Grants to replace loans
By Marilyn Marks
Princeton NJ -- The University will no longer require undergraduates on financial aid to obtain loans to help pay for their education. Beginning next fall, the University will eliminate its loan requirement, and replace it with additional scholarship support. The plan is one of several initiatives designed to ease the financial burden on students and their families, and builds on other significant improvements made in recent years.
In eliminating required loans, Princeton is acting against a national trend in which loans make up an increasing portion of student aid packages. Nationally, loans now account for 60 percent of all student aid. Princeton is the first of its peer institutions -- and, except for the service academies, possibly the first American university -- to announce that aid recipients will not be required to borrow to pay for college.
The "no-loan" policy, approved by the Board of Trustees Jan. 27, will affect all undergraduates attending Princeton beginning in the fall semester. It extends a groundbreaking program begun with the Class of 2002 to reduce the financial burden for low- and middle-income students. In that initiative, loan requirements were eliminated for students from families earning less than $46,500 and reduced for those earning between $46,500 and $66,500 (current dollars, adjusted for inflation).
"We want to ensure that no student admitted to Princeton feels that he or she cannot attend because it would present a financial hardship," said President Shapiro. "We have made all of these improvements with that goal in mind."
Under the new policy, no undergraduate student will be required by the University to take out a loan to finance his or her education. Instead, aid packages will consist solely of grants -- which need not be repaid -- and required contributions from students' term-time and summer jobs. As always, students will have the option of borrowing to finance needs that are not part of the standard student budget or to replace a shortfall in earnings. Parents are also able to borrow to meet their expected contributions.
Although circumstances vary each year, the change will affect a significant number of students. About 40 percent of students in the Class of 2004, for example, receive financial aid, and nearly one-quarter of students in that class currently are required to borrow. Those receiving loans comprise 62.5 percent of all freshmen receiving financial aid.
The average amount borrowed by members of the Class of 2004 this year is $2,615, which reflects earlier improvements in Princeton's financial aid program. Members of the Class of 2001, who had not benefited from the previous changes, borrowed an average of $4,000 this year.
Across the country, students who have been required to take out loans during their four years of college will graduate this year owing an average of $15,000 to $20,000 -- a substantial sum that can cause financial hardship and influence decisions relating to graduate education and careers, noted Don Betterton, director of undergraduate financial aid. The new policy means that incoming Princeton undergraduates who stay within a reasonable yearly budget and meet work obligations can graduate without any debt.
The no-loan program and other improvements to financial aid will cost Princeton more than $5 million next year, with funding coming from strong growth in Princeton's endowment and the success of its annual giving program and its recent fund-raising campaign.
In addition to the elimination of required loans, Princeton announced the following changes to its financial aid policies and practices. Except where noted, these changes will affect students in all four undergraduate classes beginning in the 2001-02 academic year:
The required annual contribution from student savings will be decreased from 35 percent to 5 percent of those savings, and the difference will be made up by grants. Parents already are expected to contribute 5 percent of their savings each year, so the change means that student and parent savings will be treated equally. The change will correct a situation that penalized families in which parents save in the names of their children. It will be phased in, beginning with the new freshman class.
The amount that many students are expected to contribute from their summer savings is being reduced. Students in families with incomes up to $46,500 will receive an $800 cut. Students in families with incomes of $46,500 to $66,500 will have a $500 reduction. This change was made because the University recognizes that lower-income students may have to contribute part of their summer earnings to their families, Betterton said.
For aid students in families that earn less than $66,500 per year, the University will increase the student's grant to fully cover the Student Health Plan, estimated to cost $370 per student in 2001-02.
Renters will receive an allowance against their savings equal to the value of the average family home, about $140,000 in the 2001-02 academic year. This change was made to equalize the treatment of renters in the aid formula, since home equity is no longer considered part of family assets. (The elimination of home equity was among earlier financial aid improvements.)
International students will be admitted on a "need-blind" basis, just as U.S. and Canadian students already are. This means that admission decisions will not take ability to pay into account. The University applied the "need-blind" policy to international freshmen in the Class of 2004 on a trial basis, and today's approval by the trustees formalizes that practice.
Improvements made to Princeton's financial aid program over the last several years have contributed to enrolling a higher percentage of aid students, particularly those from low-income backgrounds. Princeton's changes have prompted other private universities to follow suit and make a college education more affordable.
Students are admitted to Princeton regardless of their financial need. After a student is admitted, the University applies a formula to determine what portion of the standard student budget can be met by family contributions. The financial aid package is developed to cover the rest.
Next year, the cost of undergraduate tuition, room and board at Princeton will be $33,613.