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Mike Terry, Deseret News
Mary Lovell, right, works with Jack Tice and other students at Fairmont Aquatics Center. Lovell is teaching gymnastics to earn money for college.

Mary Lovell's dreams are coming true. She just hopes she can pay for them.

A student at the Academy for Math, Engineering and Science charter school, she has been accepted to Simmons College, a prestigious women's institution in Boston that has a top physical-therapy program — her planned field of study.

Lovell is teaching gymnastics this summer to help save for college, and she has some $12,000 in scholarships in hand. That leaves $29,000 she has to come up with. And that's just for the first year.

"I wouldn't mind having a wealthy benefactor," said Lovell, grinning. She is the youngest of six children being raised by a single mother. "It's like, I want to write Oprah and say, 'This is my situation."'

Lovell's situation is becoming more common as college costs are rising. Scholarships, grants and federal student loans might not keep up. Students are facing bigger education debt — the average Utah college student owes $15,000 in federal loans alone at graduation. They also are seeking more private student loans, whose variable interest rates can be tough to navigate and ultimately make students' debt load worse than it needs to be.

There also is a growing concern that fewer students nationally will be able to secure loans for the coming academic year.

Congress has cut subsidies to banks offering federal student loans by about $40 billion in the past two years. The loss of those subsidies, along with mortgage defaults and the nation's credit crisis, has led to some 60 banks nationwide dropping the loans because they are no longer profitable.

"I am thrilled for my students getting these great scholarships to go to Vassar or Westminster or the University of Utah," said the charter school's principal, Al Church. "I think that's the purpose of every early-college high school principal — it's their dream. I guess my question is, how do these middle-class families afford it?"

Annual tuition at Utah's public four-year institutions has nearly doubled to $3,440 in the past decade, according to the Utah Higher Education Assistance Authority, which answers to the Utah Board of Regents. For many students, savings and scholarships may not cover that increase or additional expenses of books, room and board.

Nationally, the number of college students taking out federal loans jumped from about 25 percent in 1995 to 33 percent in 2004, according to the National Center for Education Statistics. The average loan in 2004 was about $4,900, up about $1,000 since 1995.

In the 2007 fiscal year, the Utah authority issued $502 million in federal loans. With these loans came increasing debt for students.

Nationally, two-thirds of undergraduates exit college owing student loans, and on average, they owe $20,000, FinAid.org publisher Mark Kantrowitz said.

In Utah, average debt for a four-year college graduate is a little over $15,000, up from $11,500 a decade ago, the Utah authority reports. It's probably higher, as the $15,000 includes only authority-held federal Stafford loans, not federal PLUS loans for parents or private student loans.

Fewer lenders

Lynee Ritchie hopes her situation will be different.

A senior at the math and science academy, she has a $1,500 scholarship to Utah State University but says she'll need $5,000 to cover room, board and books. She plans to apply for more scholarships.

"My parents want to help, but they're just not able to," said Ritchie, a first-generation college student who wants to become an engineer. "But I don't want to end up in debt when I'm finished. I don't want to be stressed with it."

She might not have a choice, but she will be facing a more difficult environment for securing loans.

In Utah, Zions Bank, which had $71 million in gross loan volume last fiscal year, dropped its federal student-loan program in March. The bank is in talks with the Utah higher-education authority to create a private student-loan program and has not ruled out again offering federally backed student loans.

Meanwhile, Utah's other top six lenders — Wells Fargo, America First Credit Union, US Bank, Mountain America Credit Union, Utah Community Credit Union and JPMorgan Chase — so far are hanging in there, said the state authority's executive director, David Feitz.

But as lenders nationwide exit the federal student-loan business, national experts fear fewer students will be able to get loans, which might force them to avoid going to college or to drop out.

In recent weeks, the Utah authority announced it would make sure everyone in Utah who qualifies will get federal aid this coming academic year. This past week, the U.S. Department of Education said it would purchase some of the lenders' student loans made for the 2008-09 academic year, allowing lenders to free up money to issue new loans. The move is planned to be cost-neutral to the government, and expected to retain the nation's biggest lenders.

Even so, students are likely to keep seeking private student loans. And that makes some Utah financial-aid experts nervous.

Private-loan concerns

The business of making private student loans is a $17.3 billion industry that since 2000 has grown at an annual clip of 27 percent, the College Board reports.

Private student loans account for nearly one in every four dollars borrowed for college, according to the Boston-based National Consumer Law Center.

The problem is that private loans are "almost always more expensive than federal loans, especially for borrowers with lower credit scores or limited credit histories," the center said in a March study titled "Paying the Price: The High Cost of Private Student Loans and the Dangers for Student Borrowers."

Private loans don't have the same borrower protections that government loans provide, such as income-based repayment and economic-hardship deferments. Eighty-five percent of the 28 loans studied had origination charges. Their average initial rate was 11.5 percent, and the highest was nearly 19 percent.

"I don't know of any that are fixed-rate," Feitz said, noting that variable rates for home loans contributed to the current mortgage crisis. "Consumers have got to be very careful."

Tuition at Utah public colleges and universities is relatively low, and federal loans can cover most costs, said Steve Sharp, director of financial aid at Utah State University.

Federal loans also can help students headed for private colleges. Joseph Kim, a senior in the math and science academy, has a $40,000 scholarship to Vassar College in New York. He said he still needs to come up with about $5,000 a year to pay for books and living costs.

"I didn't want to be a burden on my parents," Kim said. "I want to be able to do it on my own, with work study and getting loans if I really have to."

Kim likely will have no problem receiving a federal loan, if need be. But some students in the same situation don't even try. Instead, they turn to alternative private loans, which some private lenders say should be considered only after exhausting federal options.

Federal-loan applications

Karen Henriquez, associate director of financial aid and scholarships at the University of Utah, said it's well worth the trouble to apply for a federal student loan.

Private student loans are complex and can be tough for adults, let alone a teenager, to navigate. Interest rates are variable, and lenders might tie them to different criteria and ultimately make the loan look advantageous — in the beginning, Henriquez said.

Feitz said the problem is that a loan at 6 percent interest might end up jumping to 14 percent interest in a few years.

Henriquez said students also are borrowing more than they need, saddling them with more debt and potential stress. "They say, 'I can get $5,500 by signing here?' For someone who has not had experience with discretionary money, it's like a bonus."

Utah College Advising Corps manager Aretha Minor has seen improprieties with Internet offers. At a recent high school workshop, one student went to what looked like a government site to fill out the free application for federal student aid. Instead, the student ended up on a site asking $50 to seek financial-aid options.

"There are a lot of schemes, if you will, with Web sites that say, 'We can help you pay for school if you pay us this.' You do not want to use anything that asks you for money," Minor said. "A lot of times, students aren't aware, families aren't aware, and (in) our desire to make sure our kids or nieces or nephews get what they need financially to go to college, sometimes we look at these and say, what a great opportunity, but end up falling victim to some of these schemes out there."

But Feitz said consumers shouldn't assume all private lenders are predatory.

Rob Brough, executive vice president of marketing and communications for Zions Bank, said people are certainly jaded as they look at the private-loan programs, but many lenders are reputable.

"It certainly is not in our best interest for us to put students in a position where they can't repay their loan," he said. "It is in our best interest to provide them with financing ... to go to school and get the education they need but also provide them a reasonable method in which to pay it back."

Smart shopping

Zions' upcoming private student-loan program will contain repayment options similar to the federal program, Brough said.

Janice Walker, spokeswoman for First Marblehead Corp., a for-profit company that works with major banks to provide student loans, said private student loans should offer protections, not penalize students for paying off loans early, and engage in responsible marketing. But students should seek scholarships and federal loans before resorting to private loans, she said. "We believe students should get loans and aid elsewhere first."

Feitz recommends that students go to a public college's financial-aid office, where they can check for scholarships, grants or work-study options at no charge. If that doesn't cut it, look to federal loans. And lastly, students can consider private student loans, with the idea that they are going to shop around and ask a lot of questions.

Lovell has done all that. She's looking at a private student loan with a variable interest rate that she says could start at 5.6 percent and go up to 7 percent, to come up with that extra $29,000 a year she'll need at Simmons.

But debt is not her chief concern.

"I think I'm too naive," she said. "It sounds so stupid. But I'm really excited to go to school there. I won't let money stand in the way."

Did you know?

• You don't have to be low-income to qualify for a federal student loan, which will have better rates and repayment options than a private alternative loan.

• You can deduct up to $2,500 in student-loan interest on your income-tax return.

• You can go to any Utah public college or university's financial-aid office for free advice, regardless of whether you're planning to go to that institution or even out of state.

• You can get a federal loan through the Utah Higher Education Assistance Authority, even if you're going to attend an out-of-state college. The agency says it may be able to offer you a better rate than a similar agency in another state and will pay for loan fees.

Sources: Utah Higher Education Assistance Authority; University of Utah financial aid office; FinAid.org

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