Tuesday, December 2, 2008

Going to College & Grad School Looks Like a Disaster

Going to College & Grad School Looks Like a Disaster

By Nan Mooney

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With the job market tanking, have you been thinking that now is the perfect time to go to school, or go back to school, to shore up those job skills and make sure you have an edge in the market?

Think again.

The economic crisis has hit higher education with a triple whammy. Students and their families will need more help paying for school just as colleges struck by financial crises begin charging higher tuition and have less means to provide financial aid.

Already, 37 lenders have stopped making private loans and 168 have stopped offering federally guaranteed loans. Though money is still available -- only 25 of the top 100 lenders, although responsible for 91.5 percent of loans, have dropped out -- increasingly there are conditions attached. Lenders are pulling back from the community college and trade school markets -- where there are higher default rates, lower graduation rates and lower job placement -- at the same time, community colleges are seeing an increasing number of applicants seeking an affordable education option.

"These days the financial aid office is the busiest on campus," says Patricia Hurley, the financial aid director at Glendale Community College in California. "We're working nights and weekends just trying to get all the applications processed."

Though Hurley says the fallout of the financial crisis is only beginning to be reflected on campus, she has seen an increase in students who, due to layoffs and foreclosures, are filing for appeals to reevaluate student loans based on family income from the prior year. Some major lenders have exited the industry entirely or have stopped lending to community colleges, but the number remains small enough that remaining lenders can pick up the slack.

For Hurley, and for financial aid officers in public institutions across the country, the real challenge will be balancing increased demand with major budget cuts. California Gov. Arnold Schwarzenegger recently proposed a midyear budget cut of $65.5 million for the University of California system, in addition to the $48 million cut already factored into the budget.

"We're having to cut classes and professors," says Hurley. "Tuition will go up. And our outreach efforts to high schools and into the community are being hampered because we no longer have the financial resources. All this is happening at a time when it's critical to get the word out that college is still affordable."

Colleges across the board are hurting. At least 20 states have handed down budget cuts or face tuition increases in their higher-education systems. The University of Florida has already eliminated 430 faculty and staff positions and plans to increase in-state tuition by 15 percent. The University of Massachusetts system has cut $24.6 million for the current fiscal year. And with more students likely to apply to lower-cost public universities, admission will grow even more competitive.

Both private and public universities have watched their endowments plummet. The University of Washington has seen a $400 million drop in assets due chiefly to the faltering stock market. Harvard, Columbia and Duke are all reportedly looking to unload private-equity holdings in an effort to shore up cash. Schools are reporting hiring freezes and postponement of new-construction plans. Even more alarming are the murmurings of midyear tuition hikes and of smaller colleges, with limited endowments and relatively low graduation rates, being forced to close their doors.

As any recent graduate can confirm, college wasn't cheap to begin with. A 2008 College Board report, based on numbers drawn before the credit crunch, revealed tuition hikes of 6.4 percent for public in-state tuitions and 5.9 percent for private colleges in the 2008-2009 academic year. The average in-state tuition and fees at four-year public colleges are $6,585, up $394 from last year. At private universities, published tuition and fees average $25,143, a $1,398 increase over last year.

With mounting financial pressures, students now worry they may have to withdraw from school because their parents can no longer afford the tuition and student loan money will be harder and harder to find. Already, private loans have become difficult to secure, with some major lenders exiting the student loan arena entirely and others, like industry giant Sallie Mae, requiring higher credit scores and more stringent qualifications for cosigners. Student Lending Analytics, an independent research firm, estimates that $5.8 billion to $7.1 billion of private loan capacity has left the market, 31 to 37 percent of available funding. In the past, parents may have counted on taking out home-equity loans to help finance their children's educations, but the mortgage crisis has all but dried up that source of cash, too.

The good news is that schools are doing what they can to shore up resources and stem the panic.

"We're doing our best not to pass the budget cuts on to students," says Nancy Coolidge, a legislative and policy analyst in the University of California Office of the President.

The UC system foresees making major administrative cuts, putting off building and maintenance projects, and freezing faculty and staff salaries rather than reducing financial aid.

"There will be a tuition increase," says Coolidge, "but one-third of that is automatically recycled as need-based aid. We'll also stagger the tuition hikes so lower-income students aren't hit as heavily."

Like Hurley, Coolidge says the major challenges now will revolve around how to accommodate the increase in students without reducing the quality of their education experience.

The federal government has also stepped in to help. In September, Congress passed the Ensuring Continued Access to Student Loans Act, authorizing the government to buy federally guaranteed loans from lenders unable to meet them through the 2009-2010 school year. The idea is to encourage both large lenders, some carrying billions of dollars in student loans made before the financial crisis hit, and smaller nonprofit lenders to stay in the student loan business. The bill also extends the cap on the amount students may borrow, from $23,000 to $31,000, making it less likely they'll have to turn to the volatile private market to secure loans.

But despite the efforts of the federal government and the schools, the economic fallout is already trickling down to the students. The California State University system -- the nation's largest, with nearly 450,000 students -- has announced plans to trim 10,000 students in the coming school year due to funding problems. It will make the cuts by moving up application deadlines and raising academic standards for incoming freshmen.

What else might this mean for the college admissions process? It could signify a turn back toward the time when college was the province of the wealthy elite. Financial belt-tightening will eventually lead to the end of need-blind admissions policies in all but the wealthiest schools. Therefore, students whose families can pay the full cost of tuition will have an advantage. It also means that fewer institutional grants will be available, forcing more students to turn to loans to cover the full cost of college, even as fewer loans are available. Again, the less money an applicant needs, the more likely he or she will be able to swing college financing.

"Our concern now lies less with current students, whose loans are secured, than with prospective students," says David Levy, director of financial aid at Scripps College, a private school in Southern California. "We worry that, hearing about the financial crisis, they'll disqualify themselves from an education by not applying for financial aid or not applying to college at all. If parents know that schools cost more and that there's less money available, they may decide not to send their kids."

It also means that we will take a serious detour on our path toward becoming a country that provides an education to anyone who wants one.

"We simply don't have the resources to meet the demand," says Hurley of the California community college system. "And that's extremely troubling. If we don't have an educated workforce to deal with this economic crisis, it's going to present a real problem down the line."

For students who do find a way to pay, such financial pressures mean the college experience itself is likely to change. Hiring freezes and layoffs will result in higher student-teacher ratios. Money will be drained from facilities maintenance and improvement to cover gaps in financial aid. More students will have to work to supplement their aid packages, meaning less time for college life. Despite the rapid rise in tuitions and student loans visited upon college students of late, we may find ourselves looking back on recent decades with a wistful sigh for the good old days.

Nan Mooney is the author of "(Not) Keeping Up with Our Parents" (Beacon, 2008). Read more about the book and her work at Nan Mooney.com.

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