College Costs: Coping with the Meltdown

Some schools will work with a parent to find emergency loans and other ways to adjust as credit options and portfolios shrink

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by Lauren Young

Some unlucky investors like Dino Macaluso are feeling the double whammy of the market meltdown: They are watching their investment portfolios shrivel while college tuition payments loom.

Macaluso, from Albany, N.Y., is considering a line of credit on his house to pay for his son's college so that he doesn't have to liquidate investments until they bounce back. "I have set aside enough cash to cover the first year's tuition, so I am looking to buy myself more time for the next three years," says Macaluso, who expects to spend more than $50,000 on college tuition annually.

American University in Washington, D.C., is one college that is anticipating just such anxieties. It e-mailed a letter to undergraduate students and parents on Oct. 3, offering assistance "in these challenging times." "The nation's current financial climate has caused uncertainty for people across our country and around the world. With turmoil in the credit markets and the tightening of available credit and loans, we recognize the impact this could have on students and their families," says a letter from American University Provost Scott Bass.

Aiding Needy Students

American is planning to create a pool of cash for needy students who already have financial aid, according to Maralee Csellar, a university spokeswoman. In addition, "we are looking into ways to help students who do not have aid," Csellar says. Tuition for the 2008-2009 school year is $41,000 for a full-time student, including room and board.

Even before the market swooned, families with college-bound children started to buckle down. According to preliminary results of a survey of more than 2,000 parents being conducted jointly by ApplyWise.com and Next Step magazine, a majority of families with college-bound teens redirected their child's college search in the past six months to more economical options, including four-year public colleges, according to the preliminary survey data. In addition, parents say they are cutting discretionary spending to save more for their child's college education.

What can you do to pay—and even save—for college in a dicey market? Here are savvy moves to make now:

Hit the Financial Aid Office

If you have your college savings in a 529 plan, you should be in decent shape, since the asset allocation models in these programs direct most college savings in cash and bonds as college nears. But if you are winging it and have the bulk of your educational savings tied up in stocks, there's not much you can do now. "Leave the current investments alone," says Jamie Milne, an adviser at Milne Financial Planning in Saint Johnsbury, Vt.

In fact, if you have a 529 account that has lost a lot of money and you have more than one child, consider switching the beneficiary on the 529 plan for a college-bound child to a younger sibling. "It will buy you more time," says William Jordan, president of Sentinel College Funding , which offers financial planning advice in Laguna Hills, Calif.

If you need alternative sources of funding, experts say your best bet is to try your school's financial aid office first, even if you didn't qualify for aid in the past. "What I've learned from my experience working in financial aid offices [at Brown University and Columbia University] is that there's a lot of flexibility involved," says Rod Bugarin, a financial aid adviser at ApplyWise, which offers online college admissions guidance.

Emergency Loans Available

It's a little-known fact that many schools offer emergency loans to needy students. While these loans won't cover the entire tuition bill, they can provide some immediate relief: The biggest emergency loan Bugarin awarded when he was working in a university financial aid office was several thousand dollars.