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How to get the best loan rates

5. The skinny on student loans

What impacts rates: The federal government sets the interest rates on federal student loans such as the Stafford and PLUS loans.

The College Cost Reduction and Access Act, signed into law in September 2007, changed the interest rates on subsidized Stafford Loans from 6.8 percent to 6 percent, starting with loans disbursed on or after July 1, 2008. Next year the rate goes down to 5.6 percent.

Unsubsidized Stafford loans remain unchanged at 6.8 percent.

The interest rate for federal Perkins Loans for both undergrads and graduates is 5 percent.

Private student loan interest rates are variable and based on either the LIBOR index or the prime rate.

"In our case, they are based on LIBOR and can change each month based on the way the LIBOR moves," says Patricia Nash Christel, director of communications at Sallie Mae in Reston, Va.

Highs and lows: The interest rates on Stafford loans disbursed between July 1, 1998, and June 30, 2006, are variable and based on the 91-day Treasury bill rate plus between 1.7 percent and 2.3 percent, depending on whether the student is still in school or in repayment status.

Going forward, interest rates on undergraduate subsidized Stafford loans will be fixed based on a sliding scale, depending on the year in which they are disbursed.

Beginning July 1, 2008, the interest rate is 6 percent. In July 2009, the interest rate will be 5.6 percent; in 2010, 4.5 percent; in 2011, 3.4 percent; in 2012, 6.8 percent.

The interest rate on undergraduate subsidized Stafford loans disbursed between July 1, 2006, and June 30, 2008, is fixed at 6.8 percent.

For graduate students, the interest rate for both subsidized and unsubsidized Stafford loans is 6.8 percent.

The interest rate on Stafford loans disbursed between July 1, 1998, and June 30, 2006, is variable but can't exceed 8.25 percent. PLUS loans disbursed after July 1, 2006, are fixed at 8.5 percent.

PLUS loans disbursed between July 1, 1998, and June 30, 2006, are variable, but capped at 9 percent. These figures come from Sallie Mae.

How to get the best rate: Federally backed, subsidized student loans are available at attractive fixed interest rates to any qualified college student based on need and regardless of credit score.

Prospective students should fill out a Free Application for Federal Student Aid, or FAFSA. The filing season begins in January, and it's in your best interests to file as early as possible. Early filers often qualify for the maximum amount of grants and low interest loans, according to Christel.

If you need a private loan and your credit is iffy, get a copy of your credit report before applying for a loan to make sure there are no surprises. Then get several quotes as quickly as possible.

"To the extent that you are shopping around for private loans, we advise that you shop within a short period of time," says Martha Holler, a SallieMae spokeswoman.

It's best to shop loans within a 10-day period so that the credit bureaus don't assume you are looking for multiple loans and adversely lower your credit score because there are too many inquiries, she says.

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The credit crunch has caused many lenders in the private market to stop offering loans. If you're seeking help from parents, see if Mom and Dad might be willing to apply for a PLUS loan, which offers fixed rates.

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