• Federal education loans;
  
• private education loans;
  
• home equity loans; and
  
• credit cards.
  

Borrowing to pay college expenses makes sense; college graduates more than recoup the financial investment they make in their education. Nonetheless, many students choose to work rather than take out students loans. This strategy often backfires because spending long hours at work causes students' grades to suffer or makes it impossible to maintain a full course load. Working actually can hurt students financially if it keeps them from graduating on time or with the kind of GPA that employers value. Student loans can help students to reduce the amount they work and concentrate on finishing their degree.

So borrowing to pay for college can make good financial sense. However, it is important to use credit wisely and to borrow responsibly. The first question a family must answer is "how much do we truly need to borrow?"

To answer this question, the first step is to establish a total budget, including fixed charges for tuition and room and board, as well as estimates for transportation costs, entertainment, books and supplies, etc. The second step is to subtract grants and scholarships from the total amount and determine how much of the remainder will be paid from the following:

• parents' savings and/or income,
• students' savings,
• students' earning from an academic year job,
• student loans,
• parent loans, and
• other types of credit such as private education loans and credit cards.

There is no magic formula for determining this mix of resources. Only individual families can decide what will work best for them. In order to determine the proper mix of loans, and how much debt will be shouldered by parents and the student, families must learn about and compare the different student and parent loans programs.

The primary sponsor of education loans is the United States government. The U.S. Department of Education both makes loans directly to families and guarantees loans made by banks. Federal education loans feature low interest rates and flexible repayment schedules, making them the most affordable source of credit for all students and many parents. Only after students have exhausted their eligibility for these loans should they turn to private loans or credit cards. In some cases, however a home equity loan may be a better choice of financing for parents. Parents should compare home equity loans and PLUS loans from various lenders to find the best deal. Listed below are the primary federal loan programs and the amount students borrowed through these programs last year.

• Stafford Subsidized Loans are awarded on the basis of financial need; the federal government pays the interest on these loans while students are in school. Last year, students borrowed almost $19.5 billion through this program.

• Stafford Unsubsidized Loans are available to all students, regardless of need, but students are responsible for the interest accrued while they are in school. Last year, students borrowed $17 billion through this program.

• The PLUS (Parent Loans for Undergraduate Students) program allows parents to borrow up to the full cost of their child's college education at favorable interest rates. Last year, parents borrowed $4.6 billion through this program.

There are limits on how much a student may borrow each year through the Stafford student loan programs. In total, traditional-aged college students may borrow $23,000 as undergraduates. However, many students borrow far less than this maximum amount. In determining how much to borrow, students should consider their budget, plans for graduate education, the amount they'll have to repay each month, and their projected income after graduation. Most experts agree that student loan payments should equal no more than 8 percent of one's monthly salary. Several websites feature repayment calculators that allow students to enter a total loan amount and determine the monthly payment under various repayment options. Try Finaid (www.finaid.org) or Sallie Mae, (www.SallieMae.com).

If federal education loans are not sufficient, families should consider private education loans. Like any private bank loans, terms and conditions for these programs vary. Families should comparison shop, being sure to find out how various features of these loans affect both the monthly payment amount and the total cost of the loan.

Finally, credit cards offer a convenient way to pay for goods and services. However, some students overuse these cards and find themselves deep in debt. Students should shop around for a card with a low long-term rate or be prepared to move any balance they owe from card to card as introductory rates expire. Whenever possible, students should pay off their balance in full each month. Under no circumstances should they submit the minimum amount required because doing so only pays for interest and makes no reduction to the principle amount borrowed.