CHICAGO - Finding financial aid for college this year promises to be tougher than any final exam.
The quest for money that begins for students and parents every January has taken on new urgency in 2009 amid fears that loans and grants will be scarcer than in the past because of the recession.
"The financing system for college is in real crisis," said Barmak Nassirian, associate executive director of the American Association of College Registrars and Admissions Officers. "Every one of the participants in the system is experiencing hardship - higher education institutions, states, aid donors and families all are cash-strapped."
Federal student loans remain readily available - with some funding even increased recently by Congress. But the prospect that grants and scholarships may be cut at many schools, combined with the shrinking availability of private loans, has fueled widespread angst at a time when more people than ever are seeking help. Applications for federal aid for the current academic year already are running 10 percent above last year's record pace, according to the Department of Education.
Savings held in Section 529 plans - the state-sponsored investment funds for college that are popular for their tax breaks - have been depleted by the worst bear market in decades and home equity values have plummeted.
That sapped two sources used most often by parents to fund their children's higher education. Colleges' endowments have been similarly walloped.
Private student loans are especially hard hit. Last year, 60 private lenders provided $19 billion to students. Now, 39 of those have stopped lending to students and the remaining firms have made it harder to borrow, according to Finaid.org, a Web site that tracks the industry.
"The stress level is high," said Rod Bugarin, financial aid adviser for the New York-based college consulting firm IvyWise.
Numerous revenue-short states are likely to consider cutting aid in one way or another, and public colleges and universities are expected to raise tuition - in some cases by double digit percentages - as they set rates for next year.
Scholarships from civic groups and local companies across the country also are likely to decline, Bugarin said, although it's too early to know the extent.
What it all means is that families and college counselors have to hold difficult conversations about reduced savings and the need to take on more debt and lower sights to focus on more affordable schools.
"There are no sure answers because we're in new territory," said Bruce Hammond, a Washington, D.C.-based college admissions consultant and co-author of The Fiske Guide to Getting into the Right College. "But students with high need and lesser credentials are going to have to brace themselves for less aid."
The key to success in the "convoluted" financial aid process is good information, and there's lots of it available through schools' aid offices and online at such sites as Collegeboard.com and Princetonreview.com.
Indeed, the news isn't all bad. The federal government has authorized about $95 billion in grants, loans and work-study assistance to help almost 11 million students and their families pay for college this year, and its recent commitments mean that total will all but certainly be exceeded next year.
"It's scary, but not as scary as people might think," said Lauren Asher of the California-based Institute for College Access and Success, an independent nonprofit group.
Among the encouraging developments for parents and students:•The government broadened student borrowing in the midst of the credit crunch, ensuring the continued flow of federal loans on which families depend ahead of costlier private ones. Among other changes, annual borrowing limits for unsubsidized Stafford loans, which students can take out regardless of income, were raised by $2,000 and parents now can defer repayment of federal loans until after their child leaves school.
Stimulus proposals that would give students more financial aid also are progressing through Congress.
"This certainly has been an unprecedented disruption in the student loan marketplace," said Mark Kantrowitz, publisher of Finaid.org. "But Congress and the Department of Education have acted quickly to avert a crisis."
•No school is known to have withdrawn pledged financial aid this academic year despite financial setbacks that have prompted them to make cuts elsewhere. A number of top institutions, such as Harvard, Yale and Duke and even smaller institutions with large endowments, announced expanded aid last year and have insisted they will stick to those commitments.
Aid can make a huge difference in affordability. The average list price of tuition and fees for the current academic year is $6,585 for in-state students at four-year public universities and $25,143 at private colleges, with some costing far more. But grants and tax breaks lower the average net price to about $2,900 at public universities and $14,900 at private schools, according to the College Board.
•Some students will benefit from the turmoil, especially at colleges with high tuitions and scarce resources.
"These places continue to jack it up," Hammond said of tuition increases, "so if you can pay the full outrageous fee in this economy, as long as you can walk and chew gum, you will be admitted. And if you're pretty good - average, even - you might get a $10,000 merit scholarship."
Admissions experts recommend considering a range of fallback options, such as lower-cost public schools, community colleges or even waiting a year to save more money. And colleges and parents alike are hedging their bets on next year and beyond.
Administrators at Ohio State University see no big immediate impact on aid from the economy but are concerned about what may happen in the longer term, said Bill Shkurti, chief financial officer. The school's endowment has fallen by as much as 30 percent from $1.5 billion a year ago but accounts for just 2 percent of operating revenue, he said.
The University of North Carolina at Wilmington, with a much smaller enrollment and endowment, similarly has taken a hit. In a scenario likely to be repeated on many campuses, financial aid director Emily Bliss says the school is bracing for unpleasant conversations with parents about next year as it relies more on loans in its aid packages and eliminates some of the "free" money.
"Grants and scholarships won't all come through," she said. "It's difficult for us to tell families that, because our heart is breaking for them knowing what they're going through."