Students expect that attaining higher education will lead to their future economic success. Hence, going to school often seems the logical choice during tough economic times.
Speaking to this expectation and championing the value of higher education, newly elected President Obama asked “every American to commit to at least one year or more of higher education or career training. This can be community college or a four-year school; vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma.”

While education is more attractive in tough economic times, funding that education proves more challenging during a financial downturn. Traditional support from college endowments, parental income and 529 savings plans have been significantly and negatively impacted in recent years.

Therefore, it’s fitting that the president’s endorsement came on the heels of the recently passed American Recovery and Reinvestment Act (ARRA), which increased college affordability for seven million students by funding the shortfall in Pell Grants—increasing the maximum award level by $490 and providing a new higher education tax cut to nearly four million students.

Other sources of funding continue to waver. According to a story in the January 26 New York Times, the value of university endowments fell about 23 percent on average in the five months ending November 30, 2008. The drop is the biggest in the value of college and university endowments since the mid-1970s. At the same time endowments have declined, students need more help than ever.

So, how are families going to finance education in the short term? An August 2008, Sallie Mae/Gallup Poll indicated the top sources of funds were:

Source	Percentage
Parent Income/Savings	32%
Student Borrowing	23%
Parent Borrowing	16%
Grants/Scholarships	15%
Student Income/Savings	10%
Friends’/Relatives’ Support	3%

The top sources of family funding for education, including parent income, parent savings and home equity, have all felt the strain of the economy. Parent income may be impacted by increasing rates of unemployment, with many expecting the rate to continue to climb in the months ahead.

Any parental savings, including 529 plans, invested in the stock market would have been devastated by the declines in the market in 2008 and this year. A Wall Street Journal article indicated how some investors in 529 plans have been stuck in stocks due to plan rules limiting investment plan changes to once a year.

In addition, home equity has also dried up given the nationwide decline in home prices and the reluctance of lenders to extend these loans. The trouble for many parents caught unprepared for the high cost of college is that too much of their own skin may be on the line if they tap their savings, home equity, credit cards or, worse, their retirement savings.
As a result of an increasing need for education loans, more students and families are filling out FAFSA's. In 2008 alone, schools tracked by Student Lending Analytics saw an increase of 20.2 percent in FAFSA's submitted in the first six months of 2008 as compared to the same period in 2007.

In response to this trend, the Department of Education has committed to ensuring that every eligible student and his or her parents are able to obtain the federal student loans they need to meet education expenses. Recently enacted legislation, the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA), provided the Department with new authority to address concerns about the availability of Federal Family Education Loan (FFEL) Program loans through 2009-10. The plan is designed to provide viability in the marketplace for lenders who continue to make loans in this difficult environment.

The other option on the table for students and their families nationwide is private student loans, the future of which remains uncertain. While the government hopes that programs like Term Asset-Backed Securities Loan Facility (TALF) will spur the student loan securitization market back to life again, ongoing concerns about weakening fundamentals in the underlying collateral, which will play out over the next 12-24 months, may diminish investor interest. A vibrant securitization market will be needed to get additional credit flowing into the private student loan market.

Despite tough economic times and the resulting challenges, our goal as strong supporters of postsecondary education remains to help students and families find the economic resources to make their education dreams a reality. Because, as our president has said, “This country needs and values the talents of every American."