Families Struggle
To Pay Fall Tuition

By LYNN ASINOF and ANNE MARIE CHAKER
Staff Reporters of The Wall Street Journal

From The Wall Street Journal Online

The falling stock market and the slow-growing economy have made paying for college a big problem for many families.

With fall tuition bills just starting to arrive, families are trying to figure out how to pay the tab from decimated stock or education-savings accounts. Some are asking colleges to boost financial aid, others are applying for loans, and some say they may even be forced to switch to cheaper schools.

Hope College in Holland, Mich., has seen a 30% to 40% increase in financial-aid appeals, due largely to breadwinners who lost jobs or saw their portfolios shrink. Phyllis Hooyman, director of financial aid, says her office has been giving new loans and grants to roughly 85% of those families. Wake Forest University reports a 10% increase in aid requests, and says it handed out an average $2,000 in response.

Even Ivy League students are feeling the pinch. "There is a fair bit of anxiety out there, particularly for families who have invested," says Sally Donahue, director of financial aid at Harvard College. Ms. Donahue says there has been "a slight increase" in students seeking aid.

At Union College in Schenectady, N.Y., a big factor has been families who lost jobs because of the Sept. 11 terrorist attacks. Financial-aid appeals are up 10% to 20%. Beth Post, associate director of financial aid at the college, says her office was able to help 100% of the appeals with additional funding, averaging about $4,000 to $5,000 per case.

Still, that hasn't been enough for some families. "My son may not be able to go back to Union," says Elmer Vagvolgyi of Milford, Conn., who is now negotiating for more aid. Laid off from two jobs in less than two years, Mr. Vagvolgyi says he is no longer making enough to pay the $35,000 tuition bill. Union College says that it is talking to Mr. Vagvolgyi.

After nearly two decades of bull markets, many parents simply weren't prepared for the declines of the past two years, which have intensified in recent weeks. While financial experts advise that parents lighten up on stocks as their children approach college aid, many parents kept nearly all their chips on the market.

No one knows how much money destined for college is invested in the stock market. But total assets in popular 529 state-tuition plans hit $9.5 billion at the end of 2001 and are projected to reach $25 billion by the end of this year. Parents or students have billions more in other education-savings accounts.

David Kaus of Denver, an accountant by training, has watched assets in his three daughters' college accounts -- invested largely in large-cap growth stocks -- plummet 35% in the past year. "The market has been brutal," he says. Luckily, the two daughters now in college attend state schools, he says, which means the total college bill for the year will be $30,000, which Mr. Kaus can manage.

Provide Documentation

Parents who find themselves in a bind do have some options. The first step is to go back to the college financial-aid office. The school may be able to increase aid if people can provide documentation that shows their salary or their assets have taken a major hit.

At the same time, parents also need to overhaul their battered portfolios. That means letting go of the losses. "You can't get back what you lost," says Tama McAleese, a Wellington, Ohio, financial planner. "You can only gain or lose new money."

There's no guarantee that the market has hit bottom yet. That means those who are getting close to college should shift some investments into cash, no matter how big their losses.

Borrowing is another option, particularly given the current low interest rates. But financial advisers caution parents not to jeopardize their own retirement to fund tuition payments. Instead, let the kids borrow, they say. Student loan rates are now the lowest in the history of the program, just 3.46% on the popular Stafford loan, and the interest is now tax-deductible.

If college is still on the distant horizon, families have more flexibility. They may want to stay the course with their investments. Even here, however, it pays to re-examine portfolios, dumping volatile investments for more conservative ones.

And pay attention to the details. With returns so low, people with 529 plans, for example, may want to pay closer attention to fees. Judy Ludwig, a Canton, Mass., financial adviser, says she is thinking of moving her grandchildren's plans to the Missouri state plan, where the annual management fee of 0.65% is about 40% lower than their current plan.