Think a college education is costly now? New rules for federal student loans could force you to dig even deeper into your wallet, if you don’t act fast. On July 1, the Deficit Reduction Act of 2005 takes effect, which the President signed into law on February 8. According to the White House, the Deficit Reduction Act is expected to save the federal government $22 billion over the next five years, while also providing about $10 billion in grants for mostly low-income students. But it comes at a price. According to experts, the Act will cause interest rates on federal education loans to change from variable rates to higher fixed rates. That means students could end up paying thousands more dollars over the life of the loan, compared to current rates. Mike Sullivan, director of education for Take Charge America, a non-profit credit counseling company, says both current students and graduates with outstanding student loans should consider consolidating now to prevent more financial stress in the future. “Not only will you be locked in at a lower interest rate, you’ll have a longer payment term and only one monthly payment,” he said. The new fixed rate for Safford loans will be 6.8 percent, compared to the variable rate of 4.75 to 5.38 percent. The fixed rate for Parent Loans for Undergraduate Students, or PLUS loans, will be 8.5 percent, which is up from 6.125 percent. However, a drafting error with PLUS loans states some schools would be at a fixed rate of 7.9 percent, rather than 8.5 percent. Yet, federal officials assert this error will be corrected prior to the July 1 effective date, making the fixed rate for PLUS loans 8.5 percent across the board. “A college education can be a crucial investment in today’s society,” Sullivan said. “Careful planning and research could prevent you from going broke, before that investment pays off.” Sullivan has tips for parents and students considering federal education loans in light of these new rules: Federal v. Private Student Loans - Financial experts suggest looking at federal loans first because they have lower interest rates, options to postpone payment, longer repayment terms and qualification is easier. Stafford Loans are needs-based; however, the PLUS loan is not. You must complete a FAFSA (Free Application for Federal Student Aid) through the U.S. Department of Education, to apply for all federal loans except the PLUS loan. It is available online at www.fafsa.ed.gov <http://www.fafsa.ed.gov/. Private loans are generally used to supplement federal loans to cover costs that cannot be met by federal aid. Payment terms vary depending upon the lender and your credit. Private loans often require a co-signer and may not offer payment deferment options. Both types of loans need to be paid back, so borrow conservatively. Research All Your Options - Student loans are not the only option. Scholarship databases provide thousands of awards in various amounts that are not strictly for A+ students and low-income families. Many are provided to students based on interests, community involvement, ethnicity, gender and much more. Popular online scholarship databases include www.fastweb.com <http://www.fastweb.com/ and www.collegeboard.com <http://www.collegeboard.com/. Federal grants provide another funding option, which do not require specific grade point averages and do not require repayment. Grant funding is dependent upon how much money Congress allots for each program. In order to receive a federal grant, you must complete the FAFSA form. In-State v. Out-of-State - The cost of a college education varies greatly, depending on where you or your child attends. If you are facing a money crunch, in-state colleges may offer significantly cheaper tuition. Keep in mind, tuition is only about half of the total cost of college. Once you add in room and board, books, food, travel and entertainment money, the actual cost of an education increases dramatically. If your heart is set on an out-of-state college but the cost is prohibitive, you might consider moving to the state prior to enrolling in college to establish residency, which usually takes one year. Sticker Shock? - Financial experts say the cost of college has risen about twice the rate of inflation over the past decade, yet that doesn’t mean a good education isn’t affordable. According to College Board, 60 percent of students attending four-year colleges or universities pay less than $6,000 for tuition and fees each year if they attend public schools, rather than private. For the 2005-06 school year, tuition at four-year private schools averaged more than $21,000, whereas four-year public schools averaged less than $5,500. Attending a public school can significantly reduce your dependency on student loans. You can also reduce the cost of your education by obtaining core credits at a community college and transferring those credits to a four-year school. Get a Part-Time Job - As previously mentioned, tuition only accounts for part of education costs. Obtaining a part-time job will allow you to pay for other daily expenses like an apartment, food or entertainment. Many employers and on-campus jobs offer tuition reimbursement programs. Furthermore, research shows students with part-time jobs often get better grades.