Student loan payments were put on hold due to the COVID-19 pandemic, but the expected date of their return comes at end of next month.
While experts and lawmakers urge President Joe Biden to push this date back and others – such as Vermont Sen. Bernie Sanders (D) – advocate for cancelling the estimated $1.73 trillion in debt altogether, some schools are taking the matter into their own hands.
For example, Ohio State University and Smith College both announced in recent months that they would take loans out of their financial aid packages this fall. Instead, the schools plan to use philanthropic donations to fund undergraduate grant aid programs.
At Ohio State, a school with around 53,000 undergraduate students, philanthropy is the backbone of the Scarlet & Gray Advantage program to end student loans. University documents show that the school plans to raise at least $800 million over the next decade to fund scholarships.
Already, Ohio State has created a matching program where lead donors are expected to match $50 million in private donations of $100,000 or more. These donations will establish new endowments and support existing scholarship programs.
President Kristina M. Johnson estimates that philanthropy will account for 45 percent of what’s needed to keep the Ohio State policy alive, according to The Washington Post.
All undergraduate students at the university will be eligible for the Scarlet & Gray Advantage program at Ohio State. They should be able to cover the full cost of attendance through federal, state and university aid as well as work opportunities and financial contributions from their family.
No-loan programs often can significantly reduce student debt.
Yet, some students may be left with expenses due to the way expected family contribution is calculated. At Princeton, around 17 percent of seniors graduated with an average $9,400 in debt despite its no-loan policy.
In general, Ohio State students struggle less with debt than many others across the nation. Of the students who graduated from the school last year, around half had no debt and those that did owed an average of $27,000.
Its no-loan project will begin next year with a 125-student pilot program.
Smith, a liberal arts college for women in western Massachusetts, is much smaller than Ohio State with 2,600 students at the undergraduate level. It also has a $2 billion endowment and a prestigious reputation.
President Kathleen McCartney said the school wants to center its inclusiveness with the new policy on loans.
“There was a real racial disparity in borrowing — 89 percent of our Black students had loans and only 56 percent of our white students,” she said. “We’ve been working on a plan to promote racial justice and equity, and we thought we just have to eliminate loans. That will send a powerful message to our students that we are serious about racial justice.”
To this end, the college plans to invest $7 million annually, which would bring the total aid awarded next year to $90 million. More than 60 percent of Smith students receive need-based institutional aid, and all will receive an increase in their grant from the college.
Aid will include one-time grants of $1,000 for low-income students to start their college careers and $2,000 grants for graduating seniors for their life after college.
Livie Johnston, an 18-year-old Smith freshman, said she nearly cried after reading McCartney’s email announcing the initiatives, according to The Post. She borrowed $3,500 in her first year and anticipated relying on loans until graduation.
In the past, some colleges and universities have struggled after attempting to nix loans. Carleton College in Minnesota and Claremont McKenna College in California both ended their policies in the wake of the Great Recession of 2008. The University of Virginia reintroduced loans after a decade of moving away from them.
Since then, that school was able to secure large donations that bolstered aid for low-income students.
According to The Washington Post, only 76 colleges and universities have adopted no-loan policies since Princeton University announced it would end its loan programs in 2001. As of September, the U.S. News & World Report found that 15 ranked U.S. colleges claimed to meet the full financial need of their students with no loans.
Many schools that have abandoned loans have large endowments (collections of assets that support university operations), enroll a small number of students in financial need and have selective admissions, said The Washington Post.
In order to compete for the best students, who may lack financial resources, focusing on grant programs could become increasingly important going forward, according to the outlet.
“Colleges are legitimately worried about student loan debt, but they’re also concerned that if they don’t do this, they won’t be able to compete for the students they want,” said Robert Kelchen, a higher education professor at the University of Tennessee at Knoxville.
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