The prospects for state scholarship programs, which handed out about $8.6 billion in grants in 2010, are even bleaker. Some states, such as Michigan and New Mexico, have already slashed their scholarship funding. Other states have kept funding steady, but have not been able to keep up with burgeoning applications and tuition. Illinois turned away nearly 140,000 qualified students from its state scholarship program this year, for example.
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And some states are getting ready to pare back their scholarships. Georgia has seen its lottery revenues dip while its Hope full-tuition scholarship program has been squeezed by rising tuition and soaring applications. State officials there are now preparing to make future Hope scholarships harder to get and cover less tuition. "At a time when the need is greatest, states' ability to meet that need is the poorest," laments Paul Palian, spokesman for the Illinois Student Assistance Commission, which oversees that state's scholarship program.
Private charities that hand out more than $3 billion in scholarships annually say they are trying to avoid reducing funding despite the 2008 popping of investment bubbles and a drop-off in philanthropy. But that flat funding is now being chased by a growing number of students with bigger bills. Just a few years ago, the Central Scholarship Bureau of Maryland was able to fund about one-third of those who applied. Now, the CSB can only fund one out of nine applicants, says executive director Jan Wagner.
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Colleges, which hand out an estimated $26 billion of their revenues as scholarships, are unlikely to be able to make up all of the gaps left by the other financial aid programs. Most colleges' endowments have not yet recovered from the 2008 stock market downturn. Public colleges say they have to squeeze more out of students to make up for state budget cuts. Private colleges say they have to get more from students to pay for expenses such as staff raises and additional student services. "Every dollar spent on scholarships is a dollar not available for academic programs, student services, and operational expenses," explains Pat Watkins, director of financial aid at Eckerd College in St. Petersburg, Fla. "I don't foresee many schools being able to make up the difference."
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Student loans: Perhaps the only bit of hopeful news for students in 2011 is a planned reduction in the interest rate the federal government charges on "subsidized" Stafford loans, which go to students who qualify as needy. The 2010-11 version of those loans charge no interest while the student is in school and 4.5 percent after the student leaves school. The subsidized Staffords made in the 2011 academic year are slated to charge only 3.4 percent after graduation. (The terms for "unsubsidized" Stafford loans taken by students who don't qualify as needy is expected remain unchanged: Annual interest of 6.8 percent starts accruing immediately.)
And students who take out Staffords can sign up for income-based repayment when they leave school, so that their monthly student loan bills won't bust their budgets if they don't get high-paying jobs right away.