The New Math of Financial Aid

Publication: Newsweek

Author: Arian Campo-Flores

08/12/2009 - 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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Despite the availability of federal money, many students rely on private loans from banks. According to TICAS's Project on Student Debt, the proportion of undergrads who took out such loans jumped from 5 percent in 2003–04 to 14 percent in 2007–08. That trend has likely abated given the squeeze in the credit markets. But it's still prevalent enough to worry many financial-aid professionals, since private loans are usually more expensive than federal ones and have higher interest rates. "Make sure you know your federal-loan options before you turn to other sorts of financing," counsels Lauren Asher, TICAS's acting president. If you've maxed out your Stafford loans, she says, consider asking your parents to take out a federal PLUS loan, which carries a fixed rate of roughly 8 percent. In the event your parents are denied because of credit problems, says Asher, your school's financial-aid office can nearly double your eligibility for Stafford loans.

Read the full article The New Math of Financial Aid on Newsweek's Web site.

Pew is no longer active in this line of work, but for more information, visit the Project on Student Debt Web site or visit the The Project on Student Debt on

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