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Private Borrowing for College Increasing
The ability to choose which college or university to attend has traditionally been a hallmark of U.S. higher education. Since the mid-1990s, however, federal student aid has become less effective in promoting choice, and undergraduate and graduate students increasingly rely on private loans to finance their educations, according to a report issued in July by the Institute for Higher Education Policy. Private loans are arranged directly between commercial lenders and borrowers. Commercially issued federal student loans are regulated by the federal government, which sets borrowing limits, guarantees loans against default, and sometimes pays the interest while a student is still enrolled in college.
The amount of private student borrowing to pay for tuition and related costs has increased rapidly, the report says. Although private borrowing falls far behind borrowing through federal loan programs, the total annual private loan volume is now $5 to $6 billion, an amount that exceeds federal government awards through the Student Educational Opportunity Grant, Work-Study, and Perkins Loan programs combined.
The report attributes the rise in private borrowing to the widening gap between what students and families can pay for higher education and what college actually costs. Often, private loans allow institutional choice for students who have reached the limits of other types of financing, including federal student loans. The report suggests, however, that although private loans frequently allow students to attend their favored institution, they may contribute to unmanageable debt burdens, which may in turn dissuade students from pursuing less remunerative fields of work.
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