(MONEY Magazine) -- In a world of tuition hikes and financial aid shortages, this is what passes for good news: Families who must borrow for college have a growing number of low-cost alternatives to federal loans.
That's especially hopeful given that the last-minute cut in this year's subsidized Stafford rates to 3.4% helps only students with financial "need" -- those who don't qualify are still stuck paying 6.8% (plus 1% in fees).
#college101_starter {padding-bottom:15px;}#menu1, #menu2, #menu3 {height:auto;margin-left:10px;display:none;}.show_hide1, .show_hide2, .show_hide3 {margin-left:10px;margin-top:5px;font-weight:bold;color: #004276;}.show_hide1:hover, .show_hide2:hover, .show_hide3:hover {cursor:pointer;text-decoration:underline;}#ie_column .cnnGenSidebarWidget#college101_starter .cnnWidgetBody li {width:100%;} College 101 • College Costs- How much does it actually cost?
- Terms you need to know
- Find out what you'll really pay
- How to go for free
- How to find cheap colleges
- Finding mid-priced colleges
- Guide to financial aid
- Getting started
- How to get free money
- Need-based aid: Who qualifies?
- Need-based aid: How to apply
- How can I get merit aid?
- Financial aid tools and resources
- Guide to student loans
- 3 basic types of student loans
- What are the best student loans?
- Paying back your student loans
- Student loan tools and resources
Among their other options: For-profit lenders such as Sallie Mae and Wells Fargo are marketing parent loans at fixed rates as low as 5.5%.
SoFi, a San Francisco startup, has persuaded alumni at more than three dozen colleges to lend to students at rates starting around 6%.
Plus, several charities, states, and colleges are making lower-rate loans, in some cases as low as 0%.
Where to find low-rate loans
Unfortunately, there's no central clearinghouse. Check out overturemarketplace.com and simpletuition.com for private loans from for-profits and credit unions, but stick to fixed-rate options. (While you can get variable-rate loans as low as 2.25%, the rates are likely to rise at some point.)
For state, charity, school, and startup programs, begin with these lists of low-interest student loans and 0% student loans.
Students should also ask their school's aid office, as well as community organizations like Rotary clubs and religious institutions.
How to make the right choice
Apply for federal loans first so you have that option in your pocket, advises Heather Jarvis, a student-loan attorney.
See also: Where to find 0% student loansIf you're lucky enough to win a cheaper loan, read the fine print. Bargain loans may require borrowers to max out federal student loans first, have co-signers, or make payments during school.
Also, weigh the rate against the benefits of the federal loan.
See also: 8 low-interest student loansYou may find the Stafford's income-based repayment and public-service forgiveness options are worth paying for. Finally, don't use cheap loans as an excuse to overborrow: Students should keep total college debt below their expected first-year salary.
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