OCTOBER 2007 :: COLLEGE & MONEY

A Better Deal on College
Schools Try New Ways to Make Education More Affordable

BY JANE J. KIM AND ANJALI ATHAVALEY
The Wall Street Journal

As college tuition continues to outpace inflation year after year, many schools are experimenting with ways to help more students afford the potentially crippling costs.

Spurred in part by increased competition for the best students, a number of colleges launched new programs for this fall that include freezing tuition, offering more grants instead of loans, and tinkering with financial-aid formulas to reduce the amount families are expected to contribute. Unlike past aid efforts, which mainly helped financially needy students, the latest moves also stand to benefit more-affluent families.

Many colleges today can afford to be more generous, because of their own investment gains. And they are under pressure to do so as growth in federal financial aid has been dwarfed by rising school costs. College costs, including tuition, fees and living expenses, can top $45,000 a year at some private institutions, and tuition and fees were projected to rise a further 5.5% to 5.8% this year, according to the National Association of Independent Colleges and Universities. State school costs are lower, averaging close to $13,000 if room and board are included, according to the College Board, but increases from year to year can fluctuate sharply, depending on a state's fiscal health.

The Clincher

The new programs are luring students. Victoria Tran of Colleyville, Texas, was accepted by her top choice, Baylor University, and four other colleges. But she chose the University of Texas at Dallas largely because of its lower tuition and new guaranteed-tuition program, which allows students to pay the same tuition-$8,554 for a full year-for as long as they are enrolled.

At Emory University, a new program called Emory Advantage is giving out grants in lieu of offering federal need-based loans to students whose families earn up to $100,000 a year. "Middle-income families feel particularly impacted by the lack of financial aid or the fact that [they] are not getting as much attention," says Daniel Walls, associate vice provost for enrollment management at Emory.

Brandon Bedford of Ocala, Fla., says he doesn't expect to have to take out any student loans because Emory offered to cover the bulk of his $46,000 a year in school expenses through grants and work-study programs. Mr. Bedford says he turned down an offer from another prestigious college that would have required him and his parents to borrow $27,000.

"That was definitely too much," he says.

More schools also are starting to give a break to homeowners. A group of 28 elite private colleges began using a more generous financial-aid calculation this year that is expected to reduce the expected contributions for families whose homes have appreciated. The group, which includes schools such as Duke University, Dartmouth College and the University of Pennsylvania, had previously asked financial-aid officers to count the full market value of a house-up to 2.4 times a family's income-as an available asset, regardless of how big a mortgage the family was carrying. This fall, the schools started counting only home equity, which is market value minus mortgage debt, and cap that amount at 1.2 times income. It "allows us to focus on the reality of a family's financial strength," says Jim Belvin, Duke's financial-aid director.

Stanford University also said recently it would begin capping the amount of home equity assessed in the calculation of a parental contribution. The move is expected to reduce parental contributions for families with significant home equity by $2,000 on average, Stanford says. The university also created new guidelines for middle-income families that would reduce the amounts students are expected to borrow, and replace the balance with grants and scholarships.

For smart, affluent kids who don't qualify for financial aid, some of the best deals can be found at smaller, middle-market schools, many of which are offering merit-based scholarships that discount tuition 10% to 50% to a majority of their incoming students, says Paul Hamborg, vice president at Human Capital Research, which advises colleges on enrollment strategies. That's a big shift from a few years ago when schools typically offered scholarships to only a handful of students.

At Knox College, a private school in Illinois, that charges $35,478 for tuition, fees and room and board, over half of admitted applicants receive some type of merit-based scholarship, which can range from $2,000 to $15,000 a year. About half the students at Rhodes College of Memphis, Tenn., where the full cost of attendance is $38,120 a year, qualify for merit-based scholarships. Typically, to qualify for merit-based scholarships, students have to have strong test scores, top GPAs and other leadership qualities.

Graduating Without Debt

Other colleges trying new approaches to attract students include Davidson College of Davidson, N.C., which announced a new policy that will eliminate student loans from financial-aid packages entirely, funding students' financial need through grants and student employment. Such moves can help students graduate with fewer loans, easing their debt burdens. Freed-Hardeman University in Tennessee, has said it will freeze tuition and fees at the current year's levels for new and returning students. Still others, ranging from George Washington University to regional schools like Ohio's Hiram College, have adopted tuition guarantees that enable each incoming class to lock in the tuition they pay as freshmen until they graduate, typically up to four or five years.

Some aid experts say such programs may not be as beneficial as they look. "Some of it is PR and marketing," says Mark Kantrowitz, founder of FinAid.org, a financial-aid Web site. When colleges cut tuition, they also often cut their student-aid budgets, so many students end up paying the same amount, he says.

And some colleges raise other costs. Princeton University this fall is freezing tuition at last year's level of $33,000, but the school is raising fees for room and board by 19%. Total costs at Princeton this year are expected to rise 4.2% to $43,980.