No Loan Degrees — It’s possible!
By Bahar Akman Imboden
At Hildreth Institute, we believe that colleges and universities have an important role to play in fixing our financial aid system. The student debt we are assuming as a society has become unsustainable: it threatens the stability of our economy, the well-being of our youth, but also the financial health of our higher education institutions.
We encourage Massachusetts colleges and universities to join our #ZeroDebt coalition. We also call students and alumni to action by signing our petition demanding a #ZeroDebt Future. Seventy-Six campuses have already adopted partial or full no loan policies, and they are not exclusively highly selective elite private institutions: 31 of those campuses are public universities.
Why do we advocate for ZeroDebt Campuses?
- Research shows that no-loan programs result in greater socioeconomic diversity at public  and private  campuses.
- Other financial aid policies have not been as successful to increase the levels of low-income students, even at highly competitive schools.
- For public research universities, a no loan program can increase students’ likelihood of graduating by 10 percent.
- The longer a campus operates a no-loan program, the greater economic diversity it achieves.
- Students who are offered no loan financial aid packages are less burdened by debt after graduation.
- Graduates with less debt are more likely to choose public interest jobs, which benefits individuals and the larger society. A study shows that an extra $10,000 in debt corresponds to a 5–6% decrease in the likelihood of pursuing a public service career.
- Research shows that alumni who borrowed student loans are less likely to contribute to their alma mater. The larger the amount borrowed, the lower the likelihood of contributing.
There is a clear consensus among scholars that no-loan degrees are beneficial for students, for colleges, and for the overall economy. Less burdened graduates are economically and socially more engaged and active.
Below we provide a short literature review of the research on no-loan policies. We discuss the desirability and financial feasibility of adopting no-loan policies, along with the best-practices that emerged in the last twenty years of experimentation. Last, we highlight a promising federal level bill proposing state-federal partnership with a goal of moving towards #ZeroDebt degrees for all students.
History of No Loan Campuses:
Princeton University was first to adopt a no-loan policy in 1998 and prove its effectiveness: in less than 10 years the number of low-income students enrolled had doubled while the average student loan debt at graduation declined from $15,000 to less than $4,000.
Witnessing these positive outcomes and faced with widespread criticisms over escalating tuitions and the inadequacy of need-based aid, more than 60 colleges adopted full (eligible to all students) or partial no-loan policies (eligible to students in certain income brackets) in the mid-2000s.
Today, there are a total of 76 Zero-Loan colleges and universities, of which eight are in Massachusetts (see table below). While financial factors such as endowment performance, seed funds, and gifts are important, scholars have found that there are also some critical non-financial mission-driven factors that determine colleges’ interest in adopting no-loan policies, such as the desire for socioeconomic diversity, the need to maintain institutional reputation and prestige, or the presence of strong internal advocates. Therefore, it is not only highly selective elite private institutions that have opted for no-loan policies: of the 76 campuses 31 are public universities.
Desirability of ZeroDebt Degrees:
College officials are acutely aware that parents and students are increasingly anxious about borrowing larger amount of debt to pay for the exorbitant tuition rates. They have desperately sought ways to improve potential applicants’ perception of their colleges’ affordability. As the average discount rate at private colleges reaches 49% , four-fifths of college leaders admit that the current college pricing system is unsustainable. Hence the increase in tuition freezes, tuition cuts, or resets that we have been witnessing in recent years. These policies represent a step in the right direction as they increase much needed transparency in college pricing. Rather than discounting high tuition rates (also known as the sticker price), these colleges have chosen to look more affordable by advertising a price that is closer to what they are actually charging (also known as the average net tuition and fee). While these policies have resulted in higher enrollment numbers, they are not solving the debt burden.
Colleges leaders are also aware that their institutions have become dangerously dependent on the availability of student loans. The only way they can charge such high tuitions is because students and parents have access to easy credit. As we witness the long-term financial harm caused by student debt, the increase in non-repayments and default rates, and the ballooning costs of the forgiveness clauses, the long-term viability of the student loan program is at stake. This is a real worry for college leaders, a recent survey shows that 76% have expressed being very concerned in changes in Federal student loan policies. If restrictions were to be enacted on the availability of student loans or the generousness of its repayment plans and forgiveness programs, many colleges would face serious financial problems. By gradually weaning themselves off student loans, colleges can be stronger and better prepared for the collapse of an unsustainable financial aid system.
Last, colleges have a lot to gain in popularity by adopting no loan policies. A recent poll we conducted in MA shows that nearly seven-in-ten (68%) voters blame tuition increases by colleges and universities for the student debt problem. By actively publicizing these programs and reaching out to students from disadvantaged communities, colleges can change the negative reputation they have inadvertently generated by adopting high tuition/high discount model. A visible and positive #ZeroDebt campaign will attract more applicants from diverse background, it will make alumni proud enticing them to donate, and it will change the perception that colleges are expensive, elitist, and unattainable to most.
Financial Feasibility of Zero Debt Degrees:
First, for selective elite schools with high enrollment demand and enough students who can afford large portions of the sticker prices, a partial no-loan policy is not only attainable, but also lucrative. They can increase their yield while using the partial no loan offers to craft diverse classes and still increase their annual net tuition and fee revenue. Best practice dictates that this policy should be used to increase total proportion of low-income students on campus. Therefore, the temptation to be opportunistic by using the increased demand to skim the best of low-income high-achievers without increasing diversity or the proportion of low-income students should be avoided.
Estimates show that any college with an endowment per FTE enrollment exceeding $500,000 can afford a partial no loan program. Using this simple formula developed by college financing expert Mark Kantowitz, colleges can determine whether a partial no loan policy is financially feasible for their campus:
For colleges and universities where their current financial situation does not allow for any sort of no loan policies, there are still several options. Colleges should capitalize on the attractiveness of a ZeroDebt campaign to fundraise. As concern over the growing student debt burden is high, increasing fundraising goals for need-based scholarships or creating new categories for donations such as “Access and Diversity” or “Zero-Debt Degrees” are good strategies for attracting new donations towards this goal.
Colleges that have launched fundraising campaigns to fund their no loan programs have been surprised by the success. In December 2017, Columbia University College of Physicians and Surgeons received a donation of $150 million for the establishment of an endowed scholarship to eliminate loans from the financial aid package. While university officials anticipated it would take years before the funds grew large enough to create the program, the idea attracted so much donations that they will be launching this July. Similarly, Dartmouth College has recently announced its intention to become a ZeroDebt campus. It launched a $3 billion capital campaign “The Call to Lead” of which $80 million which will be used to eliminate loans its financial aid packages. Ten days after announcing it, Dartmouth had already raised $20 million.
Last, it is clear that to fully transition to a Zero Debt public higher education, reforming our financial aid system will be necessary. Colleges and universities have a lot to gain by legislation that increases funding for grants and scholarships to replace the current over-reliance on student loans. There is a clear preference for solution that include ZeroDebt. Our recent public opinion poll shows that there is strong bipartisan support across all demographic groups for creating a zero-debt public college (82 percent), and increasing funding to public universities (81 percent) among Massachusetts voters.
The legislators are aware and have been proposing several overlapping bills which have recently being regrouped to be studied under a Commission: the Resolve establishing a commission on tuition and fee-free and debt-free public higher education (Senate, №2469), which includes proposals to:
- ensure that students from Massachusetts have access to debt-free higher education at public colleges and universities (Senate, №672)
- promote access to debt-free public higher education (№681)
- legislation relative to community college tuition (Senate, №692)
- establish the Bridge the Gap Scholarship to universalize access to community colleges (Senate, №700)
- exempt residents of the Commonwealth from payment of tuition or mandatory curriculum fees at community colleges (House, №2088)
- Establish debt-free higher education at public colleges and universities (House, №638)
At the Federal level, there is a very promising bill as well: The Debt-Free College Partnership Act is calling for a voluntary state-federal partnership with the goal of providing for all eligible students attending Higher Education Institutions who are Pell grant recipients within 5 years of joining the partnership; and making progress towards the goal of providing debt-free college for all eligible students.
The moment is ripe for change.
- Hillman, N. W. (2013). Economic diversity in elite higher Education: Do no-loan programs impact Pell enrollments? The Journal of Higher Education 84(6), 80683. http://muse.jhu.edu/article/524834/pdf
- Linsenmeier, David, Harvey S. Rosen and Cecilia Rouse. “Financial Aid Packages and College Enrollment Decisions: An Econometric Case Study.” Review of Economics and Statistics (February 2006). http://www.nber.org/papers/w9228Tebbs, J., & Turner, S. (2006). The challenge of improving the representation of low- income students at flagship universities. In M. McPherson & M. Schapiro (Eds.), College access: Opportunity or privilege? (pp. 103–116). New York: The College Board.
- DesJardins, S.L., McCall, B.P. (2010) Simulating the Effects of Financial Aid Packages on College Student Stop-out, Re-enrollment Spells, and Graduation Chances, The Review of Higher Education, Vol.33, N. 4. https://www.researchgate.net/publication/234668361_Simulating_the_Effects_of_Financial_Aid_Packages_on_College_Student_Stopout_Reenrollment_Spells_and_Graduation_Chances
- No loan policies, even when tied to the cost of attendance, do not take into account the full cost of living, therefore they may not completely eliminate the need to borrow. Therefore, subsidized and unsubsidized federal loans can still be used to fill in a financial gap.
- Rothstein, Jesse & Rouse, Cecilia Elena, 2011. “Constrained after college: Student loans and early-career occupational choices,” Journal of Public Economics, Elsevier, vol. 95(1), pages 149–163
- Platt Jendrek, M., Lynch, J.M., (2007), “Student Debt and Alumni Giving” American Student Assistance. https://www.asa.org/wp-content/uploads/2017/06/student_debt_and_alumni.pdf
- Hillman, N. W. (2012), Economic Diversity Among Selective Colleges: Measuring the Enrollment Impact of “No-Loan” Programs, The Institute for Higher Education Policy (IHEP) Brief, Aug. https://eric.ed.gov/?id=ED534615
- Two reports by the Advisory Committee on Student Financial Assistance concluded that escalating college prices and inadequate need-based grant aid were hampering the nation’s attainment of bachelor’s degrees, particularly for millions of college-ready low income students (Advisory Committee on Student Financial Assistance, 2002; Advisory Committee on Student Financial Assistance, 2006).
- Lips, A. J. A. (2009). The adoption of loan replacement grants for low- and moderate- income students at American colleges and universities: A comparative case study (Doctoral dissertation). http://d-scholarship.pitt.edu/7126/1/Adam_Lips_Dissertation_2009.pdf
- Valbrun, M., (2018), Tuition Conundrum, Inside Higher Ed, https://www.insidehighered.com/news/2018/04/30/nacubo-report-finds-tuition-discounting-again
- The Tuition Pricing Crisis (2017), The Chronicle of Higher Education, Inc https://store.chronicle.com/collections/che-reports/products/the-tuition-pricing-crisis-how-college-leaders-are-responding-and-preparing-for-the-future
- Hillman (2012) finds that many colleges who already have some form of no-loan policy do a poor job of publicizing it to low-income students. In his research, he finds that “many campuses make it nearly impossible to determine whether they even offer a “no-loan” pledge”. This is a shame as many low-income students will never apply assuming that it is out of reach for them. It is indeed critical that when colledes adopt no-loan programs, they must also design an aggressive outreach and marketing campaign. Hillman, N. W. (2012), Economic Diversity Among Selective Colleges: Measuring the Enrollment Impact of “No-Loan” Programs, The Institute for Higher Education Policy (IHEP) Brief, Aug. https://eric.ed.gov/?id=ED534615
- Columbia Launches Scholarship Program to Eliminate Medical School Loans for Students With Financial Need http://newsroom.cumc.columbia.edu/blog/2018/04/11/vagelos-college-of-physicians-and-surgeons-launches-scholarship-program-to-eliminate-medical-school-loans-for-students-with-financial-need/