As markets dive, parents fret over college costs

updated 1:09 p.m. ET Oct. 19, 2008

ELON, N.C. - Erin O'Connell took the tour this week at Elon University, a handsome, up-and-coming college with a $31,000-a-year price tag. That's hefty — but $20,000 less than some "uppity" schools she may have to cross off her list.

"I'm going to be pulling out my hair to make ends meet," said the high school senior from suburban Boston. "I'll apply for anything and everything I possibly can." As for more expensive schools, she said: "While the title would be nice, I might not get out with both arms and both legs."

It's prime college-visiting season for the high school class of 2009, which next fall will send the greatest number of graduates on to college in American history. But the souring economy and crisis on Wall Street are shrinking families' college savings, and some parents wonder whether they will be able to afford tuition at the schools their youngsters are looking at.

Around the country, students deciding where to apply may have to scale back their dreams. Some private schools worry they could lose business to public universities. Already, federal loan applications are up, and some schools are seeing more aid inquiries.

Most students won't decide on their college plans for six months. But a recent survey of 2,500 users of the Web site meritaid.com found 57 percent of students were considering a less prestigious school for money reasons. In a similar study by Applywise.com and Next Step Magazine this week, 50 percent of families reported limiting their children's college choices to less expensive options.

Because of plummeting housing prices, many families can no longer count on the equity in their homes to help them pay for tuition. Meanwhile, 529 college savings plans have been hit hard in the stock market. A year ago, they held a combined $110 billion. Preliminary figures from Financial Research Corp. show the value of 529s declined 9 percent last quarter even with new money coming in — and that was before last week's slump on Wall Street.

"We're revisiting their overall financial plans," said Ivan Nalibotsky of Capital Solutions Group, a college financial planning service in Bethesda, Md. "In many cases folks are going to have to be dipping into some of their own personal resources, and reevaluating their personal retirement goals in order to get the kids the four or five years of education they planned."

One of his clients now plans to start at a community college and transfer to the University of Maryland rather than going straight to a four-year private college.

Obama outlines bailout for Main Street President Barack Obama outlined new multibillion-dollar stimulus and jobs proposals, saying the U.S. must continue to "spend our way out of this recession" until more Americans are back at work. Bernanke: Too soon to tell if recovery will last theGrio: Black teens' unemployment rate spikes NYT: U.S. forecasts smaller loss from bank bailout Unexpected drop in jobless rate fuels optimism

Some parents are hoping to secure financial aid, something they previously assumed they didn't need or couldn't get.

"We haven't qualified before. We might now," said Betty Morris of West Chester, Pa., who was touring Elon this week with her son Jack.

The good news for such families is that the college financial aid system is in many ways tilted toward higher-income families, thanks to tuition tax breaks and financial aid that is based on merit, not need. At Elon, for instance, about 40 percent of the 5,000 students get merit aid.

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