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The New College Economics

The recession is making it harder for many students to pay for college—and more important than ever to check out all the options

By Jonathan D. Glater

Diana Jacobs thought her family had a workable plan to pay for college for her 21-year-old twin sons: a combination of savings, income, scholarships, and a modest amount of borrowing. Then her husband lost his job, and the plan fell apart.

"I have two kids in college, and I want to say 'come home,' but at the same time I want to provide them with a good education," says Jacobs of Salem, Ind.

The Jacobs family did work out a solution: They asked and received more aid from the schools, and each son increased his borrowing to the maximum amount through the federal loan program. Justin, at Hanover College, and Jacob, at Franklin College, both in Indiana, will each graduate with $20,000 of debt, but at least they will be able to finish school.

With unemployment rising as a recession grips the country, financial aid administrators expect to hear from more families like the Jacobses. More students are applying for aid, and more families expect to need student loans. With college endowments down as a result of last year's stock market gyrations, states cutting aid, and fundraising getting harder, college administrators are concerned that they will not have enough aid money to go around.

At the same time, tuition continues to rise. A report from the National Center for Public Policy and Higher Education found that college tuition and fees increased 439 percent from 1982 to 2007, while median family income rose just 147 percent. Student borrowing has more than doubled in the last decade.

"If we go on this way for another 25 years, we won't have an affordable system of higher education," says Patrick M. Callan, president of the center.

"The middle class has been financing it through debt," Callan adds. "The scenario has been that families that have a history of sending kids to college will do whatever it takes, even if that means a huge amount of debt."

But the credit crisis is making it harder for some students and their parents to borrow, even as their needs grow and their savings accounts dwindle. Financial aid administrators have been scrambling as many companies decide that student loans are not profitable enough and have stopped making them. The good news, however, is that federal loans account for about three quarters of student borrowing, and the government says that money will flow uninterrupted.

Expert Advice: Plan Ahead

Michaela Rice, a sophomore at Plymouth State University in New Hampshire had to rethink her borrowing after a student loan she had taken out with her father as cosigner evaporated because the lender was getting out of that business. That led Rice, 19, to ask her mother, who is divorced from her father, to take on $17,000 in debt. "We haven't really sat down and talked about how am I going to pay for it," says Rice, who wants to be a teacher.

Financial aid directors advise high school students to research aid and scholarships way ahead of time so they don't miss any deadlines, and to apply even if they don't think they're eligible.

"It's kind of like playing the lottery," says Lee Harrell, director of financial aid at Ohio Wesleyan University. "If you don't apply, you'll never know what you're eligible for."