8 Happy—and 3 Scary—Trends in Financial Aid in 2010

Rising tuition and shrinking grants mean college will cost students more this year.

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College will cost more in 2010. That, unfortunately, will very likely be the reality for most college students this year.

But the news isn't all bad. Financial aid experts asked to predict what 2010 would bring to their campuses and students also highlighted eight happy trends that should encourage those worried about paying for college:

  • 1. It will be easier to apply for financial aid. The federal government has eliminated some of the most frustrating and redundant questions from the online version of the Free Application for Federal Student Aid, which is the standard application used by thousands of colleges.
  • 2. It will be easier for applicants and their parents to figure out how much a prospective college will cost, and how much aid they'll receive, before applying. Colleges have until late 2011 to install new Web-based calculators that are supposed to give applicants early estimates of their true costs. But many colleges, including Purdue, MIT, and Princeton, have already launched their net price calculators. And several companies, including Collegedata.com (free) and Studentaid.com (charges fees of $49 and up to those from families with incomes above $40,000 a year), offer a chance to compare several schools' likely costs.
  • 3. As many as 4 million Americans will get a happy surprise at tax time in 2010 because they'll be able to reduce their tax debt by as much as $2,500 for tuition paid in 2009. The new American Opportunity tax credit also applies to tuition paid in 2010. Filers who don't owe a penny in taxes can receive checks of up to $1,000.
  • 4. Federal need-based grants are likely to be bigger and easier to get. The Obama administration has announced plans to raise the maximum size of the federal Pell grant by $200 to $5,550 in the fall. That will probably raise the income cutoff that qualifies for the money, thereby increasing the number of students who receive help to pay for college. In addition, the government is expected to continue encouraging colleges to make it easier for the newly jobless to qualify for Pell grants.
  • 5. Out-of-state options may come down in price. A growing number of colleges in rural locations, or with comparatively low rankings, will offer scholarships or tuition discounts to lure out-of-state students.
  • 6. More students will apply for and get college work-study jobs. College officials say more students are realizing they need to work during the school year to afford college. The federal government has increased work-study funding to create about 200,000 additional jobs.
  • 7. Student loans will become cheaper and easier. In September, the federal government will reduce the interest rate it charges needy students for subsidized Stafford loans from 5.6 percent to 4.5 percent. (All other students, including those who do not qualify as needy, will be offered loans charging annual interest of 6.8 percent. But the one-time fee charged upon receipt of the loan will drop from 1.5 percent of the total loan value to no more than 1 percent. Some lenders are expected to waive some or all of that small fee.)
  • In addition, it will most likely be easier than last year to get additional college loans from alternative lenders. Because the federal government caps the size of student loans at between $5,500 for some kinds of freshmen and $2,500 for adult upperclassmen, many students feel they need additional loans to pay for college. The Education Finance Council, which represents nonprofit lenders, many of which make alternative loans to students, says the credit markets have eased up a little, allowing some agencies to give attractive deals. South Carolina Student Loan, for example, is now offering students in its state loans to cover the full cost of college for a fixed rate of as little as 7.7 percent a year.
  • 8. Repaying student loans will get easier. The bumps and confusion that surrounded the "income-based repayment" program that the federal government launched in mid-2009 are expected to be slowly smoothed over. Graduates who apply for this can limit their payments on their federal education loans to below 15 percent of their income.