The cost of attending college has risen for Americans over the last several decades. To help with these rising prices, some schools have opted for a "no-loan" policy that removes the option for financial aid and replaces it with grants, scholarships, and work study opportunities
While this may seem like a strange choice, the benefit of this system is that students can graduate debt-free and generate spending money much sooner. This is not only beneficial for graduating students, but the decreased debt will help to stimulate the economy as well.
Over the last 2 decades, tuition and fees at private Universities have jumped 134%, according to U.S. News data. Out-of-state tuition and fees at public Universities have risen 141%, while in-state tuition and fees at public Universities increased by 175%.
As of 2021, college graduates that borrowed to pay for their education averaged student loan debt of almost $30,000, U.S. News data shows.
The current Biden Administration has begun their plan to forgive up to $20,000 in federal student loan debt, which is likely to affect the many Americans stuck with students loan debt right now.
However, this relief will only apply to students with debt at the time. Students going into colleges now are unable to receive the relief being offered.
One of several reasons attending a college with a no-loans financial aid policy may be of interest is because they see what debt did to their elders.
Kevin Ladd, the chief operating officer and co-creator of Scholarships.com, and a former U.S. News contributor says that "No-loan schools are basically telling students of modest or even extremely low income that they should apply if they have the grades and extracurricular (activities) to be considered and that they don't have to worry about the high price tag as long as they are able to get accepted."
Even major schools such as Pomona College in California and the University of Chicago are included.
Some schools advertise that they offer a no-loans financial aid policy, but they include stipulations that limit it to certain demographics.
According to 574 different ranked National Universities and National Liberal Arts Colleges in an annual survey to U.S. News, 45 schools are offering a no-loans financial aid policy. National Universities are schools that are often research-oriented serve as the hub for students looking into higher education. These institutions emphasize undergraduate education and award half or more of their degrees across various liberal arts fields.
The only regional college said to offer a no-loan policy is the College of the Ozarks in Missouri. These colleges only grant less than half of their degrees in liberal arts, even with a focus in undergraduate programs.
What Is The Meaning of No Loans?
The majority of schools that offer no-loans financial aid for all are highly ranked. These schools are high-ranking schools on U.S. News' list of Best Colleges, with a lot of the institutions ranking top 10 in their respective specialty.
These schools can afford no-loan policies because they require a minimum contribution from grants, scholarships, and work-studies. Many of these programs offer the same amount of assistance, if not more, to prospecting students.
According to the official website at Stanford, students must contribute at least $5,000 in cash or alternative payment that is typically made up of money earned during summer work and part-time work during the year. In addition, students are required to contribute 5% of their personal assets, such as savings and investments, each academic year to continue enrollment.
Princeton, which instituted a no-loans policy all the way back in 2001, announced that it is raising its no-loan income cap from $65,000 to $100,000. They are also eliminating the required $3,500 student contribution. The move is set to take effect in later this year.
Davidson College in North Carolina, Williams College in Massachusetts, and College of the Ozarks are other examples of schools that offer no-loan financial aid to all students without requiring any contribution.
These Schools Are Not Free
Just because a college is labeled a no-loans school, that does not mean you can go there for zero dollars. Most no-loan colleges aim to cover each family’s demonstrated financial need – which is defined as the difference between the cost of attendance and the expected family contribution. This contribution is referred to as an EFC.
The amount of aid that a school offers is usually determined by the personal information a family gives on the Free Application for Federal Student Aid, also known as the FAFSA. Colleges sometimes use the College Board's CSS Profile, a separate financial aid application that about 250 colleges, for EFC as well.
The majority of no-loan schools that call to meet financial need for all enrolled students without federal student loans use the CSS Profile instead of the FAFSA.
Schools will utilize information from these official forms – things such as income, assets, taxes and household size – to calculate an EFC.
While the federal government has a dedicated formula for calculating EFC, institutions have their own methodology.
John Goodhue, the CEO of APO Financial Inc., an investment advisory firm in Colorado,
says that "All of these schools determine the family need calculations a little differently and really don't disclose how they compute such need."
Even at these no-loans schools, some students will still need to borrow money to cover college costs.
This is partly because of inflation, as more and more schools increase the cost of tuition. It is also due to the EFC system as a whole. Not all students are provided aid from their families, so a high EFC for a student without family assistance may work against the student.
Many of these institutions don't participate in federal loan systems, forcing students to get money elsewhere. Students who borrow for these schools will typically use a private lender. Families should be aware of the differences between private and federal student loans, as interest rates may vary wildly.
Federal student loans are issued by the government and have an interest rates set by law. This rate is fixed and can't go up alongside inflation.
On the other hand, private student loans are issued by private business like banks and credit unions, which set their own terms of agreement. Private loans are generally more expensive than federal loans due to increased or variable interest rates.
When looking at schools that claim to have no-loan policies, students should remember that the conditions will vary. Some institutions limit no loans to students from low to moderate-income households. Other colleges require a minimum contribution from students before a no-loan policy takes effect, according to data collected in the most recent U.S. News survey.
Haverford College in Pennsylvania, for instance, has limits for its no-loans financial aid packages to students who come from families that earn equal to or less than $60,000, but does not require students to make any minimum contribution.
Schools such as the University of Florida, Denison University in Ohio, and Lafayette College in Pennsylvania also offer no loans for applicants whose family incomes fall below a certain benchmark.
Last June, the Colgate University in New York announced that it was eliminating federal loan packages for all current students. This announcement applies to family incomes up to $150,000, increasing the threshold by $25,000 from the plan that was put into place in 2020. According to the school’s financial aid section on their website, students with an annual family income of $80,000 or less can attend the school tuition-free. Students whose families have an average income above $80,000 are required to make a contribution of either 5% or 10%, depending on which bracket they fall under.
Any student looking into a no-loans university should research financial aid options available to them from that institution. Students should also be aware that many of these schools are challenging to get into to begin with, and might be even harder to finish.
For more information on college preparation, check out The College Review.