New Math for College Costs

March 13, 2006 issue - Higher education just got more expensive. Under the new federal budget, interest rates will rise on student loans. Many lenders will start charging students higher fees, as well. College costs are up anywhere from 6 to 7 percent, depending on the type of school. Small, additional federal grants are planned this year for some of the neediest students. But Pell Grants—the government's basic aid program for the poor—haven't risen since 2003.

As a result of cost constraints, we're seeing more "sorting" by income and class in American education. The average private college is trolling for students who can pay. Students in well-to-do families are switching in larger numbers to public universities, perhaps because their parents haven't saved enough for education and retirement, too. The quality publics are also enrolling more out-of-staters (who pay higher tuitions), leaving fewer spots for the in-state poor. The poor are shifting to two-year community colleges.

There's good news: despite the cost, enrollment by students with modest incomes has grown significantly since 1982, says economist Sandy Baum, senior policy analyst for the College Board. Nevertheless, the attendance gap is huge, between high-school graduates with money and those without. More than cost may be at work. But taking cost first, here's what's up for the next school year:

Pell Grants for low-income students. Starting July 1, something more will be added: up to $750 extra for those who complete a "rigorous" high-school curriculum; up to $1,300 for second-year Pell students who earn a 3.0 average, and up to $4,000 for juniors and seniors, if they major in math, science, technology, engineering or certain foreign languages and keep their 3.0. The Feds are scrambling to write the program's rules. No one knows how many students will qualify.

Government-backed student loans. Today's variable rates are changing to fixed rates for new loans. Starting July 1, borrowers will pay 6.8 percent, up from 5.3 percent today. Existing student loans will still bear variable rates, which could rise even higher. New PLUS loans for parents will rise to 8.5 percent (up from 6.1 percent). For the first time, they'll be open to graduate students, too.

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