By Daniel de Vise
Washington Post Staff Writer
Sunday, June 6, 2010; G01
In a nod to the rising cost of college tuition and the burden of massive student loan debt on graduates, a growing number of universities are stepping up with "no-loan" aid pledges.
More than 50 colleges -- including elite private schools and flagship state universities in Virginia and Maryland -- have eliminated or capped loans in their financial aid portfolios for some or all students, promising enough aid in grants and work-study to cover most of the gap between what they charge and what each student can afford to pay.
At a handful of private universities with sizable endowments, including Princeton, Harvard and the University of Pennsylvania, the goal is quite literally to eliminate loan debt for most graduating seniors.
"It's going down, and it's going down dramatically," said Amy Gutmann, president of Penn. "A typical family earning $90,000 a year attends Penn tuition-free. A typical family earning $40,000 a year attends Penn with tuition, room and board covered."
Although the pledges ease the crisis of paying for school, most require families to pay a portion, called the expected family contribution. It is a predictable sum that considers household income and assets. A family with an income of about $120,000 a year might be expected to contribute $30,000 a year toward college costs; a family with half that much might be asked to contribute $12,000.
"No loan doesn't mean no cost," said Lauren Asher, president of the nonprofit advocacy group Institute for College Access & Success.
Aid pledges help, but a college education remains a long-term investment. Parents either plan for the expense and sock away money, perhaps in a tax-advantaged 529 plan, or they leave the student to carry the debt burden into adult life. Many colleges with aid pledges still expect students to carry some loan debt, even if their families have saved for their schooling. It's a higher-education maxim that students with a financial stake in their education are more likely to complete it.
"I recommend a one-third rule, where one-third of projected costs will be paid from past income [savings], one-third from current income and financial aid and one-third from future income [loans]," said Mark Kantrowitz, a financial aid expert and publisher of the Web sites FinAid.org and Fastweb.com.
There is, in fact, variation in how colleges calculate a family's fair share of college expenses. Asher's group estimates a family with an annual income of $120,000 will be asked to contribute about $16,000 a year toward Harvard or Yale, $33,000 toward Amherst or Swarthmore and $39,000 toward Duke.
To some families, the "expected" annual tab comes as a surprise.
"The issue that I deal with most is that there is often a gap -- or chasm -- between what families believe is their need and what formulas proclaim," said Sally Rubenstone, a senior adviser at the college admissions Web site College Confidential.
Princeton started the no-loan trend by eliminating loans in financial aid packages for low-income students in the 1998-99 academic year and for all students in 2001. Other selective universities followed, with a flurry of aid pledges approved in 2006 through 2008.
The pledges were big investments at a time of rising endowments. Those funds got hammered in the recession. Two colleges, Williams and Dartmouth, scaled back their no-loan commitments this year. Other colleges have stuck with their pledges, despite the cost.
Penn's aid pledge, phased in over four years, pushed the university's financial aid budget to $149 million for the coming academic year, an increase of 78 percent in Gutmann's six-year tenure. But it's an investment, she said. "From our view, it maximizes our eminence as a university."
Strapped public universities are focusing their more limited largesse on students from low-income families, on the theory that middle-class families can afford some debt.
The wave of no-loan pledges hasn't halted the steady rise in student loan debt nationally. Kantrowitz estimated that the share of four-year students graduating with debt rose to 66 percent in 2008 from 46 percent in 1993, and that average debt rose in that span to $23,186 from $9,297, based on an analysis of federal data.
But at colleges making aid pledges, the investment is paying off.
At Princeton, the share of graduating seniors with loan debt declined to 21 percent last year from 33 percent in 2001, and average debt has dropped to $4,957 from $16,000.
At the College of William and Mary in Virginia, which eliminated loans for low-income state residents in 2006, the number of students from low-income families has increased by half in five years.
"We recognized that low-wealth students had been grossly underrepresented on our campus," said Earl Granger, associate provost for enrollment.
The goal of the no-loan movement is to reverse the upward trend in student debt, particularly among students least able to repay their loans, in an era of steadily rising college prices. The universities were also "looking for a competitive edge," Kantrowitz said. "They've had record applications in the last few years, in part because of this."
Word is spreading among high school juniors and seniors that expense is no longer a barrier to some of the nation's most selective private colleges, including many of the top liberal arts schools. And that is a factor to consider when weighing different schools.
For a middle-income student today, "it may be less expensive to go to Penn than to go to Berkeley," Gutmann said.
But the aid pledges vary widely, and opinions differ on who can rightly claim to meet full financial need.
Several dozen colleges have financial aid policies that meet the full demonstrated need of some or all students, including Georgetown, the University of Richmond and Washington and Lee University in the mid-Atlantic region, as well as the University of Maryland, the University of Virginia and William and Mary.
Financial aid experts recognize a smaller group of about 50 colleges with aid pledges that minimize or eliminate loans in clearly worded pledges, such that a family can predict what the school will actually cost based on household earnings. Together, the schools serve about 8 percent of U.S. college students.
Thus, the Institute for College Access & Success recognizes aid pledges from U-Md., U-Va. and William and Mary but not from Georgetown, whose guarantee to meet full need includes an unspecified level of public and private student loans.
"We're highlighting these schools that have brought some transparencies to the process," Asher said.
The University of Maryland, whose full annual in-state cost averages about $22,000 in tuition, fees and living expenses, pledges to meet that figure through grant aid and work-study for students at the poverty level. The university also promises full grant aid for seniors once they have accumulated $15,900 in need-based loans, minus any other aid they have received.
Sarah Bauder, director of financial aid at U-Md., said she thinks the aid pledge is drawing more low-income students who might not have applied previously, "because they think they can't afford it." Bauder sends a letter to every high school principal in Maryland, every year, detailing the pledge.
Federal data suggest the aid pledges yield at least one consistent result: modest levels of student debt. A review of 2008 figures, the latest available, for eight colleges that serve Washington area students found that no more than about half of students graduated in debt. Average debt ranged from $12,859 at William and Mary to $25,586 at the University of Michigan, little more than the cost of a single year's education for an in-state student.