What changed in 2 years since Grinnell said it would try no-loan financial aid

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In November 2020, colleges and their millions of students were smarting from the economic sting of the coronavirus pandemic. 

Colleges trimmed costs after campus shutdowns prompted many to refund auxiliary fees for services like residence halls and dining, which underpin their budgets. They paid for costly COVID-19 testing and protective measures and funneled more financial aid to students. 

The budget crunches often meant it was time for austerity. But that month, Grinnell College, a private liberal arts institution in central Iowa, bucked trends. It announced it would devote $5 million a year to excise loans from attendees’ financial aid packages, enabling them to rely solely on grants, scholarships and money earned from student employment. It set the changes to take effect fall 2021 for all applicants who qualify for need-based aid.

Grinnell President Anne Harris — who stepped in as chief executive in 2020 after joining the college as a top administrator in 2019 — at the time cast the policy as one that would materially drive down students’ indebtedness from an average of $20,000 by the time they graduate.

Students can still take out loans if they want them, and two years after the college’s announcement, the average Grinnell graduate’s debt load still hovers around $20,000, Harris said in a recent interview. The college also didn’t forgive past loans for those who borrowed under previous financial aid packages.

But Harris doesn’t deem the no-loan method a failure. Instead, she said, it has diminished students’ need to work while studying at Grinnell and has greatly simplified the financial aid process — wins she considers reasons to preserve the policy.

Higher education experts also see value in no-loan financial aid, which research shows can bolster low-income student enrollment. Only a small slice of wealthy institutions can feasibly enact it, though, and even then, it entails careful financial stewardship and planning, which Grinnell said it employed. 

An idea stemming from Princeton

In 2001, Princeton University pioneered what observers dubbed a “radical” admissions strategy: a multimillion-dollar commitment to remove loans from financial aid awards.  

Higher ed leaders praised Princeton, one of the nation’s richest institutions, for drawing on its endowment to pilot the no-loan approach.

In the follow-the-leader tendency of higher ed, other institutions — first, Princeton’s private affluent peers and, later, prominent public colleges — began to take up similar policies.

Now, at least 20 colleges offer undergraduates financial aid packages that allow them to avoid debt, Princeton said last year. Many more institutions drop loans for students and families under certain income thresholds. 

The benefits of no-loan policies for Princeton and these other colleges are well-documented. 

More than 80% of Princeton students graduated without debt, the Ivy League institution said. 

More broadly, the adoption of a no-loan program can cause low-income student enrollment to rise between roughly 3 and 6 percentage points at institutions that offer no-loan admissions, one 2013 study found.

It can also help attract applicants and ease barriers for families who find it difficult to traverse an onerous financial aid process, said Jill Desjean, senior policy analyst with the National Association of Student Financial Aid Administrators.

Often, many types of funding comprise financial aid packages — state and federal loans, scholarships, merit aid and need-based aid, Desjean said.

“For some students, it’s their first experience with debt,” she said. “Terms that you get used to as an adult — interest, repayment schedules, things like that — might be hard to understand, so not having loans greatly simplifies things.”

At Grinnell, administrators realized during the pandemic they were already pumping funding into several disparate aid initiatives, Harris said. Grinnell paid for students’ computers and their travel home. The college covered costs for those who were food insecure, she said. 

“And then we started realizing, if we consolidate this into a big move, like being no loan, we could really make a difference,” Harris said.

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