Monday, February 8, 2010

Loans Are Making a Comeback At Elite Schools

Posted by John S. Wilson at 11:00 AM
Not too long ago Ivy League universities and other elite colleges sought to rid loans from students' aid packages and replace them with solely grants and work-study. The decision was largely hailed as a step in the right direction, one that would increase socioeconomic and racial diversity (though some do not believe diversity is still a top priority - more on that later). Now those same schools are reversing course.
Not out of regret but for lack of financial soundness. To be sure, these schools will not be going bankrupt anytime soon but their endowments - which are the lifeblood of their future and legacies of their influential past - are hurting. The Wall Street Journal recently noted that "The five largest single-school endowments, which in addition to Harvard and Yale, are Stanford University, Princeton University and the Massachusetts Institute of Technology, have said they are planning for declines of 25% to 30% for the fiscal year." Harvard suffered the largest loss in its history.

This article by Inside Higher Ed   digs into how some universities are creating new aid packages for students that includes loans but with as little burden as possible. The Project on Student Debt ("The Project") has long tracked university aid packages and calculated student burden with and without loans.

Lauren Asher, president of the Institute for College Access and Success (which produces The Project), believes that schools :
[S]imply saying that a college has one [a no loan policy] doesn't necessarily mean that the institution is doing what it should to help low-income students. She said that rather than asking if colleges have a policy on eliminating all loans, the questions to ask (for policy observers and parents) are: "Are the colleges prioritizing financial aid in the overall budget, and, within financial aid, are they prioritizing the students who are most needy?.... You need to look at the fine print." 
 As Asher notes, a no loan policy doesn't guarantee an increase in diversity nor does it prove that universities have set that as a goal. But by taking this step back universities do risk having a less diverse student body if they are not able to plug the financial hole. With Pell Grants still woefully low and unable to pay for much more than a quarter of a semester at most private universities, financial aid offices are more reliant on state grants, work study, and internal scholarships.

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