Going to College & Grad School Looks Like a Disaster

With the job market tanking, have you been thinking that now is the perfect time to go to school, or go back to school, to shore up those job skills and make sure you have an edge in the market?

Think again.

The economic crisis has hit higher education with a triple whammy. Students and their families will need more help paying for school just as colleges struck by financial crises begin charging higher tuition and have less means to provide financial aid.

Already, 37 lenders have stopped making private loans and 168 have stopped offering federally guaranteed loans. Though money is still available -- only 25 of the top 100 lenders, although responsible for 91.5 percent of loans, have dropped out -- increasingly there are conditions attached. Lenders are pulling back from the community college and trade school markets -- where there are higher default rates, lower graduation rates and lower job placement -- at the same time, community colleges are seeing an increasing number of applicants seeking an affordable education option.

"These days the financial aid office is the busiest on campus," says Patricia Hurley, the financial aid director at Glendale Community College in California. "We're working nights and weekends just trying to get all the applications processed."

Though Hurley says the fallout of the financial crisis is only beginning to be reflected on campus, she has seen an increase in students who, due to layoffs and foreclosures, are filing for appeals to reevaluate student loans based on family income from the prior year. Some major lenders have exited the industry entirely or have stopped lending to community colleges, but the number remains small enough that remaining lenders can pick up the slack.

For Hurley, and for financial aid officers in public institutions across the country, the real challenge will be balancing increased demand with major budget cuts. California Gov. Arnold Schwarzenegger recently proposed a midyear budget cut of $65.5 million for the University of California system, in addition to the $48 million cut already factored into the budget.

"We're having to cut classes and professors," says Hurley. "Tuition will go up. And our outreach efforts to high schools and into the community are being hampered because we no longer have the financial resources. All this is happening at a time when it's critical to get the word out that college is still affordable."

Colleges across the board are hurting. At least 20 states have handed down budget cuts or face tuition increases in their higher-education systems. The University of Florida has already eliminated 430 faculty and staff positions and plans to increase in-state tuition by 15 percent. The University of Massachusetts system has cut $24.6 million for the current fiscal year. And with more students likely to apply to lower-cost public universities, admission will grow even more competitive.

Both private and public universities have watched their endowments plummet. The University of Washington has seen a $400 million drop in assets due chiefly to the faltering stock market. Harvard, Columbia and Duke are all reportedly looking to unload private-equity holdings in an effort to shore up cash. Schools are reporting hiring freezes and postponement of new-construction plans. Even more alarming are the murmurings of midyear tuition hikes and of smaller colleges, with limited endowments and relatively low graduation rates, being forced to close their doors.

As any recent graduate can confirm, college wasn't cheap to begin with. A 2008 College Board report, based on numbers drawn before the credit crunch, revealed tuition hikes of 6.4 percent for public in-state tuitions and 5.9 percent for private colleges in the 2008-2009 academic year. The average in-state tuition and fees at four-year public colleges are $6,585, up $394 from last year. At private universities, published tuition and fees average $25,143, a $1,398 increase over last year.

With mounting financial pressures, students now worry they may have to withdraw from school because their parents can no longer afford the tuition and student loan money will be harder and harder to find. Already, private loans have become difficult to secure, with some major lenders exiting the student loan arena entirely and others, like industry giant Sallie Mae, requiring higher credit scores and more stringent qualifications for cosigners. Student Lending Analytics, an independent research firm, estimates that $5.8 billion to $7.1 billion of private loan capacity has left the market, 31 to 37 percent of available funding. In the past, parents may have counted on taking out home-equity loans to help finance their children's educations, but the mortgage crisis has all but dried up that source of cash, too.