How to borrow for college

Sources: Liz Pulliam Weston and Sandra Block

Unlike most other unsecured debt, you can't erase your student loans (federal or private) in bankruptcy court!

Private collection agencies pursue student borrowers hard with special debt-collection weapons (that are not available to collection agencies of other kind of debts) .

There is no statute of limitations on unpaid student-loan debt, and collectors have become increasingly skilled at tracking down defaulters even decades later.

Borrowing tips

1. Don't take on too much debt.

2. When borrowing for college, opt for government-guaranteed student loans before you turn to private loans.

Because private loans aren't guaranteed by the government, interest rates and fees are usually higher than for federal Stafford loans. The maximum that dependent undergraduates can borrow under the federal program is $23,000. So some students with high college costs have to use private loans. But others are taking out private loans before they've taken full advantage of the federal program.

3. If you've already graduated, consolidate your loans before 1 July 2007.

If you're already starting to pay off your loans, you can lock in a 5.375% rate for the life of the loan. Graduates who consolidate during their grace period — the six months before you have to start making monthly payments — can lock in a rate as low as 4.75%.

The 6.8% fixed rate that takes effect July 1 applies to new loans. Loans taken out before then will still have a variable rate that's adjusted every July 1. That variable rate is expected to top 6% on 1 July 2007. Consolidating your loans will let you avoid that increase.

If you're still in school and have loans outstanding, talk to your lender about "in-school" consolidation. That would let you lock in a rate on money you've already borrowed. However, you must consolidate before 1 July 2007. The new law will bar in-school consolidation after that date.

4. Don't compound your problems by running up credit card debt.

The average undergraduate has a credit card balance of $2,169. Only 21% of students paid off their balances each month. Many students use credit cards to pay for books, supplies and class fees. But keep in mind: The average interest rate for a standard, variable-rate card is 13.7%. And overdue payments can cause those rates to soar.