What do you do if the 2008 stock market plunge ravaged your child's college account and you don't have time to build it back up? It may be time to figure out a borrowing plan.

Parents of many college-bound seniors are in the throes of contingency planning because the market's swoon left them with far less than they expected.

Those who have enough for this year but not subsequent years might be tempted to cash out what's left of the college money and worry about the rest later.

But that could be a costly mistake, said Lynn O'Shaughnessy, author of a book and a blog called "The College Solution."

That's because it's cheap to borrow a portion of tuition using government programs, but if the amounts get too high, you might have to turn to private lenders, whose interest payments can get really expensive.

If you need to borrow, it might be smarter to borrow a little every year, conserving enough savings and cash flow to ensure that you are never forced to borrow at high rates.

To understand how to set up a borrowing plan, you need to know that there are four different types of student loans that are readily available to almost everyone.

Subsidized Stafford loans are low-cost, government-guaranteed loans available to students with need.

Unsubsidized Stafford loans are government-guaranteed loans available to all students.

PLUS loans are government-guaranteed loans made to parents.

Private or signature loans are not guaranteed by the government and can be issued at rates as high as 20 percent.

There are additional loans -- some provided by schools to students with need -- but if you qualify for these, the school will have included them in your financial aid award letter.

The two best options are the federally guaranteed student loans named after the late Sen. Robert Stafford. However, there are annual caps on how much a person can borrow from the Stafford program.

Subsidized Stafford loans are given to students who demonstrate some "need" according to financial aid formulas. The interest rate on this loan varies, but for the 2009-10 school year, subsidized Staffords are issued at a 5.6 percent fixed rate. Next year the rate will be even lower -- 4.5 percent -- thanks to financial aid legislation passed last year. In 2011, it will drop to 3.4 percent.

What makes subsidized Stafford loans even more attractive is that the government pays the interest while the student is in school. So if your freshman takes out a $3,500 subsidized Stafford loan, she will owe $3,500 in 2013 when she graduates. Continued...