Always a poor way to pay for college, private loans are now tougher to consolidate and more difficult to obtain.

When it comes to finding help for college everyone is advised to pursue free funds first. Securing grants and scholarships, money that you are not required to pay back, is always the most appreciated form of help. But somewhere along the line, many students have to turn to a less palatable form of support, loans.

However, every chance we get we caution students regarding borrowing sums of money to pay for school. Accumulating debt is not something to take lightly. That said, if you do have to borrow it is imperative that you understand the one type of loan you should avoid like the plague.

Private or Alternative Loans

In virtually every way imaginable, private bank or alternative loans should be avoided. In fact, students may well want to employ the baseball standard of three strikes and you’re out mentality.

Strike One

First, unlike federal loans, private loans have been less than desirable because both the interest rate and borrowing terms are dependent on credit records and the economic climate. If either you or your family does not have the highest of credit scores, you may be assessed a higher starting interest rate and a point or two surcharge on the face value of the loan. Furthermore, the loans will have a variable interest rate based on the current prime rate plus some buffer. Therefore, your interest rate can change dramatically over the course of the loan.

Strike Two

Second, unlike federal subsidized loans, students are assessed interest from the moment they borrow the money. It is true that you might not have to begin paying on the loan until six months after graduation but your debt will be growing every day you remain in school. And while it is also true the federal unsubsidized loans accrue interest from the time the money is loaned, those federal loans will not have the high variable interest rate or point issues that private loans carry.

Strike Three

Third, if you graduate from school only to have difficulty finding work, or if you are lucky enough to find work initially (no small task in today’s work environment) only to be laid off later with federal loans it can be possible to get an “economic hardship deferment” on your federal loans. Obtaining such a deferment from a private lender has proven to be generally impossible even when you have been granted deferment from the federal government. And most importantly, as is true of all loans for college, federal or private, they cannot be discharged in bankruptcy.

You’re Out!

Fourth, and what has to be the proverbial straw that breaks the camel’s back is yet another issue developing in today’s tougher economic climate. It seems that consolidating individual private loans upon graduation has become almost impossible.

Consolidation is a mainstay of the federal loan process. The process allows for the combining of multiple loans (if a student takes a loan of some amount to help pay each year in school) into a single payment based on one interest rate. Consolidation extends the repayment period and therefore lowers the monthly payment.

Unfortunately, many banks no longer offer consolidation even if they do offer multiple individual loans. And if they do, they will consider consolidation only after running a credit check. If that check provides a picture that you are at risk you can kiss the consolidation option good-bye. You may also be out of luck simply because the sum total of your debt is too large.

Avoiding Private Loans

Unfortunately, for a lengthy period of time students thought very little about the impact of private loans. That has led to some horrific stories of student debt.

Fortunately, the economic downturn has made private loans more difficult to secure. And whereas once upon a time it was easy for students to borrow on their own, today they are unable to secure such a loan without obtaining a cosigner that is also well-qualified.

Ultimately, that is a positive development for students. In fact, we advise students to make it a goal to not only graduate with as little debt as possible, whatever debt they accumulate should be devoid of private or alternative loans.

There are those news stories that really give you pause. And we are not talking about those AOL headliners mind you, the ones like “NASA astronaut insists government covering up evidence of alien visits.”

What we are talking about is the latest news regarding college students and credit cards. According to a study from Sallie Mae, many students are now using credit cards for almost all of their college expenses, including tuition.

Talk about giving one pause – we might have expected students charging books and fees on their card. But we could never imagine anyone in their right mind putting their tuition on one, not with those cards carrying anything from 14.99 to 18.99 percent interest rates.

The Numbers

Today, Sallie Mae notes that more than 84 percent of undergraduates have at least one credit card. Half of all college students carry four or more cards with the current average at 4.6 per student.

An incredible 92 percent of all undergraduates with a credit card charged textbooks, school supplies or other education expenses. College seniors led the way with an average credit card debt of $4,100.

According to the report, “How Undergraduate Students Use Credit Cards: Sallie Mae’s National Study of Usage Rates and Trends, 2009,” students charged an average of $2,200 in direct educational expenses per person, more than double the $942 amount from four years ago. Of those charging educational expenses, roughly 30 percent actually placed tuition on a credit card as well.

Terrible Choice

While many students were using the cards for convenience, the overall findings of the study pointed to college students using credit cards to live beyond their means. In fact, 82 percent of the students incurred finance charges by carrying a monthly balance.

In a clear indication that credit management was a huge problem, roughly 40 percent indicated they had charged items even though they knew they did not have the funds to pay the bill.

Given the going interest rates and monthly charges of as much as $30.00 for transactions beyond credit limits, the idea that students would place their tuition charges on their credit card demonstrates a real lack of knowledge regarding how credit cards work.

There is no doubt that credit cards offer great convenience. No need to fill out the FAFSA forms and no need to complete additional paperwork to apply for a loan. Add in the ease of online payments and the process is indeed extremely easy.

But credit card interest rates of 15 percent are more than double the current rate for Federal Stafford loans (6.8 percent). Even private loans, considered the least advantageous of loan options carry current rates of only 8 percent.

The result is that credit card users are overpaying for college big time. Unless a student pays off his or her card in full, by placing these charges on a credit card he or she is paying far more than the list price for books, fees and tuition.

College, Expensive Enough

There is no doubt that college expenses are extremely taxing – however, students should be aware that using credit cards to cover these costs only makes the costs of college less manageable in the long run.

First and foremost, students need to build a budget ahead of time that tallies the cost of tuition, books, fees and travel. Once the need is determined, students must pursue the most advantageous funding help available.

That means completing the FAFSA, the standard federal form that is the ticket to potential grants, scholarships and federal loans. Filling out the FAFSA form does take time but it is a must for any serious student.

Even if students do not qualify for grants or scholarships, the first credit option everyone should pursue is the Federal loan program. Simply stated, they represent the best borrowing bargain.

Only after completing the federal application process should students pursue the more expensive private loan option. Such loans carry higher interest rates and other processing fees may be assessed depending on a student’s credit standing.

Still, private loans are a bargain compared to the fees and rates associated with credit cards. Unless a student has a wealthy friend or relative paying that credit card bill for them, placing one’s tuition on a credit card is a recipe for disaster.

In fact, it is as preposterous to us as that NASA astronaut claiming our government is hiding evidence of intergalactic visitors.

Editors note: The full study is available in PDF format online.

The Daily Record highlighted that the popping of the credit bubble has left many banks extremely under-capitalized, making them much more risk adverse and tightening their student loan standards. In addition to tighter standards, less loan providers leaves students limited options.

In response to the slowdown in what was once a $14.5 billion dollar private student loan sector, some schools have shifted resources from merit-based financial aid to need-based assistance.