Do homework before getting student loan

Your first step in keeping college costs under control is to make some hard decisions about the type of school your family can afford. If you and your children are going to rely on loans to pay part of the cost, your next step is to decide how much debt is reasonable.

Set a limit that's realistic. As a benchmark, the average student-loan debt among graduating seniors is just over $19,000. One financial-aid officer at a private college says that it's reasonable for a student to graduate owing less than $25,000 — roughly the cost of one year's tuition at his or her school.

At the lower end, more than half of all full-time students enrolled in public four-year colleges pay in-state tuition and fees between $3,000 and $6,000 a year. So a student paying half the total cost might borrow as little as $12,000.

Once you've decided on a limit, stick with the federal loan programs: Perkins and Stafford loans for students and PLUS loans (Parent Loans for Undergraduate Students) for parents. Not only will you avoid often-confusing private loans, but you'll also get the lowest rates.

At 5 percent, Perkins loans are the cheapest, but they're available only to students with the greatest financial need. For most students, Stafford loans are the best deal around. Any student can borrow at a fixed rate of 6.8 percent. Next September's incoming freshmen may borrow up to $3,500 for their first year, and a total of $23,000 for their undergraduate education.

Interest accrues while your child is a student, but he or she doesn't have to begin repaying the loans until six months after graduation. If your family qualifies for a subsidized Stafford loan on the basis of financial need, the government will pay the interest while your child is in school.

Despite the advantages, many students don't exhaust all the Stafford loan money to which they're entitled. Some families are apparently put off by having to fill out the Free Application for Federal Student Aid (FAFSA), a prerequisite for getting a Stafford loan.

Don't fear the FAFSA. In addition to a low interest rate, Stafford loans come with attractive benefits when it's time to repay. For example, borrowers can defer repayment if they attend graduate school, or renegotiate loan terms to stretch out or lower their payments.

Get a list of lenders from your child's school, or from FinAid (www.finaid.com) or the Education Finance Council (www.efc.org), which lists state-run programs. Rates and loan terms are fairly standard and easy to compare. Some lenders do offer attractive discounts, such as a waiver of the loan-origination fee when the loan is disbursed.

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Janet Bodnar is deputy editor of Kiplinger's Personal Finance magazine and the author of "Raising Money Smart Kids" (Kaplan, $17.95) and "Money Smart Women" (Kaplan, $15.95). Send your questions and comments to moneypower@kiplinger.com.