Colleges are replacing student loans with grants in the same amount, according to an article in the Washington Post.
So, instead of taking out a $5,000 loan to pay for college expenses, your college might just give you a $5,000 grant. This is a growing financial aid initiative to eliminate student loans at some of the nation’s most expensive colleges.
No-loan pledges can even make college free for some students, if they would need full financial aid to attend.
This movement started during the 2007-2008 school year, and now more than 70 colleges offer this program to some of their neediest students. Four years later, some of these students have now graduated, completely debt free.
College debt has been rising at record rates the past few years, and economists believe that it could reach $1 trillion this year. This news put expensive colleges on the ropes, forcing them to take action. No college wants their students graduating with over a $100,000 in debt. So, colleges had two choices: decrease tuition or offer more grants/scholarships. Most decided to go with grants.
Colleges simply don’t have the money they had 10 years ago, and many desperately need to increase enrollment to generate more revenue. Higher education is becoming a buyer’s market, as colleges are tripping over each other to offer the best deal to students. Offering more financial aid/scholarships is the easiest way a college can attract more prospective students.
Colleges have since responded by offering these no-loan pledges to their neediest students, making college a possibility for low-income students.
The grants are also part of larger publicity stunt for colleges. When college’s prices skyrocketed, higher education got a bad reputation. It started becoming an elite group, something just for the upper class and upper-middle class. For many low-income students, college simply was not an option.
Now, colleges are competing not only on price, but also on reputation. Colleges want to have the best reputation of admitting low-income students.
“They’re essentially chasing after the same group of low-income students who are academically talented,” Mark Kantrowitz, an industry expert who is tracking 73 colleges that have eliminated or capped student loans told the Washington Post. “If you get in, these schools are a great deal.”
No two colleges have the exact same financial aid system. But, Harvard and Yale (two of the nation’s wealthiest colleges) do not allow families to pay more than 10 percent their household income on college expenses.
For example, a student from a family with a household income of $100,000 will not pay more than $110,000 (10 percent) for college costs. Even families that earn $180,000 are receiving non-merit based financial aid to wealthy universities like Harvard and Yale.
Other colleges cap loan debts for students, but the cap depends on the student’s family income.
But, still many colleges cannot afford to hand out big financial aid grants to all their needy students. For the most part, only the nation’s wealthiest colleges can afford this program.