The New Math of Financial Aid

For years, Tom and Lori Lapin dutifully prepared for their two sons' college educations. They made regular contributions to 529 accounts, invested in some stocks and mutual funds, and lived as frugally as they could. They figured they'd be able to supplement their savings with some of the income from their business—a small commercial sign shop in Portland, Conn., that they've owned for 30 years. But as their older son, Ben, prepared to enroll at Union College in Schenectady, N.Y., in fall 2008, the economy began to nosedive. So, too, did their company's sales, many of which are tied to the real-estate market. "It was pretty dramatic," says Lori. "It just got worse and worse." After Ben headed off to Union—where tuition, fees, and room and board total roughly $50,000 a year—the Lapins struggled to keep their business afloat and began tapping some of their investments. When Lori sat down to prepare the couple's taxes in January 2009, she quailed at the numbers. "I didn't know how Ben was going to go back to Union the next year," she says.

 

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Running out of options, Lori wrote a letter to the financial-aid office. She explained the family's stark new reality and included a copy of the couple's tax returns and other relevant documents. She also emphasized how much Ben was loving Union. He was making friends, fitting in easily, and thriving academically. Unbeknownst to her, the college had been getting many similar requests—enough that officials finally decided to add a $1 million contingency fund to the 2009–10 financial-aid budget. Soon after writing her letter, Lori received a response. To help meet Ben's new level of need, Union boosted his grant award and offered him a work-study position. "I was absolutely thrilled," says Lori. "They're making it possible for Ben to continue to go to Union. I couldn't be more grateful."

In the throes of the worst economic crisis in decades, families are straining more than ever to pay for college. They're contending with job losses, tumbling home equity, and ravaged investment portfolios. At the institutions they hope to send their kids to, the picture is just as dismal. Endowments have shed billions in value, donations are down, and states have slashed appropriations for higher education. As terrifying as it all seems, though, families shouldn't despair. As the Lapins discovered, schools are trying to ease the burden—beefing up aid budgets, for instance, or stretching out payment plans. And the federal government is lending a hand as well. President Barack Obama's administration and Congress have unveiled a host of measures, from additional grant money to more-generous tax credits. "These are tough times for families and tough times for colleges and universities," says Terry Hartle, senior vice president at the American Council on Education (ACE). But "federal student aid will be readily available, more than has been before."

Few people witness the effects of the downturn more closely than the folks in the financial-aid office. "In the 25 years I've been in aid, I have never seen it this bad," says Pamela Fowler, executive director of the Office of Financial Aid at the University of Michigan. "It seems that every time somebody announces a layoff or plant closing, we get another wave" of appeals. Among the many cases that have come across her desk was the ordeal of one student's father: the man tried to help out his brother (who had fallen on hard times because of bad investments), only to lose his own job and then suffer a heart attack because of the stress. "Some of these stories go on and on and on," says Fowler. "People are just dealing with so much." For 2009–10, the number of students eligible for institutional grants at Michigan increased by 20 percent over the previous year—a huge jump. As a result, the university added millions more to its aid pool.

Institutions are in a tough bind—trying to make themselves affordable to the students they admit, yet struggling to scrounge up the necessary aid dollars from budgets they've had to pare down. Take Vanderbilt. Like many universities in recent years, it decided to replace all need-based loans with grants and scholarships. The university announced the change with fanfare in September 2008—right on the eve of the economic meltdown. Though the program suddenly became much more difficult to fund, Vanderbilt nipped and tucked all across the budget to make it work. "It scares us all," says Douglas Christiansen, vice provost for enrollment and dean of admissions, "but it is the right and moral thing for our institution to do."

Not all schools have suffered equally. Though their endowments have been pummeled, wealthy Ivies still have a financial cushion to fall back on. Small private colleges that rely more on tuition revenue don't have that luxury. They need to convince parents they're still worth the price—not easy when everyone is more cost-conscious. At Union College, the number of applicants declined for 2009–10, says Matt Malatesta, vice president for admissions, financial aid, and enrollment. The institution had to dig deeper into its wait list and still came up 15 students short of its enrollment target of 555. Perhaps the hardest hit, however, are public universities. True, their applications tend to increase during recessions, since they're perceived as more of a bargain. But many face deep funding cuts, as states hack at their budgets to bring them into line.

In California, higher education is confronting a true calamity. With the state's finances in shambles, Gov. Arnold Schwarzenegger proposed draconian cuts in the summer of 2009—nearly $800 million over 14 months for the University of California system alone, a roughly 20 percent decline in its state appropriation. A contraction of that magnitude "will require us to consider extremely painful options," said UC president Mark Yudof in a statement in June. Among those options: reducing freshman admissions, raising fees even more than anticipated, and imposing layoffs, furloughs, and salary reductions for staff. Not only that, but the governor also suggested eliminating the Cal Grant program for low- and middle-income students. That would be painful for people like Tommy Le, a rising senior at UC Santa Cruz. The economic collapse has already overwhelmed his family, forcing his father to close his furniture store in El Monte, Calif., and prompting Le to start sending cash home. If he were to lose the grant money, he says, "either I have to take a leave of absence or pretty much drop out."