Students walking on Princeton campus
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Trend sees some colleges replace student loans with more robust scholarship and grant funding

The Ivy League’s Dartmouth College plans to join the list of schools that have eliminated federal student loans and replaced them with more funding for scholarships and grants. The school’s loan-free initiative will receive $80 million from endowment fundraising efforts.

Dartmouth’s leadership heralds the move to no-loan financial aid as a victory for students, especially aspiring Dartmouth scholars from middle-class and lower-income backgrounds.

“Every deserving student will have the opportunity to enjoy — and excel in — the full Dartmouth experience,” President Phil Hanlon said in a statement.

Supporters point to the benefits of no-loan programs, which include increasing opportunities for students from lower-income families and, no less important, decreasing student debt. So what is “no-loan financial aid” exactly, and what impact does it have on the rising cost of a college education?

Facts and figures about no-loan colleges

  • The wave of no-loan aid packages started in 2001 with Princeton University. The school became the first to do away with student loans in favor of grants and scholarships to meet demonstrated financial need.
  • The list of no-loan colleges currently numbers more than 70, thanks in part to a large spike that began after the 2007-2008 academic year. At that time, several schools with endowments of $500 million or more faced questions from the U.S. Senate Finance Committee over their affordability. Committee members went so far as to threaten the schools’ federal tax exemption status.
  • No-loan aid packages come in two types: one that specifically benefits students from lower-income families and one open to all students eligible for financial aid regardless of family income. The ratio of “No Loans for Low Income” to “No Loans for Everyone” packages is nearly 4 to 1.

“The prospect of a degree from a top-notch school and no student loan debt is the holy grail of college education.”

Greg McBride – Chief Financial Analyst, Bankrate.com

A few questions and qualifications

Americans collectively owe about $1.4 trillion in student loan debt, so it seems obvious that reducing student loans while increasing scholarships and grants would provide a financial boon. However, critics of no-loan financial aid have pointed out that much of the benefit goes to students who may need it less than others.

Many of the no-loan schools are elite public and private universities. (Dartmouth and Princeton are just two of the Ivy League members that offer no-loan financial aid.) A degree from a prestigious school would likely help a graduate land a high-paying job, making the repayment of student loans less burdensome.

Also, a no-loans policy doesn’t necessarily translate to a cost-free college education. For example:

  • If the family’s actual ability to pay turns out to be less than the demonstrated financial need, a student may have to borrow from a lender anyway to make up the shortfall. (The policies don’t actually prohibit taking out student loans.)
  • Most colleges require parental and student contributions. A scholarship or grant recipient may have to contribute summer earnings or take a work-study job.

The effect on costs is unclear, at least for now

Without a doubt, students who receive generous no-loan financial aid packages rack up significantly less debt than their counterparts who take out large student loans. However, what effect do no-loan policies have on tuition and other actual costs?

The impact is hard to measure since (a) no-loan financial aid is relatively new and (b) it’s available only at a tiny number of schools. Nevertheless, one school of thought says that minimizing the role of federal loans could help bring the rising cost of college in line.

“An often-overlooked factor in the steadily increasing costs of attending college is the blank check that schools know is awaiting through the federal direct student loan program,” says Greg McBride, chief financial analyst for Bankrate.com “Nothing will put the kibosh on rising tuition costs like further limiting what students and their families are able to borrow.”

Should you apply to a no-loans college?

As noted earlier, many of the colleges with no-loans financial aid are elite-level schools that can afford to be highly selective about admissions.

“No-loan policies aren’t widely offered enough that prospective students can realistically count on this as a college funding strategy,” says McBride. “They tend toward schools that have sufficiently large endowments or others that have a large pool of grant and scholarship funds available.”

Students and families who see these schools as too much of a longshot can feel free to continue searching for scholarships and shopping for student loans. Still, never forget the old saying: “Nothing ventured, nothing gained.”

“If your wish list contains a prestigious school that offers a no-loan program, go ahead and apply,” says McBride. “The prospect of a degree from a top-notch school and no student loan debt is the holy grail of college education.”


List of no-loans colleges

The college search site Cappex.com has compiled a list of colleges with no-loan financial aid policies. (Note the recent addition of Dartmouth College as of May 2018.)

No Loans for Everyone

Amherst College
Bowdoin College
Colby College
Columbia University
Dartmouth College
Davidson College
Harvard University
Haverford College
Pomona College
Princeton University
Stanford University
Swarthmore College
University of Pennsylvania
Vanderbilt University
Washington and Lee
Yale University

No Loans for Low-Income Only

Appalachian State University
Arizona State University
Boston University
Brown University
Bryan College (Tennessee)
California Institute of Technology (Caltech)
Carleton College
Claremont McKenna College (ended for new students in fall 2014)
College of Holy Cross (Worcester, MA)
College of William and Mary
Colorado State University-Pueblo
Connecticut College
Cornell University
Dartmouth College
Duke University
Emory University
Fairfield University
Georgia Institute of Technology
Grinnell College
Indiana University Bloomington
Kenyon College
Lafayette College
Lamar University
Lehigh University
Massachusetts Institute of Technology
Miami University (Ohio)
Michigan State University
North Carolina State University
Northern Illinois University
Northwestern University
Oberlin College
Rice University
Sacred Heart University
Texas A&M University
Texas State University – San Marcos
Tufts University
University of Arizona
University of California at Berkeley
University of California System
University of Chicago
University of Florida
University of Illinois at Urbana-Champaign
University of Louisville
University of Maryland, College Park
University of Michigan at Ann Arbor
University of Minnesota System
University of North Carolina at Chapel Hill
University of Tennessee
University of Texas at El Paso
University of Texas Dallas
University of Toledo
University of Vermont
University of Virginia
University of Washington
Vassar College
Washington University in St. Louis
Wellesley College
Wesleyan University
Williams College