Correction: This article has been updated to remove references to the University of Southern California, many of which were based on incorrect data. We apologize to the university. Information about USC's financial aid policies may be found here. 
At a time many students have been facing rising debt, and many private universities have struggled to keep those debt levels down, Vanderbilt University stands out.
According to the Institute for College Access and Success (TICAS), the average student debt at Vanderbilt has fallen from $24,044 in 2003-04 to $18,605 in 2009-10. That puts Vanderbilt below the average student loan debt nationwide for students who borrow, which is $26,600, according to the Institute for College Access and Success .
It's not a coincidence that Vanderbilt is moving in this direction. The university and Johns Hopkins University, which has also prioritized increasing institutional need-based aid, provide a simple playbook: emphasize need-based aid and make it a presidential priority. In cultivating donors, administrators at these institutions say they place an overwhelming emphasis on endowing funds for need-based financial aid.
“I was at a dinner with a combination of alumni and parents, and the host asked me what my top three priorities were for fund raising,” said Vanderbilt's provost, Richard McCarty. “I said, ‘Need-based aid, need-based aid, and, um, need-based aid.’ They pushed me really hard to say something other than that, but there really isn’t.”
‘A Singular Focus’
Vanderbilt officials say the overwhelming emphasis on securing need-based aid is really the work of one person: Chancellor Nicholas Zeppos. Zeppos, who was an undergraduate and law school student in public universities in Wisconsin, became the institution’s provost in 2002 and began to push the university to increase the amount of money the university awarded on the basis on need.
“In 2002, we came to the realization that students were walking across the stage and off the stage with one of the highest debt burdens in the country,” McCarty said. Back then, about 37 percent of graduates had debt, with average debt in the low $20,000s, higher than the national average of about $17,000, according to TICAS.
|Institution||Degree-seeking undergraduates (2011)||Institutional Need-Based Aid (2011)||
Institutional Non-Need-Based Aid (2011)
(excludes aid for athletics and tuition waivers)
|Johns Hopkins University||5,047||$61,093,114||$2,477,953|
|Source: 2011-12 Common Data Sets (Vanderbilt , Johns Hopkins )|
Six years later, Zeppos was named Vanderbilt’s chancellor, and as one of his first efforts in office he announced that the university would meet full financial need with no income caps and no loans starting in fall 2009. "We enrich Vanderbilt's unique learning community and make it a more dynamic environment for everyone when we open our doors to highly talented and qualified students of all economic, cultural and geographical backgrounds," Zeppos said at the time .
McCarty said the switch was a major financial hit to the university, since it would essentially forgo tuition revenue – previously unmet need that students would have found some way to pay, likely though loans – as it built up its need-based-aid endowment. “It forced us to manage our costs in every other area,” he said. “This became the singular priority.”
In 2008 Zeppos also began a three-year campaign to endow $100 million in financial aid, a campaign that ended in 2011 with $108 million. “What we also said was this will be the first phase of a prolonged effort to build up a dedicated endowment to meet the financial needs of students,” McCarty said. “We sort of turned the argument around. All students we admit are meritorious, so we’re going to fund them.”
The university has raised an additional $40 million for need-based financial aid since then. Vanderbilt’s institutional need-based financial aid budget grew from $36 million for the 2001-02 school year to almost $116 million for the 2011-12 school year, according to the common data set.
The focus on need-based aid is clear on a visit to the university’s fund-raising page . “Opportunity Vanderbilt,” the university’s need-based financial aid drive, is featured prominently. The site also notes that “we need to shift the costs of [aid] from the operating budget to a larger endowment.”
Vanderbilt’s endowment, which at about $3.4 billion in 2012 put it in the top-25 of university endowments, still pales in comparison to those of other universities that meet full need without loans, meaning much of the aid it spends still comes from revenue it would like to spend on other aspects of the institution.
McCarty said one aspect that has helped foster strong fund raising for need-based aid is the fact that the university secures a good applicant pool and enrollment, meaning it has less need to compete for top students. “I’ve been really impressed and reassured that our most generous donors buy into the notion that our pool of applicants has now been developed at Vanderbilt to the point that anyone you admit deserves to be supported by a scholarship,” he said.
Just because Vanderbilt is emphasizing need-based aid, however, doesn't mean the university has moved away from merit aid entirely. In 2011, the university distributed about $17 million in non-athletic merit aid. Some of this comes from historic endowed scholarships. "We still use merit-based aid to get the best advantage we can," McCarty said. "But we have decided as a university that our development efforts going forward will focus on need-based aid."
Ronald J. Daniels, who became Hopkins’s president in 2009, seems to be following a similar playbook.
When Daniels was provost at the University of Pennsylvania, he helped institute a financial aid system that replaced loans in aid packages with grants, leading to lower student debt loads.
When he assumed the Hopkins presidency in 2008, he made fund raising for need-based student aid a top priority . At that time, the university still considered students’ financial need in admissions decisions. Daniels made changing that a priority, and in 2010 he said the class of 2014 would be admitted without consideration of financial need. The university shifted $4 million of the budget to the financial aid office to make that goal a reality and cranked up fund-raising efforts.
Raising enough money to cover the cost of providing a high-quality undergraduate education is a tall order, which helps explain why, despite a $2.5 billion endowment, Hopkins says it can’t ignore students’ financial need in admissions and meet need for all admitted students without loans.
Daniels's and Hopkins's focus became clear in January when the university announced the sum total of alumnus and New York Mayor Michael Bloomberg’s donations to the university – which exceeded $1.1 billion. Of that money, $164 million has gone toward need-based undergraduate aid, singlehandedly funding 20 percent of the university’s need-based financial aid grants in the schools of arts and sciences and engineering in recent years.
But that money only goes so far. According to the Institute for College Access and Success, Hopkins has continued to see the percentage of freshmen and overall students who borrow stay relatively constant, while the average debt load of graduates who borrow has grown from $14,0000 in 2004 to $25,266 in 2011, according to TICAS.
|Institution||Percent of First-time, Full-time Freshmen Who Borrow||Percent of Graduates with Debt||
Johns Hopkins University
Johns Hopkins University
|Source: The Institute for College Access and Success|
The universities commonly referenced for helping low-income students graduate debt-free – Harvard, Princeton, Yale and the Massachusetts Institute of Technology – give out about $6,000 more on average per degree-seeking undergraduate in need-based aid than Hopkins.
McCarty and Zeppos at Vanderbilt have said that endowing money for need-based financial aid is the only way to make such a model sustainable. But in recent years that model has shown its own cracks.
Several colleges have learned in the wake of the financial downturn that began in 2008 that having a large endowment doesn’t necessarily guarantee sustainability. Grinnell College, which has a higher per-student endowment than all but a handful of the wealthiest colleges and universities and funds about 50 percent of its budget from its endowment, recently announced new strategies to try to grow the amount of money it brings in through tuition, including bringing in students who can afford to pay more.
The college’s president said the market turmoil meant that less money could be pulled from the endowment. He also suggested that the types of return seen over the past few decades would be unlikely in the “new normal” environment. The college recently announced that it would continue its commitment  to need-blind admissions cut would reconsider its position in two years.
And Grinnell is not alone. Cooper Union, which has been effectively free to all students because it funds a large portion of its budget through a unique endowment, is debating  charging some students. The financial downturn also drove Olin College, which gave all freshmen a full-tuition scholarship, to move away from that model; it now guarantees a half-scholarship to all students.
Ratings agencies tend to view tuition revenue as one of the most stable revenue sources for colleges and universities, since it is generally predictable and comes from diverse markets.
McCarty said that despite recent problems he’s not worried about his university’s strategy. “The miracle of compound interest is our strongest ally in this effort,” he said. “We’re taking the long view. Universities are going to be around for centuries to come, and the best long-term strategy for us is to invest in endowment.”