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In November 2020, colleges and their millions of students were suffering from the economic sting of the coronavirus pandemic.
Colleges slashed costs after campus closures, prompting many to reimburse additional fees for services like dormitories and restaurants that support their budgets. They paid for costly COVID-19 testing and protection and provided more financial aid to students.
The budget crisis often meant it was time for austerity. But this month, Grinnell College, a private liberal arts institution in central Iowa, bucked the trend. It announced plans to provide $5 million a year to pay off loans from the participants’ financial aid packages, so that they can only rely on grants, scholarships and funds from student employment. The changes are scheduled to go into effect in fall 2021 for all applicants who are eligible for needs-based assistance.
Grinnell President Anne Harris — who joined as chief executive in 2020 after joining the college as top administrator in 2019 — formulated the policy at the time as one that would significantly reduce student debt, averaging $20,000 by the time they graduate would .
Students can still borrow if they want, and two years after the college’s announcement, the average debt load of Grinnell grads is still about $20,000, Harris said in a recent interview. The college also did not make past loans to those who had borrowed under previous financial assistance packages.
But Harris doesn’t think the no-loan approach is a failure. Instead, she said, it has reduced the need for students to work while studying at Grinnell and greatly simplified the financial aid process – winning them over as reasons to keep the policy.
Higher education experts also see value in non-credit financial assistance, which studies show can encourage enrollment for low-income students. Only a small subset of wealthy institutions can practicably enact it, however, and even then it requires careful financial management and planning, which Grinnell said is applied.
An idea from Princeton
In 2001, Princeton University pioneered observers referred to as a “radical” admissions strategy: a multi-million dollar commitment Eliminate credit from the granting of grants.
Senior executives praised Princeton, one of the nation’s wealthiest institutions, for using its foundation to steer the no-loan approach.
In the follow-the-leader trend of higher education, other institutions—first Princeton’s wealthy private peers and later prominent public colleges—began to adopt similar policies.
Now at least 20 colleges are offering financial aid packages to students that allow them to avoid debt, said Princeton last year. Many other institutions are cutting loans for students and families under certain income limits.
The benefits of credit-free policies for Princeton and these other colleges are well documented.
More than 80% of Princeton students graduated with no debt, the Ivy League institution said.
More broadly, the introduction of a no-loan program can result in an approximately 3 to 6 percentage point increase in low-income student enrollment at institutions that offer no-loan admissions. found a study from 2013.
It can also help attract applicants and reduce barriers for families who are finding it difficult to go through a stressful financial aid process, said Jill Desjean, senior policy analyst at the National Association of Student Financial Aid Administrators.
Often, many types of funding include financial assistance packages — state and federal loans, scholarships, benefit assistance and need-based assistance, Desjean said.
“For some students, it’s their first experience of debt,” she said. “Terms that you get used to as an adult – interest rates, repayment schedules, things like that – can be hard to understand, so not having credit makes things a lot easier.”
At Grinnell, administrators realized during the pandemic that they were already pumping funds into several different relief initiatives, Harris said. Grinnell paid for the students’ computers and their travel home. The college covered the costs of those suffering from food insecurity, she said.
“And then we started to realize that if we consolidate this into one big step, like we weren’t a loan, we could really make a difference,” Harris said.
What are the results?
Average Grinnell student debt has yet to come down, but some impacts of the no-loan policy were felt immediately, Harris said.
Prior to the facility, about 80% of the nearly 1,700 Grinnell students worked on campus, some as part of their financial aid packages. Under the new no-loan policy, that proportion fell to about half of the students, Harris said.
Officials pondered whether to attribute the decline to pandemic-related stressors — perhaps students didn’t want to apply for jobs on top of their studies during a turbulent time, Harris said.
But they found the trend continued even as COVID-19 restrictions eased, Harris said.
She was more reluctant to credit the no-loan approach with driving the changing demographics of Grinnell’s applicant pool and student body, although research has also proven These policies benefit students from ethnic minorities.
Grinnell’s First graders 2022, which had 441 students, was almost 30% black and Indian students and other colored students, not counting international enrollments. The college also threw in the largest percentage of Latino students in its history.
This is a particularly noteworthy achievement for a liberal arts college in the heart of Iowa, a state where 90% of the residents are white.
Harris estimates the no-loan initiative will help 1,100 Grinnell students — more than 60% of the entire student body. Grinnell is packing about $68 million in financial aid this year, Harris said. The tuition sticker price for the 2022-23 academic year is $60,988.
A steady financial hand needed
However, securing the future of the program is no easy task.
Few institutions are wealthy enough to maintain no-loan policies, which explains why they are not widely used, said Justin Ortagus, professor of college administration and policy at the University of Florida and director of its Institute of Higher Education.
And because Grinnell’s student body is smaller than other institutions that have tried a no-loan approach — like Harvard University — it’s a relatively less expensive proposition, Ortagus said.
Harris said Grinnell administrators correctly recognized that they would need $5 million annually to keep the program running. She commended officials for closely monitoring the university endowment to ensure the viability of the no-loan program.
Grinnell is also needs-blind to domestic students, meaning it doesn’t consider applicants’ financial situation when making admissions decisions. It also meets the proven needs of students. Both initiatives are expensive.
The college relies heavily on its endowment, which totals about $2.5 billion, Harris said. This is an enviable financial center compared to many other institutions, but the sky-high returns some colleges have seen on their endowments in 2021 have started to decline.
The university’s endowment return in the 2022 financial year was -13.3%. The annualized five-year return was 9.6%.
The fear of having to withdraw from a no-loan program is real.
Williams College, a premier liberal arts institution in Massachusetts, introduced a pilot version in the fall of 2008 but I canceled it a few years later amid the ongoing turmoil of the Great Recession.
In the end Williams brought the program back this year. And for the first time for a US college, it has even removed undergraduate work from its financial aid packages. However, that process dragged on for years, and the college went to the trouble of discarding it altogether.
These policies aren’t perfect either. Students can continue to borrow to cover other expenses in addition to tuition and fees. Grinnell said it still subsidized students for costs like transportation home.
And because only a small cohort of colleges can afford credit-free policies, they tend to benefit the select few students who are admitted to those institutions.
Grinnell’s acceptance rate has declined in recent years and is about 9% for this year’s class. That equates to 11,658 applications – up 300% over the last ten years – and offers of admission sent to just 1,073 applicants.
About five years ago, Grinnell’s approval rate was 20%, Harris said — speaking to one of her last points about the no-loan policy.
Increasingly exclusive, Grinnell wants to be seen among the Williamses of the higher education world — an “elite” cadre of colleges, she said. No-loan policies help rank the college among them and will serve as a marketing tool, she said.
“I like to think that we’re elite without being elitist,” Harris said. “It puts us in that category of elite institutions, but we deliberately don’t want to be elitist by providing access.”