College on the Installment Plan : Schools and firms are trying unusual approaches to make the cost of higher education more affordable.

Like many colleges and universities, USC is constantly faced with the challenge of how to make its rising tuition and other costs more affordable. This year, the school is trying something new: an installment payment plan.

Under the plan, similar to ones already in place at several other schools in California and nationwide, incoming freshmen and their families can pay annual costs over nine monthly installments, starting in the spring. As many as 300 of the school’s 3,000 incoming freshmen are taking advantage of the plan in its initial trial year.

“It’s been very well received,” says Tom King, USC’s associate dean of admissions and financial aid.

USC’s installment plan is among stepped-up efforts at colleges and universities as well as state governments and private corporations to help students cope with rises in college costs that are outpacing inflation.

Because federal support is a declining share of total financial aid, institutions must increasingly bear a greater burden of finding new sources of jobs or loans, or creative payment methods.

“We’re going back to the way it used to be before all these government programs, when the parent paid the cost or the student worked,” says Ted Andrews, USC’s director of student financial operations.

A look at the changing composition of financial aid these days tells why jobs, loans and new payment methods are growing in importance.

Many More Students

Despite Reagan Administration budget cuts in the early 1980s, total federal, state and institutional aid nationwide has grown 10.5% on an inflation-adjusted basis since 1980-81, to $26.7 billion in 1988-89, according to the College Board, an education research organization.

But the total number of students has risen even faster, meaning that total aid per student has probably declined, says Larry Gladieux, executive director of the College Board’s Washington office.

In addition, sources of support are shifting. The federal government still accounts for the lion’s share of financial aid, at about 75%, but that’s down from 83% a decade ago. Picking up the slack are colleges and universities at 19%, up from 12%, and state governments at 6%, up from 5%.

Also, much more of the aid is coming as loans instead of grants. Today, students must borrow $9 for every $1 they get in grant money, says Dan Parker, public information officer for the California Student Aid Commission. A few years ago, the loan-to-grant ratio was $6 to $1, Parker says.

Schools are constantly looking for even more sources of loan money, often drawing from their own endowments or from the private sector.

One rapidly growing private sector source has been the Student Loan Marketing Assn., a government-chartered company better known as Sallie Mae. It has become a national student loan bank, supplying billions of dollars of investment capital by buying federally guaranteed student loans originated by banks. Sallie Mae also raises money from private investors and then lends it to schools, which in turn lend the money to parents of students.

“They are a major force in this business,” says Pat Smith, director of legislative analysis for the American Council on Education, a Washington research organization.

There has also been growth in the past few years of supplemental loan programs, often offered to credit-worthy parents by private lenders or by groups of collaborating schools. Banks such as Irving Trust of New York and Mellon Bank of Pittsburgh, for example, offer lines of credit. The Consortium on Financing Higher Education, a group of 30 elite universities, offers loans to parents of up to $20,000 a year for four years.

Big Firms Helping

Colleges and universities are also trying to make on-campus jobs more challenging and career oriented.

At Whittier College, for example, one student is working with a professor doing computer modeling for international peace negotiations, said Terry McBride, the school’s controller. Some schools also provide opportunities for students to own and operate their own businesses, or provide hot lines or networks to help them find challenging off-campus jobs.

Large corporations also are increasingly getting into the act. The Carl’s Jr. restaurant chain, for example, recently announced a pilot program to encourage college kids to stay on the job by providing aid for tuition, books and other expenses.

Schools, sometimes in conjunction with private corporations, are also adopting programs that make payments easier to handle.

Besides USC, Pepperdine is introducing an installment plan that allows students or their parents to pay in nine monthly increments. Similar plans are in place at Stanford University, Whittier College, Cal Lutheran and other local institutions, says Kevin Whalen, executive vice president of Academic Management Services, an East Providence, R.I., firm that processes installment plans for some 1,300 schools nationwide.

USC and other schools also allow parents to pay for all four years of their children’s schooling up front in one lump-sum amount, as a way to avoid future tuition increases. But few families have the financial wherewithal to afford such a large one-time outlay.

Start Ahead of Time

Perhaps the greatest attention and controversy in the financial aid field these days is centered on the growth of prepaid tuition plans. They allow parents to pay for their children’s college education by investing into savings-oriented vehicles years before the kids reach college age. Parents invest money into a trust, savings account or other financial vehicle, whose assets grow over time.

“Financial aid planning should begin long before the classroom bell starts ringing,” says Parker of the California Student Aid Commission in emphasizing why longer-term planning is important.

Michigan and Wyoming are among a handful of states that have created statewide tuition prepayment plans. California’s Legislature passed a bill creating a similar plan, but it was vetoed by Gov. George Deukmejian.

To overcome the geographical limitations of state-sponsored plans, private firms are beginning to offer their own versions. Hemar Education Corp. of America, a private educational financing firm, is awaiting regulatory approval for a plan that would offer prepaid tuition plan that could be applied to a number of schools nationwide.

But such plans still face legal or tax hurdles. The Internal Revenue Service, for example, has yet to rule on whether the investment growth in prepaid plans is taxable. If so, it could seriously jeopardize the plans.

GROWTH OF FUNDS Growth of financial aid funds in California, including federal, state and private monies, in billions of dollars. School year 1973-74 $0.416 1980-81 $1.022 1981-82 $1.210 1982-83 $1.126 1983-84 $1.288 1984-85 $1.430 1985-86 $1.470 1986-87 $1.626 1987-88 $1.871 1988-89 $2.161 Source: California Student Aid Commission