College financing a mix of bad, good

True, it’s not a great time financially to be going or sending a kid to college. But there’s more good news out there on college costs and financial aid than some families recognize.

A look at the good and the bad for the college-bound:

TUITION

Bad: State budgets are still in flux, but when they’re done, many public universities are likely to impose sharp tuition increases. During the past decade, tuition at public colleges has been rising at a rate of 4 percent per year —- above overall inflation.

Good: With help from federal stimulus money, some colleges will manage more modest price increases as they cut spending. Maryland, for example, will try to freeze in-state tuition for a fourth straight year.

Many private colleges have announced their smallest increases in years, and some are offering “specials.” Mercer University in Georgia and Manchester College in Indiana promise to cover the costs of additional time if students stay on track but are unable to graduate in four years. Manchester will even refund a year’s tuition if you don’t have a job or a slot in grad school within six months of graduation.

FINANCIAL AID FROM COLLEGES

Bad: The average college endowment is down around one-fourth. Many colleges, particularly regional universities, will be unable to offer as much scholarship support.

Good: The National Association of Independent Colleges and Universities says more than 90 percent of private colleges will increase aid next year. The group recently surveyed about 200 institutions and found they planned average tuition increases of 4 percent but aid increases of 9.8 percent.

In recent years, some of the priciest colleges have announced significant jumps in aid. Harvard, for example, will increase total fees 3.5 percent to $48,868 next year, but it expects to spend 18 percent more on financial aid.

GOVERNMENT GRANTS

Bad: State budget cuts will hit a range of programs that support students at both public and private colleges. Criteria for merit scholarships in some states have already tightened.

Good: The government is expanding college aid, particularly for low-income students. The maximum Pell Grant rises from $4,731 to $5,350 starting July 1, and $5,550 in 2010-2011. An extra 800,000 students are expected to get Pell funding.

FEDERAL LOANS

Bad: There are two major components of the giant federal loan program —- direct lending by the government and the Federal Family Education Loan Program. Under the latter, lenders including banks and nonprofits provide student loans guaranteed by the federal government. The program accounts for more than $50 billion in student loans to 10 million students each year, but hundreds of lenders have dropped out.

Good: The flow of federal loans has held up remarkably well. In fact, if the system that lends money to businesses, homes and automobiles had held up half as well as the one that provides government-backed loans to students, the economy might not be in such a mess.

Since last year, the federal government has bought up nearly $25 billion in student loan securities to provide lenders with capital for new loans. That helped keep the family loan program moving. Even as lenders dropped out of the program, the volume of loans is up this year and some loan providers are returning to the market.

PRIVATE LOANS

Bad: When students max out on their eligibility for federal loans and still need money, many turn to private loans that don’t have government guarantees and are usually more expensive. This year, there is less money. Tim Ranzetta from Student Lending Analytics estimates the “supply” of private loan capital has declined by around one-third.

Predictably, getting that money is harder —- particularly if you plan to attend a for-profit college, have bad credit or can’t get someone to co-sign a loan.

Good: The government accounts for five times as much student aid as do private lenders. Increased limits for federal programs such as Stafford loans have lessened students’ need for private ones.

True, if you still need a private loan and can’t get one, you may have to go to a cheaper school. But that may not be so bad. Clearly, some students were borrowing too much. It’s even becoming clear that some students, seduced by advertising, took out private loans before maxing out on federal ones.

For more info, contact your college financial aid office, or go to www.ed.gov.