Grandparents are pitching in. Students are working more, and eating less. Parents are taking out more and bigger federal loans.
As the economy has declined and college costs have risen, families have buckled down and become more resourceful to pay for college.
They have been so successful at funding tuition that college enrollment is up dramatically. A record 40 percent (or 11.5 million) of 18- to 24-year-olds are taking at least one college course this year. Add in all the adults returning to school because of the lousy job market, and the total number of college students is likely to exceed 19 million this year.
How are more students affording tuition when many colleges' prices are at record highs and many scholarship programs, private lenders, and family savings accounts have been wiped out?
1. Relatives: College officials around the country say they are noticing more checks coming in from grandparents, uncles, and other relatives to cover student bills. A recent survey by the MetLife Mature Market Institute found that two thirds of grandparents had provided financial help to their descendents in the last five years. The average size of the help: $3,000. A quarter of the generous grandparents said they had increased their gifts because of recent economic troubles.
Other relatives are pitching in more, too. Maribeth Ford, a single mom, says she was surprised and thrilled when her brother hinted he would be willing to lend her son enough to cover the $10,000 gap between his scholarships, her loans, and Iona College's $41,000 price tag. "I wasn't expecting the level of help that he is offering. My son and I are very fortunate," she says. "My attitude was: Apply for everything possible, ask for help where reasonable—the worst people can say is no—and my son had to contribute. Not a glamorous story, but one that's working for us right now."
2. Bigger and better tax breaks: The federal government estimates perhaps 2 million tuition-paying Americans will be able to get as much as $2,500 back on their taxes when they file in 2010 and 2011 by taking advantage of the new American Opportunity tax credit. The new credit is targeted at low- and middle-income families and isn't available to singles earning more than $90,000 a year or couples earning more than $180,000. Even those who earn so little that they owe no taxes can receive refund checks of up to $1,000.
3. Scholarships: It's getting easier to apply for financial aid, thanks to a streamlined electronic version of the Free Application for Federal Student Aid. And although many state and private scholarship programs have been cut, the federal government and colleges have been easing the rules to enable more students affected by the recession to get grants. A student affected by a layoff, for example, can write a letter to his or her college's financial aid office documenting the decline in income and appealing for more aid. In addition, a slight decline in the number of 18-year-olds has made certain kinds of colleges—such as those in rural areas and lower-ranked private colleges—anxious about filling their seats and eager to offer aid to lure applicants who are willing to pay at least partial tuition.
4. Cheaper schools: The biggest increase in enrollment has been in two-year community colleges, which are the lowest-priced colleges in the country. The sticker price of a year's tuition at an average community college rose by $220 for the 2009-10 academic year, to $2,540, the College Board reported. But because of increased Pell Grants and tax breaks, the out-of-pocket (or net) price paid by community college students actually fell, the College Board believes. The average community college student got enough aid to pay all tuition, with $460 left over to help pay for books and supplies (which typically add another $1,000 to total college costs), the board estimates.
5. Cutting other costs: Some colleges have noted that students are cutting back on all kinds of expenditures. A growing number of students at Goucher College near Baltimore have been switching from a 480-meal-per-year plan to a 380-meal plan, saving about $400. Students can also slash their housing costs. Co-ops, which require a few hours of chores a week, typically are $2,000 to $7,000 a year cheaper than regular dorms. Students who agree to share a room with two other students, instead of the standard one roommate, can usually save $1,000 to $2,000 a year. Buying and selling back used textbooks, instead of keeping new books, can save typical students more than $500 a year.
6. More student work: More students are taking part-time jobs. The federal government added funding for 200,000 extra work-study jobs in 2009. Since students who work more than 20 hours a week generally hurt their grades, schools typically cap campus jobs below that. Still, good work-study jobs allow students to earn at least $100 a week, or at least $2,500 for the academic year.
7. More, bigger, cheaper, and easier federal student loans: At least 6 million students are taking out federal Stafford student loans this year, up from about 4 million two years ago. Young freshmen can borrow up to $5,500. Upperclassmen 24 and older can borrow up to $12,500. The government has made it easier to repay those loans by allowing graduates to cap their monthly payments below 15 percent of their incomes.
8. More, bigger, and (temporarily) easier federal loans to parents: Although parents are having a much harder time getting home equity or private loans, the government has eased a little of the immediate pain of taking out federal PLUS loans, which can cover a student's cost of attendance (less any scholarships or other aid). Parents can now put off repaying their federal education loans until their student leaves school. That could come back to bite them in a few years, however, because the principal keeps building at about 8 percent a year. Parents who borrow the typical $8,800-a-year PLUS loan could easily owe more than $44,000 by the time their kid graduates. It would take payments of more than $500 a month to pay that off in 10 years. While some parents might get enough raises in that time to pay such big bills, Stuart Siegel, a private financial aid counselor in Erie, Pa., worries that lots won't. Many parents don't realize that even declaring bankruptcy doesn't wipe out education loans, so some parent borrowers may be setting themselves up for financial crises in a few years.
9. Family savings: Although the investment markets' meltdown eroded most families' savings, many parents find that they can free up hundreds of extra dollars once their student moves to campus. The federal government estimates teenagers cost parents more than $6,000 a year in food, clothing, transportation, and other extras. So parents who stop allowances and take away the keys to the family car (and suspend expensive teen car insurance) can reduce their costs by perhaps $4,000 during the nine months the student is at school.
10. Corporate largesse: More than 10 million American families are building up college savings by using credit cards or shopping through websites of rebate companies such as Upromise or BabyMint. Another option: More than 200 private colleges offer scholarships to parents of young kids when the parents shop or invest with members of the Tuition Rewards network.