By Lindsay Tice,Staff Writer

There was a time when college students could count on paying about 2.7 percent interest on a federal loan.

What a difference a year makes.

Variable-rate federal Stafford loans are up to 5.3 percent and could go higher when the rates change July 1. A fixed-rate Stafford loan will be 6.8 percent.

For students, that means higher monthly payments and thousands more in interest. But there are things students and parents can do to save money.

Consider other funding

Federal student loans offer big perks: low interest rates, deferment options for students who stay in school or have money trouble, loan forgiveness programs for students who serve as teachers or work in other high-need professions. But a federal student loan isn’t the only game in town.

Grants and private or public scholarships offer free money that doesn’t need to be repaid. Private jobs or federal work-study programs give students a steady paycheck. Education savings accounts allow families to save for college while earning some tax benefits.

When all else fails, parents can get their own federal loan or take out a home equity loan, although interest rates may be as high or higher than student loans.

Shop around

Like car loans and mortgages, federal student loans can be offered by credit unions, banks and other lenders. They can set lower interest rates or offer incentives – for on-time payments, for example – that lower the rate over time. They may also promise not to sell the loan, which means a student will know exactly who to call when it’s time to repay the loan or ask for a deferment.

Don’t borrow more than needed

Most colleges offer tuition payment plans. If a family can pay $100 a month, that’s $1,200 less it has to borrow every year – or $4,800 by the end of a 4-year degree.

Consider consolidation – but beware

Loan consolidation became popular when interest rates were falling. At one point in 2005, a student could consolidate loans and lock in a 2.8 percent interest rate, according to the Finance Authority of Maine. Consolidation is still an option for students who have multiple loans and high debt, but the rates are much higher and students can lose perks, including deferment or forgiveness programs, when they consolidate.

Consolidation may also add years to the loan. Monthly payments will be lower, but interest will accrue longer and the final cost will be higher.

Read the fine print

Students and parents should know how much they’re borrowing, whether the interest rate is fixed or variable and what their repayment options are before signing anything.

Students should call their lender, college financial aid office or the Finance Authority of Maine, at 1-800-228-3734, if they have questions.

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