Graduate college with less debt

    With the cost of a year at a four-year private university averaging over $30,000, it's no surprise that many families have to borrow funds to finance their children's educations. The latest data from the College Board show an average indebtedness of $19,500 among 2003-04 bachelor degree recipients who borrowed to finance their education. And 23 percent of borrowers from private colleges and 14 percent of those at public 4-year colleges graduated owing $30,000 or more.
    A growing portion of educational debt is owed to private lenders. The College Board reports that the proportion of education debt borrowed from banks and other private lenders, as opposed to the federal government, climbed to 20 percent of all educational borrowing in 2005-06, up from 4 percent in 1995-96. Private loans often carry higher interest rates than federal loans, and they aren't always presented in the same format, so it can be hard for students and their families to make comparisons.
    Consumers Union, publisher of Consumer Reports, offers the following advice to students and their families seeking the lowest-cost way to finance their college education:

1. Find the lowest cost source of funds. Maximize use of scholarships, grants, savings and work-study earnings, which you don't have to repay. Starting in your senior year of high school and every year you are in college, complete the Free Application for Federal Stuent Aid to determine your eligibility for federal and state grants and work study.

2. Determine how much you need to borrow. Use the estimated annual direct and indirect costs (books, transportation, health insurance) provided by your college financial-aid office. Borrow only what you think you'll need to meet these costs, even if you are eligible for more.

3. Take out federal loans after you've utilized grants and scholarships. They are the best loan sources. The most common federal loan has a fixed interest rate of 6.8 percent. All students are eligible for federal loans. Go to https://studentaid.ed.gov to learn about the three types.

4. Don't use private loans unless federal loans aren't enough. Private loans cost more and have variable interest rates with no cap on the upper limit. Make sure you know whether you are borrowing a federal or private loan. The terms of private loans can vary considerably. Consumers Union offers a free worksheet to help students compare financial-aid offers from several sources, including federal and private loans.

5. Avoid using your credit card to finance your education. Credit cards are the most expensive source of funds.—Tobie Stanger