Dartmouth Drops 'No Loans'

February 9, 2010

The "no loans" era of elite private higher education might be short-lived.

Dartmouth College announced Monday that it is restoring loans to the aid packages of students from families whose incomes exceed $75,000 -- ending a no-loans policy that was announced with much fanfare two years ago. Dartmouth will continue to exclude loans from the aid packages of those with smaller family incomes and will continue to be "need blind" in admissions, meaning that financial need will not be taken into consideration in admissions decisions.

The announcement by Dartmouth was part of a package of spending cuts designed to deal with a $100 million "structural deficit" the college faces. Students currently on financial aid or those admitted this year (who would have applied believing they were exempt from loans in aid packages) will be grandfathered into the no-loans approach.

Dartmouth's announcement comes a week after Williams College moved away from its no-loans policy, although Williams will also continue to offer its lowest-income students packages that do not include loans.

No-loans packages in elite higher education took off in 2007 and 2008 as leading colleges revised financial aid systems. The shifts were very popular with parents and families, and were widely praised by some in Congress who had criticized the institutions for not spending enough of their then-bulging endowments. But some aid experts questioned the policies, saying that they gave large subsidies not only to low-income students but also to many who are (in national demographics, even if they don't feel that way when paying an Ivy tuition) actually well off.

When Williams scaled back, several experts predicted that others would follow, and Dartmouth's move is seen as more evidence that the pullback could be swift.

One expert on the financial aid strategies of top colleges, who asked not to be identified, said that when colleges see a Williams and a Dartmouth -- "two very strong institutions" -- pulling away from no-loans policies, others are likely to follow. He said that this might especially be the case for the private colleges that eliminated loans despite having smaller endowments (overall or per student) than Dartmouth and Williams.

This expert, echoing the comments of others after the Williams shift, said that from a broad policy perspective, the shift back to loans may be a good thing. "While going no loans was admirable for low-income students," who may have little family experience with borrowing and for whom the possibility of a loan might hinder them from applying, that's not the case for eliminating loans for the middle class, he said. For generations, there has been a philosophy about "sharing the costs" of higher education, with students among those sharing. So there is no reason, he said, to eliminate that responsibility for those who are unlikely to be discouraged from enrolling by reasonable loan requirements.

At Dartmouth, the loan expectations for those with incomes above $75,000 will be $2,500 to $5,500 per academic year, with those with family incomes up to $100,000 assured of not having to borrow more than $2,500 a year.

In a news briefing Monday, most of the questions for President Jim Yong Kim were about the 38 non-faculty layoffs that are part of the budget-cutting plan. The anticipation of layoffs has led to considerable concern on the campus, including a candlelight vigil last week. Dartmouth's announcement of the return of student loans said the change was "necessary in the context of efforts to address the budget gap while minimizing layoffs."

Kim stressed in the briefing that even with the return of loans for some students, no one should have to rule out attending Dartmouth for financial reasons. He said that the no-loans approach was enacted at a time "when the endowment was growing beautifully," and the "simple reality is that we can't afford that anymore."

Maria Laskaris, dean of admissions and financial aid at Dartmouth, said that about 22 percent of Dartmouth's current undergraduates come from families with incomes of up to $75,000. Based on current income levels of students, about 28 percent of students (on top of that 22 percent) are in the category of being aid-eligible at higher income levels. Future students in that cohort would have loans included in their aid packages.

Laskaris said that Dartmouth focused on its own values and priorities in developing the plan, trying to assure families they could afford the college. There were no discussions with other colleges about their strategies, she said.

When Williams announced its shift last week, Laskaris said that "obviously we saw the announcement and thought that we're not the only school." She said she didn't know if other colleges would shift, but based on the public discussions about deep budget cuts being considered by other institutions that have suffered endowment losses, "these discussions have to be going on elsewhere."

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