More universities rethink student loans as debt cancellation debate rages on

Ohio State University and Smith College are the latest institutions to try to save another generation of undergraduates from a burden all too common: student debt.

Starting next fall, schools will be pulling loans from their financial envelopes and instead investing philanthropic dollars in more grants for undergraduates. The decision is rooted in a realization that affordability is at the heart of national conversations about student debt.

The public policy debate over blanket student debt forgiveness is forcing colleges to confront their role in a lending system that provides essential access to those who wish to attend, but the cost of which may limit the value of education. superior. Eliminating the need to borrow positions from colleges to attract and retain strong students, but maintaining and expanding the policy is a challenge.

There’s a reason only 76 colleges and universities have adopted no-lending policies since Princeton University’s founding program in 2001: it’s expensive. Most of the schools employing the strategy have large endowments, enroll nominal numbers of needy students, and are selective institutions. Some universities counted in the ranks restrict eligibility or have had to cut their programs.

Yet as institutions compete for the best students – who are increasingly price sensitive or may lack financial resources – boosting grants to replace debt can become a central part of more aid.

“Colleges are legitimately worried about student loan debt, but they’re also worried that if they don’t, they won’t be able to compete for the students they want,” said Robert Kelchen, professor of education. higher at the University of Tennessee at Knoxville.

In many ways, Smith fits the profile of a typical college with a no-loan policy. The Western Massachusetts Liberal Arts College educates approximately 2,600 women at the undergraduate level, with an endowment of $ 2 billion. It has a prestigious reputation, but Smith’s president, Kathleen McCartney, wants to focus its inclusion on the new financial aid policy.

“There was a real racial disparity in borrowing – 89% of our black students had loans and only 56% of our white students,” McCartney said. “We worked on a plan to promote racial justice and fairness, and we thought we just had to eliminate loans. It will send a powerful message to our students that we are serious about racial justice.”

About 60% of Smith’s students depend on financial aid and graduate with an average debt of $ 19,000. Although that’s below the national average of around $ 30,000, McCartney said she believes the college could do more. Double-digit endowment returns associated with a $ 50 million graduate donation led the way.

A portion of the money will fund one-time grants of $ 1,000 for low-income students to start their college careers and $ 2,000 grants for senior graduates to get started in life after college. Taken together, the student aid initiatives represent a $ 7 million annual increase in Smith’s financial aid budget. The college expects it will grant more than $ 90 million in aid next year.

Freshman Livie Johnston, 18, said she almost cried after reading McCartney’s email announcing the initiatives. The Minnesota native borrowed $ 3,500 in her freshman year and had so far planned to use loans until graduation.

“I’m fully covered by Smith’s financial aid for the next three years of my studies here, which makes a very big difference to the affordability of graduate school,” said Johnston, who plans to major in English before. to pursue a master’s degree in library. and information sciences. “It really takes a lot of stress away.”

Giving undergraduates the ability to pursue their dreams without being burdened with debt is exactly what McCartney said Smith is trying to deliver. But is it sustainable?

“We did the modeling so that even if there is a slowdown, we will still be able to support this program,” McCartney said. “It’s a real priority. And we will carefully manage staffing to keep it a priority.”

Colleges and universities have had mixed results with loan reduction policies.

Some institutions, such as Lafayette College in Pennsylvania, have expanded their programs to include more students. At least two, Carleton College in Minnesota and Claremont McKenna College in California, ended their policies following the Great Recession of 2008. Several others, including Dartmouth College and Yale University, have cut back on generosity of their policies for the middle and upper levels. – income students.

Some schools have been victims of their own success. Take the University of Virginia, which introduced AccessUVa in 2004 for all undergraduates from families earning less than twice the federal poverty guideline. The initiative stimulated socio-economic diversity at the public lighthouse level. But costs nearly quadrupled as registrations increased, leading U-Va. to reintroduce loans a decade later.

Students protested the move, and the university maintained that it still offered generous financial assistance to those in need. In the process, U-Va. marked major donations that bolstered aid to low-income students, but never resurrected the loan-less initiative.

“There is a lot of volatility in these kinds of programs which naturally limits the types of institutions that can support them,” said Dominique Baker, assistant professor of educational policy at Southern Methodist University in Dallas.

Fluctuations in the number of eligible students come at a cost and colleges must account for every dollar, she said. Therefore, fundraising is critical to the lifespan of these programs. Kelchen, of the University of Tennessee, said donors seemed more interested in supporting students than facilities these days, giving colleges the opportunity to focus fundraising campaigns on financial aid.

Philanthropy is a driving force behind the Ohio State’s Scarlet & Gray Advantage program. The university plans to raise $ 800 million, including $ 500 million in endowments, over the next decade so that no student, regardless of income, will have to resort to loans. It’s an ambitious plan for an institution with 53,000 undergraduates.

To kick off the campaign, the state of Ohio and its major donors are creating a $ 50 million pool to match the first $ 50 million in private donations. President Kristina M. Johnson estimates that philanthropy will be 45% of what is needed to keep politics alive. She said the program has lasted due to the university’s multi-faceted approach.

All participating students will have the opportunity to work on or off campus, in the hope of contributing their income towards their studies. A mix of scholarships, state grants, and federal grants will help with the remaining expenses.

Johnson said the new policy builds on existing cost-cutting measures, including freezing tuition fees for students in the state and using cheaper open-access textbooks, which have already cut borrowing in the state. the state of Ohio. Less than half of students who graduated with a bachelor’s degree in 2020 were in debt. Those who did owed an average of $ 27,000.

“Sustainability requires intentionality,” Johnson said. “We are looking to be more efficient, more efficient.”

The program will start in fall 2022 with 125 students as a pilot. Unlike other loan reduction programs at public institutions, which target state residents, such as the University of Michigan, this one in Ohio will also be open to out-of-state students. The move could add a substantial cost to the initiative, as non-residents pay more in tuition, but Johnson points out that around 80% of undergraduates are from Buckeye state.

While no-loan policies can dramatically reduce student debt, they don’t always eliminate the need to borrow. Most schools with these policies, including Smith and Ohio State, use grants or loan alternatives to meet what’s called a demonstrated financial need – the difference between the cost of attendance and the expected family contribution. (EFC).

Because of the way the CFS is calculated – with a mix of income, assets, and household size – the dollar amount may be more than what a family can afford to pay out of pocket. Despite Princeton’s long-standing no-loan policy, about 17% of recent seniors graduated with an average debt of $ 9,400, according to the school.

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