Correction to This Article
This article incorrectly said that the University of Virginia's annual budget is $140 million. That is the university's academic budget from the state; the school's total annual budget is more than $1.2.billion.
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As college costs rise, loans become harder to get

David Ottalini's son Russell, left, has faced a tougher time finding the money for college than his brother Daniel did in 2004.
David Ottalini's son Russell, left, has faced a tougher time finding the money for college than his brother Daniel did in 2004. (Sarah L. Voisin/The Post)
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Wall Street financiers packaged student loans into securities and sold them off to investors, who could trade them just like stocks. That, in turn, provided more money for lending, helping to make student loans cheaper and more available. Even people with poor credit histories could easily get a loan.

But during the last academic year, private student loan volume fell by half as financial firms became wary of lending to students, who generally do not have long credit histories. Officials from Sallie Mae, the industry leader in student lending, said they expect another significant decline this year.

Nor have families been able to keep borrowing against the value of their homes, which seemed for years to appreciate with no end in sight. Second mortgages have been shrinking along with real estate values. Money made available by banks to homeowners through home-equity lines of credit has fallen by 25 percent, to $538 billion, since the end of 2007, according to federal data.

About a decade ago, financial planners began to tout the benefits of 529 plans, which invest families' savings in the stock and bond markets with the aim of keeping pace with the growth in college expenses. Even before the crisis, these plans couldn't keep up. Then, in 2008, the average 529 plan lost 20 percent of its value.

And no longer can students count on the credit cards once available so freely, often by salespeople who lined campus walkways, offering free T-shirts and coffee mugs with their plastic. Many students used the cards to pay for books, meals and more.

Lawmakers passed a bill in May that dramatically curtails the issuance of credit cards to anyone younger than 21. Most consumer groups support the measure, saying credit card lenders have been taking advantage of naive youths, charging them hidden fees and exorbitant rates. Currently, about 84 percent of college students have credit cards, carrying balances of more than $3,000 on average, according to a study by Sallie Mae.

But some students said the law will cut off a critical source of credit for everyday expenses.

After Shauna Stuart, a senior at the University of Maryland, was denied student housing, she had to drive to campus and counted on her credit card to pay for gas and other costs of maintaining her car. She also used the card to buy food and cover unexpected expenses. One semester, when money was especially tight, Stuart bought her books with the card.

"It would be really difficult to not have it," she said.

Financial planners say parents will now have to carry more of the financial weight for their children. Students on their own can obtain federally backed Stafford loans, but they have limits of about $5,500 a year. The other major type of federally backed student loan, known as Parent PLUS, has no limit. But it requires Mom and Dad to co-sign, making them ultimately responsible for repayment, and the interest rates for these loans have nearly doubled in the past five years.

"If you are the average family and you've got two car payments and a mortgage, sadly, you are probably living paycheck to paycheck these days," said Gary Carpenter, executive director of the National College Advocacy Group. "And you've got a big problem -- how are you going to afford a state institution at $20,000 a year, not to mention a private one for than $40,000?"

Some educators worry that college programs will sacrifice quality to contain costs or become limited to those who can afford it.

"The big macro question is: Will we have to sacrifice the quality of education, or the access, based on talent rather than the ability to pay?" said Marx, the Amherst president. "Either of those make America less competitive for the next generation."

This report is the sixth in an occasional series.

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