To Lend or Not to Lend?

The "no loans" policies adopted by wealthy colleges may have fostered the dangerous belief that borrowing for college is somehow wrong, writes Brian Rosenberg.

May 12, 2009

In the wake of shrunken endowments, credit crises, and budget cuts, it seems difficult to remember that only a year ago, the big news regarding college financing was that a number of wealthy colleges and universities were taking steps to enhance their financial aid programs by eliminating or reducing student loan expectations. At the time when those steps were taken, I was not convinced of their efficacy. The events of the past year have done little to change my view, and have made it even more important that those of us in higher education deploy our financial aid resources and define our priorities as carefully as possible.

Some of the wealthiest and most selective colleges and universities, including Harvard, Yale, and Stanford Universities, and Amherst and Williams Colleges, eliminated loans altogether from their financial aid packaging, and about 20 more eliminated loans for students with family incomes below a designated level. A much smaller number eliminated all tuition for students with families whose income fell below $60,000 per year, and an even smaller number capped the amount paid by families with income levels as high as $200,000 per year.

There was not then, and there is not now, any way to construe this increased commitment to financial aid by the wealthiest institutions as in itself a bad thing. Neither, however, should we deceive ourselves into thinking that most colleges and universities have the resources to follow suit or that these changes will noticeably increase access to higher education in America. There are more than 4,000 two- and four-year colleges and universities in the United States; collectively these institutions educate most of the post-secondary students in the country, and collectively they bear as much financial resemblance to Harvard or Amherst as do the Saint Paul Saints to the New York Yankees. Educational economist Sandy Baum is quoted in The New York Times as observing, rightly, that the changes are “not going to make a dent in educational opportunity” in the U.S. Let’s face it: the students who might now attend Harvard due to more generous aid policies would not otherwise have failed to attend college but would have attended, say, Brown or Vassar or the University of Michigan. They are not among the millions of Americans who are unprepared for a wide variety of reasons to attend any college at all.

The truth is that the three dozen or so wealthy institutions that have altered their aid policies are competing with one another for the same group of high-achieving lower and middle income students and are perhaps recruiting some of those students away from institutions slightly less selective. They are not, despite the headlines, altering the landscape of higher education in America.

Even before the arrival of the current recession, the vast majority of colleges and universities in our country had dramatically smaller endowment per student ratios, a much higher percentage of students receiving aid, and far less robust fund raising efforts than did the colleges and universities garnering attention. Efforts by these institutions to emulate the policies of the wealthiest few would require severe cuts in personnel and services or, perhaps even worse, sharp reductions in the number of students receiving financial aid, as more dollars were allocated to fewer recipients. So before we push with too much gusto for others to emulate Harvard and Yale, we must be sure to understand the implications of such changes in practice.

The most interesting and vexing questions on this subject are less financial than practical and philosophical: Is the elimination of loans the best and fairest way to increase economic access to any institution? And has the elimination of loans by a very tiny subset of American colleges and universities fostered the belief — deeply mistaken, in my view — that there is something economically and even morally wrong about borrowing for higher education, while we accept without much question (or did until recently) the logic of borrowing for a house or car or boat? Does it make sense to eliminate loan expectations based on family income level rather than post-graduate plans, so that, for instance, some economics majors who go to work for investment banks will be loan-free while some history majors who join Teach for America will have loan burdens — based purely on the level of family income when they enrolled in college?

Given the enormous demonstrated return on investment, I do not believe that there is anything inappropriate about borrowing toward the costs of college, so long as that loan burden is kept within reasonable limits. At Macalester College, where I serve as president, the total indebtedness from all sources among students who borrow averages, after graduation, roughly $18,800, or about $2,000 less than the sticker price of a Kia Sportage. Neither am I convinced that the elimination of loans is the best way to increase access even to the most elite colleges and universities in the United States. I would be interested in seeing if some of the institutions that have eliminated loans for the relatively small percentage of students on aid, or for the even smaller percentage with family incomes below a designated level, could instead devise plans to increase those percentages substantially. Given the choice between eliminating loans for the 30 or 40 percent of students on aid at many of these schools or maintaining loans and providing aid to 70 percent of students, I would be inclined to choose the latter as the greater social and educational good.

This is not to say that any of us in higher education have ruled out the eventuality of altering aspects of our financial aid packaging, including our packaging of loans. It is simply to say that our approach to such changes, and to the broad challenge of balancing quality and access, must be to act as thoughtfully and as responsibly as possible within the limits of our mission and means and not simply to play the game of follow the leader.


Brian Rosenberg is president of Macalester College.


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