When to look on the PLUS side A borrowing guide for parents of the college bound   WASHINGTON, DC - A recent Sallie Mae-commissioned survey of college-bound high school students revealed some good news for parents: an extraordinary 83% said that financing a college education today is a responsibility they share with their folks. The more sobering news for moms and dads, however, is still the prospect of coming up with their share of college costs that average $20,000 annually for private schools or half as much for public universities. According to Lydia Marshall, executive vice president at Sallie Mae, the nation's largest source of funds for college, about half of all families today rely on loans to finance at least part of their children's college education. "Parents and students have a number of borrowing options -- Federal Stafford loans for students, Federal PLUS loans for parents, or private supplemental loans. It's important for that parent-child partnership to explore each alternative." As a first step, Marshall encourages students to apply for as much "gift aid" -- grants and scholarships that do not have to be repaid -- as possible, by submitting the Free Application For Federal Student Aid (FAFSA). Applications are available from high school guidance counselors and college financial aid offices or by calling 1-800-4FEDAID. The FAFSA process will determine the amount of aid the student is eligible for from each of the colleges to which he or she is accepted. Along with institutional aid from the college itself, federal assistance may come in the form of a Pell or Supplemental grant, work-study, or federal loans. (See below for sample financial aid packages.) The most common federal loan is the Stafford loan, which is available to students through private lenders. (Note: Students attending colleges that participate in the Federal Direct Student Loan Program receive their loans directly from the government.) While the government uniformly sets the interest rate (currently 8.25%) and terms, Marshall advises borrowers to shop wisely for their lender as many banks offer an array of attractive benefits. "Sallie Mae lenders offer diligent borrowers interest rate reductions that can mean savings of hundreds, even thousands, of dollars," she said. Because Stafford loans have strict borrowing limits (up to $2,625 for most freshman, for example), more and more families are turning to Federal PLUS loans -- whose borrowing cap is equal to the cost of education (less other aid received) -- to make up the difference. In 1996, parents borrowed an estimated $2.5 billion in PLUS loans. "PLUS loans are an excellent way to bridge that last financing gap," said Steve Stocks, director of College Answer, a free financial aid information hotline. "PLUS loans are also an attractive option for parents who are uncomfortable with their children taking on student debt. "Those parents may decide to take out PLUS loans for the total cost of education or help their child later with the Stafford loan payments." PLUS loans offer a competitive rate -- currently 8.72% (and capped at 9%) -- which is adjusted annually each July. According to Marshall, lenders that partner with Sallie Mae will reduce a PLUS borrower's interest rate by 0.25% if borrowers have their monthly payments automatically deducted from their checking or savings account. The repayment term on a PLUS loan is 10 years, with no penalty for paying off the loan early. Marshall also advises parents to look into home equity loans, with their potential tax advantages, as well as private supplemental loans, which often allow students to borrow up to the total cost of education themselves, sometimes without a cosigner. Sallie Mae, for example, offers the Signature Education Loan Program, which includes these and other features that can reduce the overall cost of borrowing and make repayment easier. The most compelling advice for parents from Marshall is this: Save! The Sallie Mae survey found that most parents of college-bound high school students have saved less than half of their child's college costs, with one in five having put away nothing at all. "What you don't save today," said Marshall, "you or your child may have to borrow tomorrow." Federally chartered and stockholder-owned, Sallie Mae is the nation's leading provider of financing for higher education. College Answer is a toll-free service that provides free information on financial aid weekdays at 1-800-891-4599. Free financial aid information is also available on Sallie Mae's Web site. Two sample financial aid packages for the same student: COLLEGE A COLLEGE B Total Cost of Attendance $ 8,562 $17,846 Estimated Family Contribution $ 4,063 ---------- $ 4,063 ---------- Aid Eligibility $ 4,499 $13,783   AID PACKAGE     Pell Grant  $0  $0 State Scholarship $ 0  $ 1,500 Institutional Grant $ 1,800 $ 5,600 Work-Study $ 0 $ 3,000 Stafford Loan $ 2,625 ---------- $ 2,625 ---------- Total Aid $ 4,425 $12,725   Amount Not Covered by Aid $ 74 $ 1,058