Economic Woes a Mixed Blessing for Students Seeking Aid

"Financial aid is affected by the many moving parts in the broader economic picture," explains economist David Braverman, author of "The Standard & Poor's Guide to Saving and Investing for College." The credit crunch, weakened job market and decreasing home values may make you eligible for more aid than you think. However, for some especially hard-hit families (like those who've had their homes foreclosed) these same factors could also hinder their ability to secure certain loans.

The key to finding out whether you're eligible for more money is to assess the impact that the slowing economy has had on your finances and assets. If you have reason to suspect that your tax return for 2008 will be even slightly lower than 2007's, inform the college right away to ensure you get ample aid for the 2008-2009 academic year, advises Carl Buck, vice president for Chase Education Finance. Otherwise, extra help won't arrive until fall 2009. Problem is that the Free Application for Federal Student Aid (FAFSA) that colleges use to parcel out loans and grants is based on your previous year's tax return, and so lags behind. Unless you alert the college, it has no way to know you're suffering financially from a sudden job loss, or dried up home equity. "Even with the economy tanking right now, most families are submitting old data," says Cindy Bailey, executive director of education finance services for the College Board.

"Ask for further review and reconsideration based on hardship," says Buck. "Colleges have discretionary funds to address these kinds of appeals. But we have to be real here: It's a matter of timing." The bulk of available aid gets allocated by March and offered to incoming students when they receive their acceptance letters. The longer a student waits to apply for aid, the more likely that help will come in the form of loans, rather than grants.

Current students can appeal by updating their FAFSA online and faxing the documents that support the changes in their financial situation to the college's financial aid office. A prospective student who has been accepted, but has yet to choose a college can try to secure a better offer by scheduling an in-person interview with the financial aid director at their top choice school.

Whichever way you appeal for more financial aid, be cautious. Some of the same economic factors that may entitle you to more funding, may also limit your ability to apply for it. Here are five economic factors and their potential impact on your chances of securing more financial aid:

When recession looms, a slowing job market is never far behind. The unemployment rate has hovered at 5% since December, with another 17,000 jobs lost in January. Even those employees with job security aren't safe from pay cuts. Last month, IBM announced a 15% base salary pay cut affecting nearly 7,000 of its U.S. workers.

Any annual drop in salary of 10% or more is worth reporting to the financial aid office, says Braverman. Even if you snag a new job fairly quickly, consider how that brief period of lost income affects your annual earning potential. "To a family paying for college, the difference between making $50,000 and $45,000 is significant," he says. As evidence of the hardship, present your termination papers, severance package or altered pay stubs.

Also, students graduating in the next year or two ought to consider the strength (or weakness) of the job market and what they might be earning post-graduation to determine how much they should borrow. "Just because there are limits on how much you can borrow doesn't mean you ought to borrow the full limit each year," says Bailey. If an on-campus job could pay for two semesters' worth of books, that's $1,000 less in interest-accruing loans you'll be paying off later.