The University of Chicago joined the more than 50 universities nationwide that have committed to lowering or doing away with the requirement that students borrow money on Wednesday. The university declared that it will switch out student loans for grants for need-based aid recipients starting with the incoming freshman class of 2023.
University President Robert Zimmer said in a statement, “We want to ensure that students of high ability can aspire to join this community without financial worry, and with comprehensive support for their success both in the college and beyond graduation.”
According to a university official, the project will get funding in part from the University of Chicago Campaign, which will open to the public in late October with the goal of raising $4.5 billion by 2019. The university has already raised almost $2 billion to far. The official said that between $150 million and $200 million will be allocated for financial assistance.
At around $6.7 billion, the university’s endowment is substantial as well, comparable to that of Duke University, the University of California system, and the University of Notre Dame.
Considering that the average student who takes out a loan graduates with debt of around $30,000 and that the total amount of student loan debt has topped $1.2 trillion, the idea seems intriguing. The restrictions can take many different forms. For example, some schools may restrict the “no loans” guarantee to students whose families make less than a specific amount of money. Other institutions may outright ban both federal and private loans.
More than 20 years ago, the College of the Ozarks started to forbid students from taking out federal student loans. In 2013, the school went a step further and started to refuse to recognize private loans that students independently sought for. Students participate in the school’s work program to offset the cost of attendance, and any grants they receive—roughly $18,000 annually—from the federal or state governments are used to their education costs. After such opportunities are considered, any remaining funds are covered by an institutional scholarship.
A comparable approach is used at Berea College in Kentucky, where all students are awarded an institutional scholarship that, when paired with additional grant aid from outside sources and income from employment, pays for all four years of tuition. According to the school’s website, room and board, health insurance, and other costs amounted to slightly over $7,000 per year, and are still the responsibility of the students and their families. Less than 5% of students, according to the school, bear the whole cost of those bills because financial aid is still available.
However, enforcing a “no loans” policy may also have unintended consequences, such as reducing the incentive for universities to accept low-income applicants, inflating the amount that a family can afford to pay for a student’s education, or underestimating the amount that a student will have to pay for housing, food, books, and other living expenses.
“In many cases, universities that implement these policies will incorporate specific expectations regarding the amount of money that students can contribute from their earnings or savings,” states Debbie Cochrane, research director of TICAS, the Institute for College Access and Success. “Those earnings and savings are a lot harder to come by for low-income students.”
If a family has unrealistic expectations for their contribution, parents and students may still need to borrow money.
Richer students, who would have higher predicted family incomes and be more likely to pay the full cost of attendance, might be encouraged to apply because substituting student loans with other forms of institutional aid can put a financial strain on the universities.
According to Cochrane, it’s critical for universities to consider how their policies may impact low-income students’ enrollment as well as overall student debt and other consequences.
Implementing such a policy in one form or another can aid in stepping up efforts to attract low-income students. The first year of Harvard University’s project was examined in a 2006 National Bureau of Economic Research report, which revealed that enrollment of low-income students (those with annual family incomes below $40,000) increased by 20% at the university.
UNDER NEW INITIATIVE TO END STUDENT LOANS, UNIVERSITY OF CHICAGO
A new project launched by the University of Chicago aims to remove all student loan requirements from need-based financial assistance packages for undergraduates and provide chances for career development. One of the focal points of this new endeavor is a new program called No Barriers, which aims to streamline the university’s admissions application and financial aid procedures for students. The No Barriers program will replace student loans with grants in all need-based financial aid packages, waive application fees for all families applying for financial aid, establish new scholarships for underrepresented and underserved students, and offer a more streamlined financial aid application process. President Robert J. Zimmer stated in a statement, “We want to ensure that students of high ability can aspire to join this community without financial worry, and with comprehensive support for their success both in the College and beyond graduation.”
The program, which will begin with students enrolling in the university in the fall of 2015, will also boost scholarship funds for the National Hispanic Recognition Scholars and National Achievement Scholars programs, which are intended to benefit Hispanic and African American students, and offer more than 100 yearly workshops across the country to inform prospective students about the admissions and financial aid processes. Additionally, the program will increase its National Merit Scholar awards from $2,000 to $4,000 per year for four years. According to Dean John W. Boyer, “No Barriers will enable students from all backgrounds to gain access to the University of Chicago’s other educational traditions, which have produced so many creative and bold thinkers over the generations, as well as the Core.” The University of Chicago launched a campaign earlier this year, hoping to raise $4.5 billion by the end of 2019. The university wants to raise as much support as possible for their new No Barriers program through this campaign.
The Student Loan Moratorium Is Ending, Which Will Affect the Economy
The $1.6 trillion student loan repayment reprieve that lasted for three years enabled for additional borrowing and spending, which will now reverse.
An essential part of home relief during the pandemic is about to expire: The suspension of student loan payments must end by August 30 in order to comply with the terms of the debt-limit agreement reached by the White House and congressional Republicans. Goldman Sachs estimates that at that time, after the plan has been in place for more than three years, the amount of student loan forbearance that would have otherwise been paid will be approximately $185 billion. The borrowers’ lives have been significantly impacted. The impact of the delay on the overall economy was more subdued. According to recent study, the repayment halt not only freed up cash but also significantly improved the borrowers’ credit scores. This improvement is probably due to the elimination of student loan delinquencies from credit reports and financial infusions from other pandemic relief programs. This made it easier for consumers to use credit cards to purchase homes, vehicles, and everyday necessities, which increased debt. This has led to worries that students who already have a full budget may now have to pay additional monthly bills. According to Laura Beamer of the Jain Family Institute, who studies higher education finance, “it’s going to quickly reverse all the progress that was made during the repayment pause, especially for those who took out new debt in the form of mortgages or auto loans where they had the financial room because they weren’t paying their student loans.” In March 2020, all borrowers with federally held loans were protected by the CARES Act. This payment delay is not related to the Biden administration’s plan to forgive up to $20,000 in student debt. By the end of the month, the Supreme Court is anticipated to make a decision about a challenge to that plan, which is subject to specific income limits. When unemployment was skyrocketing, the moratorium was implemented to help families who were struggling financially. Forbearance covered consumer, vehicle, and housing debt to differing degrees, and some private lenders willingly participated. A Brookings Institution report dated May 2021 states that 72 million borrowers were delinquent $86.4 billion in debt payments, mostly mortgages. The halt significantly reduced defaults and delinquencies of the kind that caused havoc during the recession ten years prior, with most of its users experiencing more financial hardship than others. However, 42.3 million people continued to benefit from the student debt hiatus, which automatically ended interest accrual on all federally held loans and took effect for everyone with a loan, even though most borrowers resumed payments on other debt. Even as assistance programs like increased nutrition assistance, the child tax credit, and extended unemployment insurance expired, the Biden administration granted nine extensions while considering alternatives for permanent forgiveness.