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Don't worry- it's on us!

Princeton University's shift from loans to grants could change how schools - and students - negotiate financial aid

By Mark Clayton Staff writer of The Christian Science Monitor / February 13, 2001



In many respects, Vanessa Wills is your typical college junior: She's got a lot of homework, is sleep-deprived, her laundry is stacking up in her dorm room - and she's more than $10,000 in debt.

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Now the philosophy major at Princeton University is likely to get help with at least one of her problems: the unbalanced checkbook.

Under a pioneering plan, Princeton is becoming the first university in the United States to do away with all student loans. Instead, it will give out only grants. No more student debt. No more pressure to become an investment banker just to be able to pay off big loans.

"It was fantastic and so totally unexpected," Ms. Wills says. "There have been other initiatives to decrease the amount of student loans, but I don't think anyone expected the university to get rid of them completely."

An $8 billion endowment makes the gesture possible. And to many students already pondering the need for a high-paying job the day after graduation, it's a boon.

But Princeton's tectonic shift seems destined to fundamentally influence how aid is distributed - and the number of institutions that feel increased pressure to compete.

Some say it represents a long-overdue, morally sound move by a school with an endowment that bests the gross national product of some small nations.

But others argue that the new policy may reduce the aid available to students who truly need it. Less-flush schools may also push to offer bountiful packages to top students, thus limiting the pool of students who will get aid.

Either way, the battle for the top 1 percent of students is sure to intensify. "It's another blast in the financial-aid wars," says David Breneman, dean of the Curry School of Education at the University of Virginia and an expert on higher-education finance. "It quite clearly gives Princeton a leg up, and gives others a powerful incentive to respond."

The effects, he and others say, could:

* Cause about a dozen highly selective schools to sweeten aid policies to compete directly for the same middle-income, high-performing students Princeton hopes to lure from "public Ivies" and elsewhere.

* Prompt less-selective institutions to use limited aid funds to attract top students, leaving less for needy students with good, if not top-flight, credentials.

* Spark a debate about the moral imperatives and best uses of excess endowment funds - and whether schools might find better uses for these rather than investing the wealth in students who are already benefiting from a top education.

* Undermine a nascent set of broad principles for awarding financial aid that are being considered quietly by a number of institutions. (See related story, below.)

Though few of America's 600 or so selective institutions have the financial muscle to match Princeton's move outright, Dr. Breneman and others say many selective institutions and others outside the Ivy League circle will feel compelled to shift financial-aid strategies in order to keep themselves attractive to top students.

"This will intensify the focus of the schools that are a notch or two down on the pecking order on giving merit aid and more preferential packaging," he says.

At least, that's what happened last time.

Today's aid battles have their roots in the 1990s, when applications to several Ivy League institutions dipped slightly - partly due to "price resistance" on the part of middle-income and even high-income families, some observers say. Studies showed that a growing number of students from families with incomes of more than $200,000 were shunning the Ivies to attend top public institutions, where price tags were tens of thousands less.

It was shortly after one such dip that Princeton unveiled its initiatives in 1998. It set off the first round of financial-aid wars by eliminating loans for lower-income students from families earning less than $46,500 and cutting the amount of loans for those between $46,500 and $66,500.

It wasn't long before Harvard, Stanford, Yale, and other universities responded. Harvard let it be known it would happily review other institutions' aid offers with an eye to matching or beating them.