‘No-loan’ Financial Aid Colleges: What to Know

The cost of attending college continues to rise for American students. To ease the financial burden on families and students, a small subset of schools have instituted “no-loan” policies, removing federal loans from financial aid packages and replacing those funds with scholarships, grants and work-study.

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The idea is that students will graduate without owing money. But the details on eligibility vary from school to school, so it’s important prospective students look at the fine print.

Over the past 20 years, tuition and fees at private National Universities have jumped 134%, according to US News data. Out-of-state tuition and fees at public National Universities have risen 141%, while in-state tuition and fees at public National Universities increased by 175%.

The Biden Administration recently announced a plan to forgive up to $ 20,000 in federal student loan debt, which is likely to affect many of the nearly 43 million Americans who borrowed to attend college.

Prospective college students, however, will not qualify. That’s one of many reasons attending a college with a no-loans financial aid policy may be of interest to cost-conscious students.

“No-loan schools are basically telling students of modest or even extremely low income that they should apply if they have the grades and extracurricular (activities) to be considered and that they don’t have to worry about the high price tag as long as they are able to get accepted, “says Kevin Ladd, chief operating officer and co-creator of Scholarships.com, and a former US News contributor.

Some schools advertise that they offer a no-loans financial aid policy but include stipulations that make it available only to certain demographics.

According to data submitted by 574 ranked National Universities and National Liberal Arts Colleges in an annual survey to US News, 45 schools reported offering a no-loans financial aid policy. National Universities are schools that are often research-oriented and offer bachelor’s, master’s and doctoral degrees, while National Liberal Arts Colleges emphasize undergraduate education and award half or more of their degrees across liberal arts fields.

College of the Ozarks in Missouri is the only Regional College that reported offering a no-loans financial aid policy. Regional Colleges focus on undergraduate education but grant fewer than half their degrees in liberal arts disciplines.

What Does No Loans Mean? It Depends

However, just 19 schools reported meeting full financial need with a no-loans policy for each enrolled student eligible for federal loans. These schools specifically offer no loans for all applicants regardless of family income and financial need, though some require students to make a minimum contribution, according to responses submitted in the US News survey.

The majority of schools that offer no-loans financial aid for all are high-ranking on US News’ list of Best Colleges, with many ranking in the Top 10 of their respective category.

At Stanford, for example, students must contribute at least $ 5,000, typically made up of money earned during summer work and part-time work during the academic year, according to the school’s financial aid website. In addition, students are required to contribute 5% of their personal assets, such as savings and investments, each academic year.

Princeton, which instituted a no-loans policy in 2001, announced recently that it is raising its no-loan income cap from $ 65,000 to $ 100,000 and eliminating the required $ 3,500 student contribution. The move is set to take effect in 2023.

Williams College in Massachusetts, Davidson College in North Carolina and College of the Ozarks are examples of schools that offer no-loan financial aid to all students without requiring any contribution.

No-Loan Schools Aren’t Free

Just because a college is labeled a no-loans school doesn’t necessarily mean the cost of attendance there is zero dollars. Most no-loan colleges aim to cover each family’s demonstrated financial need – the difference between the cost of attendance and the expected family contribution, referred to as EFC.

The amount of need-based aid that a school offers is usually determined by the information a family provides on the Free Application for Federal Student Aid, called the FAFSA, and sometimes the College Board’s CSS Profile, a separate financial aid application that about 250 colleges , universities and scholarship organizations require.

The majority of schools that meet financial need for all enrolled students without federal student loans use the CSS Profile.

Schools use financial information from these forms – such as income, tax data, assets and household size – to calculate an EFC. While the federal government has a formula for calculating EFC, institutions have their own methodology.

“All of these schools determine the family need calculations a little differently and really don’t disclose how they compute such need,” says John Goodhue, an attorney and co-founder and CEO of APO Financial Inc., a Colorado-based investment advisory companies.

Even at a no-loans institution, some families and students may still need to borrow money to cover college costs. Because many of these institutions don’t participate in the federal student loan program, students who borrow typically use a private lender. Students and parents should be aware of the differences between private and federal student loans.

Federal student loans are issued by the government and have fixed interest rates set by law. In contrast, private student loans are issued by private entities like banks and credit unions, which set their own terms. Private loans are generally more expensive than federal loans due to variable interest rates, which are often higher than federal student loan interest rates, according to the US Department of Education.

“Some families end up being surprised and had expected more grant assistance because their personal level of need is higher than what comes out in the CSS Profile, for example,” says Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators. “Take a look at how your school is assessing what that level of need is. If it is through a CSS Profile, then make sure you’re familiar with what the CSS results show so you know what to expect.”

When considering schools that claim to have no-loan policies, students should remember that the parameters vary. Some institutions limit no loans to students from lower- or moderate-income households, and some also still require a minimum contribution from students before the policy takes effect, according to data collected in the most recent US News survey.

Haverford College in Pennsylvania, for instance, limits its no-loans financial aid award packages to enrolled students who come from families that earn $ 60,000 or less per year, but does not require students to make a minimum contribution.

Colgate University in New York announced last June that it was eliminating federal loan packages for all current students with family incomes up to $ 150,000, increasing the threshold by $ 25,000 from a plan that was implemented in 2020. Students with an annual family income of $ 80,000 or less can attend the school tuition-free, according to the school’s financial aid website. Students whose families have an average income above $ 80,000 are required to make a contribution of either 5% or 10%, depending on which income bracket they fall under.

Any student considering a no-loans university should begin researching all financial aid options available to them from that school, Ladd says. Students should also be aware that many of these schools are challenging to get into and graduate from, he says.

“Researching, visiting the campus and discussing grades – likely majors / programs of interest, etc. – with someone from the school is the best way forward to determine compatibility,” Ladd wrote in an email.


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