Personal finance: A move toward more debt-free graduates

Michelle Singletary
Thursday, June 10, 2010; 11:48 AM

With the exorbitant amount of money needed to pay for higher education nowadays, I am so happy to see that an increasing number of colleges are stripping student loans from the financial aid offers they send to students.

In Colleges offer grants, work-study to reduce students' debt, Post writer Daniel de Vise reports more than four dozen colleges-- from Ivy League schools to state universities--have eliminated or capped loans in their financial aid offers. Instead of loans, the schools promise enough aid in grants and work-study to cover most of the gap between what they charge and what families are asked to pay.

At some schools with huge endowments such as Princeton, Harvard and the University of Pennsylvania, the goal is eliminate loan debt altogether.

Many parents and students are shocked to learn that the majority - if not all - of their financial aid packages include loans rather than free money. That's because the financial aid formula used to determine what students will get is based on the expected family contribution. The more a family has, the less free money the prospective student is offered. The financial aid calculation takes into account household income and assets.

As de Vise lays out in his story, 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 income might be asked to contribute $12,000. But the reality is many families at either of those annual salary levels would not have saved enough money to cover either $30,000 or $12,000 a year in school expenses.

Despite the growing no-loan aid pledges, student loan debt is still increasing nationally. Mark Kantrowitz, a financial aid expert and publisher of the Web sites and, told de Vise that the percentage of four-year students graduating with debt rose to 66 percent in 2008, up from 46 percent in 1993.

The no-loan trend is encouraging and may mean it is less expensive for some students to go to a brand-name school than to their state school. But the key word here is "may."

Personally, I've told my children they can apply to any college they want. But they will not be allowed to take on loans nor will my husband and I borrow for their education. We've saved enough or are saving at a rate every year to afford a good education for them at a public college in our home state. If they want to go to state school elsewhere or to a private school, they have to get scholarships, grants or work-study to make up the difference of what we've saved.

If they don't get any free money, they go where we have enough to pay in cash.

I don't want my children saddled with decades of budget-breaking student loan debt. Despite the common wisdom that education loans are "good" debt, I hear from dozens and dozens of people who find their annual incomes after getting their degrees aren't enough to service their monthly student loan payments and allow them to eat, sleep and be merry.

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