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
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.
What are the results?
Grinnell students’ average debts have yet to fall, but some effects of the no-loan policy were felt immediately, Harris said.
Before instituting it, about 80% of Grinnell’s nearly 1,700 students worked on campus, some as a piece of their financial aid packages. Under the new no-loan policies, that share fell to about half of students, Harris said.
Officials pondered whether they could attribute the drop to pandemic-related stressors — perhaps students did not want to enlist in a job on top of their studies during a turbulent period, Harris said.
But they found the trend continued even as COVID-19 restrictions waned, Harris said.
She was more reluctant to credit the no-loan approach with driving shifting demographics of Grinnell’s applicant pool and student body, though research has also proven these policies benefit students from racial minority groups.
Grinnell’s first-year class in 2022, which numbered 441 students, was almost 30% Black and Indengious students and other students of color, not counting international enrollment. The college also brought in its largest percentage of Latino students in its history.
This is a particularly striking feat for a liberal arts college in the heart of Iowa, a state where 90% of residents are White.
Harris estimates the no-loan initiative will help 1,100 Grinnell students — more than 60% of its total student body. Grinnell is packaging about $68 million in financial aid this year, Harris said. The sticker price of tuition for the 2022-23 academic year is $60,988.
A steady financial hand needed
Ensuring the program’s future isn’t an easy task, however.
Few institutions are wealthy enough to maintain no-loan policies, which explains why they don’t appear widely, said Justin Ortagus, a higher education administration and policy professor at University of Florida, and director of its Institute of Higher Education.
And because Grinnell’s student body is smaller than other institutions that have attempted a no-loan approach — like Harvard University — it’s a relatively less expensive endeavor, Ortagus said.
Harris said Grinnell administrators correctly identified they would need $5 million annually to keep the program afloat. She commended officials for watching the university endowment closely to ensure the no-loan program’s survivability.
Grinnell is also need-blind for domestic students, meaning it does not consider applicants’ financial situations when deciding whether to admit them. It meets students' full demonstrated need, too. Both initiatives are expensive.
The college relies heavily on its endowment, which sits at about $2.5 billion, Harris said. This is an enviable financial spot compared to many other institutions, but the sky-high returns some colleges saw on their endowments in 2021 have begun to plummet.
The university’s fiscal 2022 endowment return was -13.3%. Its five-year annualized return was 9.6%.
The fear of having to back away from a no-loan program is a real one.
Williams College, a top-ranked liberal arts institution in Massachusetts, piloted a version in fall 2008 but discontinued it a couple of years later amid the lingering turmoil of the Great Recession.
Williams ultimately brought the program back this year. And in a first for a U.S. college, it even nixed student work from its financial aid packages. However, that process spanned years, and the college took heat for discarding it in the first place.
These policies aren’t perfect, either. Students may still take out loans to cover expenses besides tuition and fees. Grinnell said it has still subsidized students for costs like transportation back home.
And because only a small cohort of colleges can afford no-loan policies, they tend to benefit the select few students who gain admission to those institutions.
Grinnell’s admission rate has fallen over the last several years, falling to about 9% for this year’s class. That equates to 11,658 applications — up 300% in the last decade — and admissions offers sent to just 1,073 applicants.
Roughly five years ago, Grinnell’s admit rate was as high as 20%, Harris said — which speaks to one of her final points about the no-loan policy.
Grinnell is becoming more exclusive and wants to be seen among the Williamses of the higher ed world — an “elite” cadre of colleges, she said. No-loan policies help place the college among them and will serve as a marketing tool, she said.
“I love to think that we're elite without being elitist,” Harris said. “It puts us in that category of elite institutions but very purposefully not wanting to be elitist by creating access.”