Private College Loans - Understanding the Risks

Students are finding it increasingly difficult to afford a college education. Federal Stafford loans are not available to everyone, so some students are turning to private college loans. Although these loans allow students to attend college, they carry a higher risk than government loans.

Private loans are the fastest-growing sector of the multibillion-dollar student loan industry. In 2005-06, college students borrowed a record $17.3 billion in private loans, up 913 percent from a decade ago, according to a report issued Tuesday by the College Board.

At a time when the cost of college is surging and financial aid is shrinking, private loans make it possible for many students to attend colleges they couldn't otherwise afford. But consumer advocates and student groups worry that the growth of these loans could prove disastrous for borrowers who don't understand the risks.

Before you get a private loan, make sure you understand the risk. The government does not guarantee the private loans, and the interest rates are variable and can go as high as 19 percent. Private loans are almost a necessity because the total amount undergraduates who are dependents can borrow through the federal Stafford loan program is $23,000.

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