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.