ATLANTA , Georgia ( CNN ) -- Do you need to borrow to fund a college education for yourself or your child ? Be sure you 're taking my `` Clark Smart '' approach to borrowing . Clark Howard : If a four-year college is too cost prohibitive , try a two-year institution at a fraction of the cost . Subsidized Stafford loans are the single best source of money you can borrow . The interest is picked up by the federal government -- courtesy of your fellow taxpayers -- while you 're in school and for a six-month grace period following graduation . Once the loans go into repayment , subsidized Stafford loans taken out during the 2009-10 school year carry a fixed interest rate of 5.6 percent . The rate will be lower still at 4.5 percent for loans originating during the next school year , and all the way down to 3.4 percent the following year . There are , however , limits to the amount you can borrow . Freshman can get up to $ 3,500 annually ; sophomores can borrow $ 4,500 each year ; and juniors and seniors cap out at $ 5,500 . Once you exhaust your subsidized Stafford stockpile , you want to move on to unsubsidized Stafford loans , which are now offered at 6.8 percent . Remember , though , to borrow as little as possible because the interest on these unsubsidized loans accumulates while you 're in school . Watch smart choices when paying back the loans » . As a third option , parents can take out PLUS loans , which are issued at a fixed rate of 8.25 percent . Visit FAFSA.ed.gov to determine your eligibility for all these loan options . What 's one type of loan you do not want to take out ? Private student loans . Back in 2005 , the private student loan industry used its political influence to gain the right to use any and all tactics ( short of threatening bodily harm or actually causing it ) in their efforts to collect money . In fact , private student loans typically ca n't even be dismissed in bankruptcy . Remember my rule of thumb when it comes to determining what level of borrowing you can comfortably handle : Do not take on a total loan amount that exceeds the likely first-year earnings in your field . If college is still too cost-prohibitive after you 've gotten all the financial aid and loans you can , I 'd love for you to think about starting your degree at a two-year community college . The cost of a community college can be as little as one-tenth to one-twentieth that of a private college , as I discovered when I researched schools with my eldest daughter . Let 's say you decide to do your first two years at a community college . People often worry about the lack of prestige associated with these kinds of schools . But most employers only look at the name of the traditional college that issues your degree after you 've put in your time at a community school . In fact , an employer might even prefer someone who worked their way through a community college and had to struggle financially . Does n't that show more fortitude in a job candidate than the person who cruised through a 4-year college on the silver-spoon plan ? And for those of you already dealing with paying off student loan debt , there 's a radical change coming that I want you to know about . Effective July 1 , an income-based repayment plan ( IBR ) became available to borrowers with Stafford loans and Grad PLUS loans . Under the new program , your payment will be based on your current income and family size . That means your monthly payment could be an unprecedented zero dollars if you qualify ! Contact your lender to see if you qualify and to apply for the IBR . In addition to the IBR , other new provisions that went into effect July 1 include loan forgiveness options for certain workers . Nonprofit workers and some government employees are eligible for loan forgiveness after making on-time monthly payments for 10 years . If you work in the traditional for-profit sector , it will take 25 years of on-time payments before you 're eligible for loan forgiveness . Visit LoanConsolidation.ed.gov for more information .
Interest on subsidized Stafford loans picked up by government while in school . Next best options are unsubsidized Stafford loans and PLUS loans with fixed rates . Howard warns against private student loans .