Economics Justice

The University of Chicago is the Latest School to Eliminate Student Loans for Some Students

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More than 50 colleges across the country have made pledges to reduce or completely eliminate the need for students to borrow, with the University of Chicago joining the ranks on Wednesday. The university announced that beginning with next year’s incoming freshmen, it will replace student loans with grants for those receiving need-based aid.

*”We want to ensure that students of high ability can aspire to join this community without financial worry, and with comprehensive support for their success both in the college and beyond graduation,”* said university President Robert Zimmer in a statement.

A spokesman for the university says the initiative will be partly funded with money raised through the University of Chicago Campaign, which publicly launches in late October and aims to raise .5 billion by 2019. To date, the university has already raised more than billion. Between 50 million and 00 million will be set aside for financial aid, the spokesman says.

The university also has a hefty endowment to draw from, at nearly .7 billion – an amount on par with Duke University, the University of California system and the University of Notre Dame.

The idea is appealing at a time when total student loan debt has surpassed .2 trillion, and the average student who borrows graduates with nearly 0,000 in debt. The policies come in many forms, from schools limiting the “no loans” promise to students from families with incomes below a certain threshold, to others completely outlawing federal and private loans.

The College of the Ozarks began prohibiting students from taking out federal student loans more than 20 years ago, and in 2013 took its policy one step further in refusing to certify private loans students applied for on their own. To make up the cost of attendance, students participate in the school’s work program, and any federal or state grants they receive are applied toward the cost of education (about 8,000 per year). Anything left after those opportunities are taken into account is covered by an institutional scholarship.

Berea College in Kentucky has a similar method, in which all students receive an institutional scholarship which, combined with other outside grant aid and work earnings, covers all tuition costs for four years. Students and their families are still responsible for paying for room and board, health insurance and other fees, which totaled slightly more than ,000 annually, according to the school’s website. However, the school says fewer than five percent of students pay the full cost of those expenses because financial aid is still available.

But implementing a “no loans” policy can also come with unintended consequences, such as creating fewer incentives for colleges to enroll low-income students, overestimating how much a family can contribute to finance a student’s education or underestimating how much a student will need to spend on books, housing, food and transportation.

*”Often colleges with these policies will build in certain expectations of what students will be able to contribute from earnings or savings,”* says Debbie Cochrane, research director for the Institute for College Access and Success, or TICAS. *”Those earnings and savings are a lot harder to come by for low-income students.”*

If a family’s expected contribution is too high, then students and parents might end up having to borrow anyway.

Because replacing student loans with other types of institutional aid can put a financial burden on the colleges, it could also create an incentive to admit wealthier students who would have higher expected family incomes and who would be more likely to pay the full cost of attendance.

It’s important for colleges to look at how their policies can affect the enrollment of low-income students, as well as how they affect student debt overall and other outcomes, Cochrane says.

But achieving both, she says, is tricky.

Done one way, establishing such a policy can help increase recruitment efforts for low-income students. A 2006 report from the National Bureau of Economic Research thatevaluated the first year of Harvard University’s initiative found the university saw a 20 percent increase in the number of low-income students (with annual family incomes below 0,000) who enrolled.

The University of North Carolina at Chapel Hill has conducted extensive research on its loan reduction program, the Carolina Covenant, which was established in 2003-04. Its most recent report found not only had the number of low-income students increased, but the gap in four-year graduation rates between *”Covenant Scholars”* and other students had also narrowed by two-thirds.

*”The colleges that have enacted these types of policies are a notable group, but they’re also not a large share of universities nationwide,”* Cochrane says. *”The fact that they enroll such a small fraction of students across the country, and low-income students in particular, means they’re not the silver bullet to college affordability or completion.”*

*Also see

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“The University of Chicago is the Latest School to Eliminate Student Loans for Some Students”