In the past two posts, we’ve talked about getting money for college from the federal government, your state government, and the colleges and universities themselves.

But let’s say you’ve wrung the last dollar out of those possibilities and still don’t have enough money. What do you do?

This is where loans come in.

Like most things related to financial aid, loans start with the Free Application for Federal Student Aid, the FAFSA, which essentially is the student’s and parents’ request for money. After your aid award is figured, you’ll find out how much is left that will either come out of your pocket or in the form of a loan.

There are four kinds of student loans:

1. The Federal Perkins Loan is for undergraduate students with exceptional financial need.
2. The Direct Subsidized Loan (sometimes called the Stafford Loan) is for students who have financial need. The interest is subsidized by the federal government and doesn’t begin to accrue until the student graduates or gets gainful employment (or leaves school), whichever comes first.
3. The Direct Unsubsidized Loan, which is not need-based. Anyone can get this, but the interest begins to accrue immediately and the payments start immediately.
4. The Direct PLUS Loan. PLUS stands for “parent loan for undergraduate students”. This loan is unsubsidized as well, meaning the payments and interest start immediately. There is a credit check involved, but even students whose parents are not creditworthy can get the loans if they can find a qualified co-signer.

The way it works is the schools offer the loans; the parents must accept or decline. If they accept, both they and the student must go to counseling through the U.S. Department of Education where it is impressed upon parents and students that the loan must be paid back.

When it comes to federal loans, undergraduate students can borrow between $5,500 to $12,500 per year, depending on the year of school they are in and dependency status. The rest of the debt is on the parents.

So here are my suggestions:

• Start saving $400 a month when your child is born. Think of it this way: If you were able to save $400 a month in a 529 plan that generated a hypothetical 5%* return percent interest, after 18 years you’d have approximately $140,000. Yes, that money is factored into your Expected Family Contribution toward your child’s tuition bill, but it’s not as punitive as you might expect. Saving money is a risk worth taking, especially since the majority of people don’t/can’t overfund their 529. Even if you can’t save that much or you’re starting late, try to save enough to have $40,000 by the time your child is ready for college. That money, coupled with grants and scholarships, should make college relatively affordable.
• Encourage your student to make the best possible grades and test scores. Good grades and test scores will make your child eligible for merit-based aid that will make college much more affordable.
• Look at what outside scholarships might be available. FastWeb.com and unigo.com are good sources for this. Only 2% of financial aid typically comes from these scholarships, but one of my students this year got a $40,000 Amazon scholarship ($10,000 a year for four years) that includes an internship with Amazon. Students have to put in the time and effort to apply for these scholarships—and they have to have the credentials required to be eligible. But it can be done.
• If you’re taking out a loan, make it a federal loan, which includes a death benefit. If a parent or the student dies, the loan is canceled.
• If you’ve done everything you can and still can’t get school costs down to a manageable level, call the financial aid office at the university. Sometimes they’ll negotiate, especially if they think they’re going to lose the student to another school.
• Finally, remember that financial aid is an annual event, so if you don’t like the package you were offered this year, you’ll have another opportunity next year.

Good luck!