Women & Money | For student loans, first check with Uncle Sam

You're probably aware of the recent disclosures that some college financial aid officers accepted incentives from private lenders in return for getting onto the schools' preferred-lender lists.

While state and federal lawmakers are beginning to jump on the reform bandwagon and are proposing ways to clean up the student loan business, students and parents borrowing money need to protect themselves right now. That means looking at federal loans and carefully comparing offers from multiple lenders.

A student loan primer. When seeking financial aid, look to Uncle Sam before you resort to private loans. Federal student loans typically charge lower interest rates and aren't laden with as many fees as private loans.

The big federal loan programs are Perkins, Stafford and PLUS (for parents of students as well as graduate students). You can get a federal loan either through the government's Direct Loan Program or from a third-party lender that doles out these loans.

Going the federal route can be a huge advantage when it's time to repay the loans. With a federal loan (direct or third-party), you lock in a fixed interest rate. The current maximum fixed rate for Stafford loans issued after July 1, 2006, is 6.8 percent. PLUS loans have a maximum 8.5 percent fixed rate.

Loans from private banks and lenders are variable, which means the interest charged on the loan will be reset periodically. Just like homeowners being squeezed by adjustable rate mortgage resets, anyone with a private student loan faces the risk that his payments will rise in the future.

For more information on federal aid, go to www.fafsa.ed.gov.

Loan shopping checklist. Shop around for the best deal, even when - especially when - a college loan office serves up its preferred list. It may turn out that the best deal comes from the first lender on a list, but you should confirm that a preferred lender actually offers you a competitive deal.

Even if you receive loan paperwork from a financial aid office with the name of a lender filled in, understand that's just a suggestion - you don't have to use that lender. For a list of the most popular lenders, go to www.finaid.org and do a search for "lenders."

It's also important to understand that the 6.8 percent interest rate on Stafford loans is the maximum that can be charged. Lenders hungry for your business can offer you a lower rate, often as an incentive.

And be aware that many lenders have two sets of rates - one for when you're in school, and another (higher) one for when you're out of school and in the mandatory repayment period. If you don't intend to start repaying until you're done with school, then it's the second rate that really matters.

Give your kids credit. If you do go the private route, your credit score is going to be a big determinant in the rate you're offered. The higher the credit score, the better the rate. This is just another reason it's so smart for parents to make sure their kids start building a credit history when they turn 15 or so.

If you're a parent and have a FICO credit score of 720 or better, consider adding your child to an existing credit card as an authorized user when he is in his early teens. He'll automatically start to "inherit" your good credit score, but you're still in control of the card.

Then, when it's time to shop for college loans for him, he'll qualify for the best possible rate. Besides, this also gives you an opportunity to teach your kids good credit/debt management skills - a topic that's tragically missing from high school and college curriculums.

A secure option. If your FICO score isn't in the 720 or above range, don't add your kids to your card as authorized users. Instead, get them their own secured credit card with a low credit limit. (Secured means you have to deposit the amount of the credit limit upfront.)

Choose a secured card that lets you confirm that your child's payments on the card will be reported to at least one of the three major credit bureaus. This is a fairly safe way for him to start building a credit history without giving him too much credit.

Ideally, your kids can make the initial deposit on the secured card and all the monthly payments with money they earn on their own. Credit unions often offer the best secured card deals; www.bankrate.com has a useful list of available secured credit cards.