On July 1, the rate on new federal Stafford subsidized student loans doubled to 6.8 percent after the House and Senate failed to compromise on a fix. If nothing more happens, some seven million college students this fall will be taking on far more expensive debt. Undergraduates who borrow the maximum amount -- $27,000 over four years for most students -- will pay $4,000 more in interest over the life of the loan.
Some legislative solutions on the table include a bill by Sen. Elizabeth Warren of Massachusetts that would let students borrow from the government at the same rate that banks do -- 0.75 percent currently, set by the Federal Reserve. The Student Loan Affordability Act, sponsored by Sen. Jack Reed of Rhode Island, would freeze the current rate for two years pending a longer-term fix for the growing loan burden facing Americans.
1) Do your research.
Successfully paying off student loans relies on success in college. A lack of motivation or self-direction can leave students struggling. About half of all students change majors at least once, which adds semesters and debt to the bill. A student starting college in the fall who doesn't have a major in mind should check out sites like Coursera or edX now to sample real college courses on a variety of topics. It's also a good idea to check out the Bureau of Labor Statistics information on projected job growth to get an idea of how majors relate to careers.
2) Borrow less.
This may sound obvious, yet too many families take the package offered them by the financial aid office without investigating whether they truly need to borrow that amount. It is possible to appeal a financial aid award and ask for more need-based grant aid in case of a change in family circumstances. Students can also save on living expenses by remaining at home for the first semester, or start out at a two-year college.
3) Finish faster.
The sad truth is that only 56 percent of all college students in the U.S. graduate within six years of their first enrollment. More semesters of school, of course, means more loans. Extra credits during the school year and from summer school and online courses can speed your path to a degree. As well, a growing number of colleges are accepting "credit by examination" and "credit for prior learning" as a way to add heft to your transcript. In addition to the AP exam, there are exam-based programs such as the College Level Examination Program (CLEP) the ACE College Credit Recommendation Service, plus ways to get credit for work experience and even military training. Check out LearningCounts.org for more information.
4) Maximize other ways to pay.
Many families are in the situation of having to balance the cost of a child's education and their own retirement funds. Since financing is available, it's better to borrow for school than to raid necessary savings for the future. However, those may not be the only two options. Today's historically low mortgage rates mean that a home equity loan at 4.5 percent is cheaper than a federal unsubsidized Stafford loan at 6.8 percent. Or check out tuition reimbursement plans. They're rare but not unheard of for undergraduates, especially from large employers such as Starbucks, Home Depot and UPS. Students who plan to work for nonprofits or the government may be eligible for the federal Public Service Loan Forgiveness Program, where all loans are zeroed out after 10 years. A little-known footnote is that parents who work in those sectors can also qualify for forgiveness of parental PLUS loans taken out on students' behalf.
(Anya Kamenetz' latest book is "DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education." She welcomes your questions at firstname.lastname@example.org)