Borrowing for college: Loans, options, tips

There are good and bad ways to borrow money for college. Of course, one family's "crazy" is another's "reasonable."

Opinions about student borrowing vary wildly. These are mine.

Federal Stafford Loans: These are the best student loans you can get. If your income is low enough to qualify you for subsidized loans, your rate now will be 3.4 percent and the federal government will pay your interest until after you graduate. That rate is scheduled to go up to 6.8 percent on July 1 for the 2012-2013 school year, but it's unlikely that officials will allow that to happen. Unsubsidized Staffords already are at 6.8 percent.

Overpriced schools: We all have different ideas of what an overpriced school is. The tippy top -- like Harvard and Stanford, for example -- may be worth some extra borrowing because you may end up being roommates with a future president or tech billionaire.

But many second- and third-tier private colleges cost well over $50,000 a year. (Many of these same schools do hand out merit and need-based aid.) If the difference between one of these schools and the solid state school is a four-year debt load approaching $60,000 or $80,000, take a long, hard look.

Expected earnings: A liberal arts education trains you to be analytical and makes you generally knowledgeable about culture. But the engineer may find it easier to repay a bigger loan than the drama or literature major.

Some advisers recommend that students limit their total college borrowing to what they expect to earn in their first year after college.

Private loans: This is the territory that requires judgment calls about how much a family can afford, and whether it's worth it. Sallie Mae just announced a new fixed-rate loan, boasting interest rates as low as 5.75 percent and as high as 12.875 percent.

You're more likely to get the lowest rate if you are an upperclassman, agree to make interest payments while you're in college, opt for an accelerated seven-year payback plan or have your high-credit-scoring parents cosign the loan with you.

To compare private loans, you can check listings at Simple Tuition (simple tuition.com).

Parents: Some parents can afford to borrow to help their kids through school, and use home equity or federal PLUS (parent loan for undergraduate students) loans. However, if parents are approaching retirement without enough money, burdening them with PLUS loans, cosigned private loans or new mortgages might be a very bad investment indeed.