Vanishing Financial Aid Leaves Students in the Lurch

The economic downturn isn’t just hurting those with 401ks and mortgages. Graduating high schoolers and current college kids are feeling its severe effects, too, mainly in the form of harder-to-get financial aid.

Market losses mean less financial aid to go around

Many scholarship providers, schools, and education endowments across the nation aren’t able to offer the same financial assistance to students that they have in the past.

Private loan volume declined by $173 million in the 2007-2008 school year, according to the College Board. (This decline follows an average growth rate of about 23% per year from 1997-98 to 2006-07.)

And TIAA-CREF, the financial services company, says that the average college endowment had shrunk 23% between July and November of last year (more recent data isn't yet available). During those five months, the funds lost $95 billion in total value. (From 2002-2007, the funds had been getting an average annual return of about 11%.)

Need is higher than ever

65% of the 456 valedictorians at public and private high schools in the Portland metro-area say the economic downturn has impacted their college decisions for next year.

Sky-high tuition costs coupled with a high unemployment rate, plunging housing values, and dashed investments mean more families are applying for financial aid. "If you talk to financial aid officers they’ll tell you that applications nationally for financial aid are up about 20% this year," says Phil Day of the National Association of Student Financial Aid Administrators.

And the Higher Education Research Institute (HERI) reports that 43% of aspiring college students said financial aid offers are "essential" in deciding which school they go to.

Middle-class most affected

Surprisingly, the students who are hurting the most are those that are middle- to upper-middle class. These students don’t qualify for need-based financial aid, nor can their parents realistically afford the $200,000+ college tuition for out-of-state or top private schools.

Michael Mills, associate provost for Northwestern University, said the number of lower-income students who have accepted offers of admission have increased for the coming school year.

Well, it wasn’t my first choice...

Across the country, students are attending their second- or third-choice schools. It’s not that they didn’t get accepted into their first choice, they just can’t afford it.

Lincoln High valedictorian Jasmine Dickinson, for instance, was accepted into Tufts University, her dream school. But Tufts lost much of its investments in the Bernard Madoff Ponzi scheme, and couldn’t offer Jasmine the financial aid she needed to cover tuition. She’ll be staying closer to home at the University of Oregon instead. 

Jasmine isn’t alone. HERI says that 17% of all students accepted into their top choice school had to forego the opportunity because of economic reasons.

Students turn to two-year colleges, or take a hiatus

Increased enrollment at two-year community and online colleges is expected, John Letts of Collegiate Financial Advisors says. This is an option for students who can only afford one or two years at a traditional four-year school.

Letts also worries that many students currently enrolled in traditional four-year colleges may be forced to take time off or drop out altogether. Some companies hit hardest by market losses have to rescind the loans and scholarships awarded to current college students because they can no longer afford to fund them. In these cases, the student has no choice but to take a hiatus from school if they can’t come up with enough money to bridge the gap. 

Unique scholarships

While competition is fierce, there are some unique scholarships still available for next school year. Some schools, like Emporia State and Seattle University, have set up unique student aid initiatives designed to help those who have been negatively impacted by the recession.

The Spend On Life Credit Challenged scholarship is another example of a scholarship aimed to help students affected by the credit crunch. Spend on Life is awarding up to $5,000 to 10 students. Only online applications are accepted, and the deadline is June 15th. For more information on applicant criteria and instructions on how to apply, visit http://students.spendonlife.com/scholarship-guidelines.