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Since the advent of federal funding for higher education with the GI Bill in 1944, the federal government's approach to financial aid has focused on increasing access to postsecondary education. The primary focus has been providing financial help to students and families who otherwise could not afford to pay for a college education. That is, most financial aid is need based rather than merit based.

In general, financial aid is available in three forms: loans, which must be repaid; grants and scholarships, which do not have to be repaid; and work-study programs, which place students in paying, on-campus jobs.

The federal government continues to play an important role in helping students pay for college, providing more than 70 percent of all financial aid. The majority of federal aid is distributed through various loan programs. Private sources of aid, including loans from banks and other non-governmental organizations, are also available.

Why this heavy reliance on loans rather than on "free" money like grants and scholarships? There is no easy-to-find reason, no presidential edict pronouncing loans as the preferred type of aid.

The answer seems to lie more in a general philosophy of self-reliance, of everyone being responsible for their own success in a land of opportunity. Since there is not enough federal money to give everyone cost-free access to college, the approach is to use available funds to help those who can't afford college on their own. By giving students access to capital they can use for higher education, the government and private lenders enable students, in effect, to level the playing field.

As illustrated in Investing in Education, college graduates enjoy lower unemployment rates and command higher salaries than those with less education. When students attain their college degrees, they are better able to secure well-paying jobs. And, the thinking goes; graduates with good incomes can afford to pay off their student loans without undue hardship.

Education loans also give college students flexibility to choose the type of school that is right for them. A grant-heavy system, on the other hand, could raise questions of fairness. After all, not all colleges are created equal.

Because federal funds for education are limited, emphasizing grants over loans would likely severely curtail the amount of money available to potential college students. Only a relatively small number of students would receive aid, stifling educational and economic opportunity and damaging the country's efforts to stay competitive by developing new technologies, for example.

By giving almost all students access to education loans, and allowing them to defer repayment while in school, the government and private lenders encourage students to manage their own education decisions and give more people access to a college degree.
A balanced system of loans, grants and scholarships, and work-study programs has worked well for decades. During the 1995-96 school year, for example, 50 percent of all undergraduates received some type of financial aid. About 63 percent of those in the lowest income brackets received aid, compared with only 14 percent of students from high-income families.

Among full-time undergraduates attending college during 1995-96, 68 percent received some aid. About 54 percent received grants, and almost 44 percent received loans. Although more students received grants than loans, student loan totals averaged 50 percent more than grant totals.

Considering the steady rise in tuition costs and inflation, the amount of student borrowing for college has remained reasonable and under control. Student loans continue to provide students from all income levels the opportunity to pay for a college education and, in turn, enjoy the tangible and intangible benefits of higher education.

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