Photo Collage by Mark Roessler
Private colleges explore ways to help students head off debt.
To low- and middle-income families, higher education may seem a necessity that is priced like a luxury and entangled in loans and subsequent debt. How can undergraduates avoid being indentured by student loans?
Amherst College has one solution: a new financial aid program that replaces loans with grants. According to Amherst College Dean of Admissions and Financial Aid Tom Parker, "It's really a new way of looking at paying for college and a new way of conceiving of the economics of higher education."
Certainly the cost of attending Amherst College seems daunting. Tuition, room and board for 2007-08 add up to $45,000. With additional fees, books and travel, annual expenses range from $49,352 to $51, 302. How can most families pay a price greater than what the Census Bureau defines as real median family income of just over $48,000?
The answer is, they don't. Need-blind admissions policies and financial aid packages combine loans, grants and student jobs. Last year, Amherst provided more than $23 million in aid to about half of the student body, with the average package $31,393.
The financial aid program for 2008-09 replaces loans with grants and eliminates the need for students from lower- and middle-class families to take on interest-bearing federal and college loans. Unlike 43 percent of the class of 2006 who graduated with average debt of $11,626 (around one-half the national average for graduating seniors), the class of 2012 will graduate without student debt.
Parker explains that educational access and economic possibility are the reasons why Amherst made this move. "It may sound corny," he says, "but the college was founded for the education of 'indigent young men of piety.' We were the first to go to need-blind admissions and to do this without the 'noblesse oblige' of requiring a higher grade point average for financial aid students."
In 1999, the decision to replace loans with grants for families earning under $40,000 made Amherst College more accessible to lower income students. With Amherst College and Princeton University leading the way, other schools followed suit. Step two, says Parker, expanded the program and reduced loans for students from families earning up to $60,000. And with the new program implemented for 2008-09, all loan components in all financial aid packages are replaced by grants.
"Research confirmed intuition that student loans do, in fact, determine what people do with their lives," says Parker, noting that debts can influence whether graduates go into public service and nonprofit work, or work in corporate law and industry. "We wanted a system in which everyone who graduated from Amherst College had exactly the same set of options, avoiding the 'Upstairs-Downstairs effect' of two different populations with two different experiences and two different sets of expectations."
The student loans and work-study job policy came out of a different time with its own fiscal realities, he says, but now it is fiscally possible to replace loans with grants.
Sometimes one donor makes a difference. In 2007, the University of Chicago announced the Odyssey scholarships, made possible by $100 million from an anonymous donor with the pseudonym "Homer." Under this plan, families earning less than $60,000 annually will have all student loans replaced by grants, while families with an annual income of $60,000 to $75,000 will have half their loans replaced by grants.
"Homer" sees this as a way to help Chicago continue to offer its classic core curriculum to undergraduates who need not be limited in their choice of major or career by the burden of paying back loans. "Homer's" $100 million donation was accompanied by this statement: "I give this gift in the hope that future generations of students will not be prevented from attending the College because of financial incapacity and may graduate without the siren of debt distracting them from taking risks and fulfilling dreams."
There is no "Homer"—yet—for Amherst College. Parker says the college plans to launch a campaign to raise funds for the new financial plan. "We're very confident that the alumni will rally behind it," he says. More and more of the alumni have benefited from financial aid, he points out, and they know how much it can change lives.
To support the program initially, the college draws on income from its endowment of almost $2 billion. Last year, the college spent $23 million on financial aid; this year, under the new program, Parker estimates it will be closer to $25 million. Swarthmore College announced a similar loan-free policy on Dec. 12, 2007, and expects it will cost approximately $1.7 million in addition to the nearly $20 million committed to financial aid.
Yes, we're talking millions, but it is a proportionally small increase in the total amount of aid. Most scholarship money has gone and will continue to go to lower-income families, so the difference in expanding the program upwards to the middle class is not as huge as one might expect.
Parker also does not expect significant additional burdens in administering admission or financial aid. An elite college, Amherst rejects over 80 percent of its applicants. This year, early applications at Amherst were up 17 percent, and Parker does not know yet if regular admissions will comparably increase. But since the program is simple and straightforward, he does not anticipate any need to expand the college admissions staff. This year, Amherst has added one person to the financial aid staff, because with higher tuition costs, there are more requests for financial aid; with more lower-income students applying, there are more files to review; and with more non-U.S. citizen applicants, there are increasingly complex decisions.
Instead of administering increasingly generous financial aid, why not freeze or even lower tuition? Williams College froze tuition for one year, 2000-01, and Princeton announced a tuition freeze in 2007 for the coming academic year. While this approach to curtailing college costs has obvious appeal, a temporary tuition freeze may not be all that far-reaching or effective, college officials say.
On the subject of Princeton's recent tuition freeze, David W. Brenneman, professor of Economics of Education and dean of the Curry School of Education at the University of Virginia, writes (Inside Higher Ed, Jan. 29, 2007): "The distributional consequences of the Princeton decision could be viewed as analogous to the early Bush tax cuts, in that the benefits will accrue to the very wealthy parents who pay full tuition, not exactly a blow for greater equity." To be effective, Brenneman continues, a tuition freeze would have to be a multi-year commitment adopted by multiple institutions— "the entire Ivy League, plus Stanford, Northwestern, Chicago, Emory, Amherst, Williams, Swarthmore...." This degree of cooperation among competitive colleges and universities is unlikely.
Institutions outside the elite upper circle have also frozen or even lowered tuition within the past decade, but these colleges also lower financial aid by comparable amounts—which means that families most dependent on financial aid are not any better off. The FastWeb College Gold Web Site lists these schools, highlighting the example of Bethany College of West Virginia, which "cut its tuition in 2002-2003 by 42 percent from $20,650 to $12,000, thereby attracting 60 percent more freshmen and increasing total campus enrollment by 13 percent to 875 students. Financial aid was also cut by 43 percent." While tuition cuts and freezes generate positive publicity and greater numbers of applicants, Parker dismisses them as less effective in increasing access: "All a freeze on tuition does is supply additional subsidies to fee-paying students. We really see the need to reform the system as a whole."
Dramatic if not systemic change comes in the "middle income initiative" Harvard University announced on Dec. 10, 2007, offering significantly more generous aid packages for students from families with incomes up to $180,000. Set on a sliding scale, family contributions towards Harvard's $45,620 tuition, room, and board will range from 0 to 10 percent of family income. Harvard also eliminates all loans from aid packages and removes home equity from calculations of family wealth. It is estimated that this will cost an additional $2.5 million per year.
Critics speculate that Harvard's plan will be difficult to implement, with complex family assets to be sorted. It also creates the "Cliff Effect" in which a family earning $180,000 pays $17,000, while a family earning $183,00 pays $35,000. This kind of difference caused by $3,000 could cause confusion and anger among students and parents. And by including $180,000 in a "middle" income bracket (remember the median family income of $48,000), Harvard raises eyebrows along with raising the bar of financial aid.
Along with the various financial plans, there are philosophical differences. "Like all the elite schools, we are considering on what basis to compete," acknowledges Parker. "We could compete in stupid ways, like who turns down the most kids or who has the biggest hot tubs in the student center. Or we can compete on the basis of providing access. That would be a great way to compete, if you are looking to provide long-term social benefits.
"In a sense, yes, it is a moral position," he continues. "As our President Tony Marx has put it, you can't find a more idealistic group of people than 18- to 22-year-olds. Our students are looking at us, asking, 'Do we mean it? Will we act on our conviction?' We can't be hypocritical or oblivious to our role in the larger society."
Amherst's re-thinking of financial aid raises questions that can only be answered in time. How many other colleges and universities will follow Amherst's lead? Are recent graduates, burdened with student loans, entitled to rebates? While aiming to make an excellent college education affordable to students from all income levels, are exceedingly wealthy colleges creating a gap between the have and the have-not institutions? And what about issues of access and affordability for the 83 percent of all students who attend public colleges and universities? How are they affected by what happens in a handful of private schools?
"The increasing privatization of public schools turns higher education on its head," Parker acknowledges. While the private schools find ways to increase financial aid, declining state support for higher education means rapidly rising student costs at public colleges and universities.
Coupling their newly lowered sticker price for the middle class with Ivy League prestige, elite private schools may be poaching those top students who would otherwise attend the flagship public universities. And a private school like Amherst now has a higher percentage of Pell grant recipients than four of the five top state universities in the country. "This is a time of great flux in higher education," Parker says.