The Financial Implications of No-Loan Policies at Private Elite Liberal Arts Colleges

Today 17 elite private colleges in the U.S. have offered no-loan policies, which replace student loans with grants, scholarships and/or work-study in the financial aid packages awarded to all undergraduate students eligible for financial aid. Generally, the goal of these policies is to increase the socioeconomic diversity of campuses and to reduce the amount students borrow to finance their education. However, since the 2007–2008 credit crisis two colleges eliminated their no-loan policies for all students on financial aid and several restricted the policies to their lower-income students on financial aid. Therefore, this qualitative case study explored the financial implications of no-loan financial aid at private elite liberal arts colleges. Leaders from various offices involved in planning and implementing no-loan policies at four colleges were interviewed: two campuses that maintained their full no-loan policies after the financial crisis of 2007–2008 and two that did not. The leaders were interviewed to understand how no-loan policies were financed and managed; how they affected operating budgets and other academic priorities; and how they were communicated to college constituents. Findings from this study provided a more nuanced understanding of why some schools maintained and others retracted no-loan financial aid. Contrary to reports in the news, endowment losses, while symbolic of financial distress, were not the only reason that schools retracted no-loan policies. Endowment losses in the context of other internal and external budget pressures resulting from the credit crisis and Great Recession led to this decision. Each college in this study made a series of tradeoffs in how to balance mission and market pressures in a new budget reality where all three of their primary revenue sources were constrained. These competing priorities included how to increase faculty lines and compensation, reduce teaching loads, fund capital projects, reduce student loan debt, and distribute scholarship aid to ensure proportional socioeconomic diversity on campus. Higher education policymakers and leaders can use this study’s findings to improve institutional policies and practices in higher education finance