College Within Reach, Despite Tighter Credit

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By JILIAN MINCER
April 3, 2008; Page B18
Don't assume you can't afford college, even private ones.
A number of the nation's top schools have changed the way they calculate financial aid, providing steep discounts to families earning as much as $180,000 to $200,000. Many offer more merit-based aid than need-based aid.

If your child isn't among a school's scholarship winners, try negotiating with the financial-aid office; many schools are willing to negotiate. And there are student loans, scholarships from other sources, and home-equity lines of credit.

The credit crisis has taken a toll on college loans. More than ever, families need to compare financial-aid packages, bargain with schools and apply for loans and scholarships early. They also may want to consider a home-equity loan, paying tuition monthly and encouraging children to get a part-time job.

"Families will be paying more for their loans, but we don't conceive of a situation where students won't find one, especially if they're working with their financial-aid office," says Kevin Bruns, executive director of America's Student Loan Providers.

Many of the nation's prestigious schools have revamped their financial-aid policies in the past year, offering more grants to students with family incomes as high as $200,000.

Donald E. Heller, director of the Center for the Study of Higher Education at Penn State, says schools, in aggregate, now provide more assistance based on merit than on need. He says most schools are using academic criteria, SAT or ACT scores to help decide who receives assistance.

Robert Shireman, executive director of Project on Student Debt, a nonprofit research and policy organization, advises that when comparing colleges, consider not only tuition but housing, books and transportation costs.

Also, don't hesitate to bargain. Ask if your first-choice school can match or beat another school's offer.
Fill out the online Fafsa, or Free Application for Federal Student Aid. Many families assume they won't be eligible for aid, and they leave potential benefits on the table. They often don't realize that filling out the Fafsa is necessary not only for federal loans but for many school, state and even some private scholarships.

Most students end up borrowing. College-debt levels have doubled in the past decade, according to the College Board. The average debt for students graduating from four-year colleges in 2006 was $20,000 to $21,000.

At some private institutions, average debt exceeds $30,000. However, some of the lowest average-debt levels are at the most-expensive schools, partly because they attract students from affluent families, but also because of the amounts of assistance they offer.

A 2007 survey by the College Savings Foundation found that 54% of parents had saved less than $5,000 for college and almost 40% expected it would take at least 10 years to pay off the debt from sending their children to college.

Unfortunately, borrowing has gotten tougher. Some lenders are no longer offering federal loans, and others are tightening credit standards, interest rates and fees. In this environment, it is important to keep "working with their financial-aid office," Mr. Bruns said.

Martha Holler, a spokeswoman for Sallie Mae, encourages families to select a loan program early "so you don't have any surprises as you move in." She says to check during the summer with the lender and financial-aid office to confirm that the money will be available.

That is also a good idea for existing students. "For upperclassmen, there will be people who are not able to use the same lender" because some have pulled out of lending programs, says Peter Warren, senior vice president of the Education Finance Council, an association of nonprofit and state-based student-loan providers.

A good place to start is the school's "preferred lender" list, but shop around. Some large lenders are offering better deals. (New York Attorney General Andrew Cuomo has investigated schools that allegedly received kickbacks for steering students to expensive college lenders.)

The Project on Student Debt recommends that students consider federal loans first. The interest rates don't change over time and aren't affected by your credit score. They also have some borrower protections if you have financial problems.

Perkins and Stafford loans are the most affordable. There are income limits, but the government pays the interest while you are in school. Unsubsidized Stafford loans are available to all students. Interest accrues while a student is in school, but there are more repayment options than with most private loans.

PLUS loans, or Parent Loans for Undergraduate students, are available if parents are willing to help. Families can borrow as much as the cost of attendance minus other aid, but the loans require a credit check.

Write to Jilian Mincer at jilian.mincer@dowjones.com¹