College Tuition Victim of Downturn

In normal times, finding a way to pay for a college education can be quite difficult. But in these extraordinary times, many families are finding it nearly impossible.

With home values plummeting, refinancing may be off the table. The credit market is frozen solid, making it difficult for anyone without outstanding credit to obtain a loan. The job market is drying up, leaving few options for students to work their way through school.

Colleges are also having difficulty filling their coffers to increase aid to students who may need it. Endowments are down drastically at private schools because people are not as generous in times of economic uncertainty. State funding is being cut back because of budget shortfalls. And fundraising has become almost stagnate.

Many students and their families are being forced to look elsewhere for the money to pay for college. One of those options is through federal student loans. Typically, three-fourths of student borrowing is through federal loans. However, this isn’t your typical year. Students applying for federal aid is up 10 percent already, to 13.5 million.

Parents may also decide to take the private route. One of the leaders in that industry is Sallie Mae, which recently announced the closure of 20 offices nationwide. Not only that, but the company has also tightened its credit standards and increased interest rates.

“The current financial markets provide no other choice,” Sallie Mae wrote to colleges last week. “When conditions improve, we hope to relax our underwriting criteria and serve more students.”

For most students, funding for the fall semester was already in place before the credit crisis erupted, so many students will be fine, for this year at least. But, next year could be a different story.

Making matters worse, Fidelity Investment released poll results on Monday showing that families had drastically reduced their college savings. The study found that one-third decreased or stopped saving altogether, which is certain to lead to more borrowing. The study also found that parents typically can afford only 21 percent of all college expenses, however, with little savings that number will likely decrease even further.

A well educated workforce is essential for America to compete in a 21st Century economy. Without an army of highly skilled workers, the U.S. will not be able to maintain American hegemony. Many countries around the world are already surpassing the U.S. in terms of the educational level of their workforces. We must do a better job of making sure America’s leaders of tomorrow are able to obtain an education today.

Source New York Times: