Harvard University, Amherst College and Pomona College have something in common: No loans in financial aid packages.
These institutions are among a handful of schools that package financial aid awards with grants instead of federal student loans. While more than 50 institutions offer a no-loans policy to families from low-income backgrounds, a small number — 16 schools — extend the policy to all of their students.
A no-loans policy replaces federal student loans with grants that the university pays.
“They tend to be the richest private schools that are super selective and very hard to get in to. Most of the Ivy League schools have no-loans policies and other similarly rich schools,” says Shannon Vasconcelos, director of college finance at College Coach, an admissions consulting firm.
Nine of the schools with a full no-loans policy — meaning there are no income restrictions for eligibility — have endowments greater than $2 billion, U.S. News data show. These schools include Vanderbilt University with $3.8 billion and Yale University with $25.4 billion, to name a couple of no-loans-policy schools with large endowments for the 2016 fiscal year.
“You need to have a pretty large endowment to be able finance these kinds of generous financial aid policies,” Vasconcelos says.
Princeton University, which reported an endowment of more than $21.7 billion for fiscal year 2016, was the first college in the country to offer no-loans aid packages in 2001. The New Jersey school ranks as the No. 1 Best Value school among National Universities in the U.S. News rankings.
At Princeton, the average debt of a 2016 grad was $8,908 — that’s a third of the national average among all ranked schools, according to data submitted to U.S. News.
“Once one school starts offering a more generous policy then the others start jumping on board to compete with that school to recruit the same students,” says Vasconcelos, who notes that many of these schools added the policy before the Great Recession.
Not all Ivy League schools offer a total no-loans policy. Cornell University, for instance, scaled backed its policy so there is a lower income cutoff. Under its policy, only families earning less than $60,000 per year qualify for a grant-only aid package. The program used to have a cutoff of $75,000, but that changed in 2013.
Financial aid administrators say these programs are very expensive, especially if a school’s endowment isn’t performing well.
Brown University, despite having a lower endowment compared to other schools that don’t offer a no-loans policy, announced in late September that it will eliminate loans from financial aid packages to all undergraduates in 2018-2019.
Currently, Brown limits grant-only aid awards to families with incomes below $100,000 per year. For families with incomes less than $60,000 annually, the school waives any calculated parent contribution so the award covers the full cost of attendance without loans or any family contribution.
The policy has meant an increase in low-income and first-generation students, Brian Clark, a Brown spokesman, said via email.
“This new initiative is intended to extend that commitment with a specific focus on moderate-income families, who often do not qualify for the generous financial aid offered to low-income families by Brown and some other universities, yet also do not have the full resources to cover the cost of attending college.”
Alison Rabil, the director of financial aid at Duke University, says no-loans policies are meant to lower borrowing among students and increase a class’ economic diversity.
While Duke may not have the most generous policy compared with some schools, Rabil says the university has a no-loans policy for students from families who earn less than $40,000. For families earning more, the school caps federal loans to $5,000, filling the rest with grant money.
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Rabil says when Duke introduced its policy in 2008, student loan borrowing dropped, and since then it’s plateaued. In fact, the average indebtedness of a Duke student who graduated in 2016 was $22,526, U.S. News data show. That’s almost a quarter less than the national average.
Experts say that even if a school limits its no-loans policy by income, it’s a big help to the population that needs it the most. Oftentimes, Rabil says, students from low-income households are most averse to borrowing for higher education.
“Being able to say that you are a no-loans school has an appeal to families that can understand the implication of graduating without having to borrow,” says the Duke financial aid director, who adds that it sends a strong message to lower-income families. “It’ll help them to understand they can afford to come.”
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Schools That Offer No-Loan Aid Packages To Students originally appeared on usnews.com
