in the college savings and financing sectors.
Traditional Stafford loans, which start at $5,500 for freshmen and rise to $7,500 for seniors, are available to anyone who fills out the FAFSA. Subsidized Stafford loans, which have their interest paid by the government while a student is still in school, require income eligibility.
Federal PLUS loans, for parents of dependent undergraduate students, are very easy to obtain and require no collateral, says Darvis. Repayment starts immediately, but if a parent dies or becomes disabled during the repayment period, the loan is forgiven, he says.
Some parents prefer using home equity loans for college expenses since their rates are 4% or less (about half that of a PLUS loan) and interest can be deducted. But Darvis suggests using caution since the home is collateral. Also, home equity loans' variable rates can rise if inflation heats up.
Mazareas says borrowers should be judicious when selecting private student loans. The advertised rates are often for borrowers with credit scores of 750 or higher. More than 65% of these loans are issued between June and August, which suggests that the borrowers likely have failed to plan and focus.
"Parents make desperate decisions," he says. He suggests they visit FinAid.org, a free source of comprehensive financial aid information.
Mark Kantrowitz, the publisher of FinAid and FastWeb, a free scholarship matching service, says there are now 23 lenders offering private student loans. He has posted a chart on FinAid.org comparing the loans' limits, terms, interest rates and fees.
Kantrowitz, who calculated the $1 trillion student debt figure, says students should aim to borrow a total sum that's less than their anticipated first-year annual salary. "Every $1 saved is $1 less to borrow; every $1 borrowed is about $2 by the time it's repaid [based on typical borrowing patterns]," he says.