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With the cost of tuition rising faster than income levels, loans provide a last-minute recourse for families nationwide as tuition bills roll in.

Yet the credit crunch has made finding providers for federal loans more difficult and private loans costlier and scarcer, increasing stress for students and families still seeking funds for tuition.

Many experts stress that federal loans are still available. Although up to 124 institutions have announced suspensions in federal loan programs as of last week, according to Mark Kantrowitz, publisher of, most students should be able to procure federal loans but may need to look around before finding a provider.

"We're not seeing the same number of lenders exiting" federal loan programs as last spring, said Justin Draeger of the National Association of Student Financial Aid Administrators.

Even though federal loan programs generally offer better rates and terms, many students opt for private loans for administrative reasons and because of appealing marketing.

Half of all private loan borrowers failed to file a FAFSA, which automatically renders students ineligible for federal loan programs, according to the American Council on Education.

Many borrowers are unaware that shopping for private education loans can potentially lower one's credit score when lenders make inquiries on their credit reports.

Students are also misled by seemingly appealing interest rates - generally reserved for customers with crisp credit scores - and by an abundance of hidden fees.

Up to 28 institutions have suspended private loan programs, which will make these loans more selective and costlier, said Kantrowitz.

Whereas previously customers with credit scores of 620 could find a private student loan somewhere, lenders may now put the cutoff at 650 or even 700.

However, Kantrowitz said he expects the situation to improve for the next academic year as capital markets begin recovering.

Penn's new financial aid program - which will phase out loans entirely by fall 2009 - provides some relief for borrowers.

"The no-loan policies implemented thus far have already significantly reduced overall undergraduate borrowing," Michael Light of Student Financial Services wrote in an e-mail.

As the sub-prime mortgage crisis extends into various sectors of the economy, public uncertainty remains high.

In a recent survey, found that 59% of 500 students and their families felt worse about their ability to pay for college when compared to last year. Another survey by found that 57% of 1000 parents with children soon to head to college were uncertain about which loans to apply for first.

Families are not the only ones worried. A survey of financial aid administrators by the National Association of Student Financial Aid Administrators found that 90% were concerned about student loans in light of the credit crunch.

Recent federal action provides possible relief for students.

Although the reauthorization of the Higher Education Act, which passed 380-49 and 83-8 in the House and Senate respectively, remains premature until signed by the president, it will simplify financial aid paperwork and ensure greater transparency on the cost of attending college, as well as increased disclosures on private student loans.

"We are still assessing what impact there may be," said Light.

"The main changes students will see in their financial aid packages will be increases in the amount of existing federal aid, if eligible," he added. "Full need will continue to be met, but a larger part of it may be met from federal dollars."

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