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"She was going to be burdened with a large monthly payment that would prohibit her from buying a house, maybe even a car. So her option was to go to a large state university and graduate with about $30,000 in debt versus $80,000," he says.

Smart borrowing

The best way to borrow for college is through the federal government via loan programs that are backed by the U.S. Treasury.

Stafford loans are available through one of two programs, chosen by the schools. One is the William D. Ford Federal Direct Loan program, in which students borrow money directly from the U.S. Department of Education.

The other is called the Federal Family Education Loan program or the FFEL, in which commercial lenders participate. "But that commercial lender has to follow all of the terms and conditions that are outlined in the law. So these are almost identical," Carpenter says.

The main difference between FFEL and the direct loan program concerns the Parent Loans for Undergraduate Students, also known as PLUS loans. The fixed interest rate for PLUS loans obtained through the direct loan program is 7.9 percent, but it's 8.5 percent through FFEL. "It is a quirk that happened in the law about two years ago, and they have not changed it since," says Carpenter.

Stafford loans come in two categories based on need: subsidized and unsubsidized. With the subsidized version, the interest is paid by the federal government while the student is in school. Students with more financial means get unsubsidized loans that accrue interest while they are in school.

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There isn't an absolute income cutoff to qualify for the subsidized Stafford loan, but it's for people with lower incomes relative to their college cost, Asher says.

Perkins loans are another low-cost option, but few students qualify for them. These loans are made through the school and are limited by the amount of money the school receives each year. They are distributed to students on the basis of need as determined by their Free Application for Federal Student Aid, or FAFSA, forms.

Help from lawmakers

Recent legislation offers assistance to students and families struggling to finance their college educations.

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