Don't worry- it's on us!

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

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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.

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.

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"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.

"Princeton has sort of upped the ante in this arms race, so that it may not be long before all students will be able to go without respect to the loan competition," says James Bock, acting dean of admission at Swarthmore College in Pennsylvania. "Will everyone try to follow? It's a big question for the schools at this tier and everyone down the food chain."

In fact, various institutions have responded in different ways since the 1998 shift. Marlboro College in Vermont lowered its tuition by 8 percent. Swarthmore College, in Pennsylvania, quietly replaced thousands in loans with grants for dozens of students it was anxious to enroll. The Massachusetts Institute of Technology cut by $1,000 the amount students receiving aid had to contribute. Last year, Williams College in Williamstown, Mass., froze tuition, room, and board, eschewing the ritual annual increase.

All this indicates that the laws of economics are still in full play, despite floods of applications at some schools, says Kalman Chany, president, of New York-based Campus Consultants, and author of "Paying for College Without Going Broke."

"What Princeton did simply meant they weren't getting the students they wanted to get," he says. "A lot of parents were questioning whether they wanted to go to Princeton at that price. Some were saying it was just too much."

Princeton officials deny its recent move is to gain an edge. "We want to ensure that no student admitted to Princeton feels that he or she cannot attend because it would present a financial hardship," Princeton President Harold Shapiro said in a statement recently. "We have made all of today's improvement with that goal in mind."

But others are less certain about the long-term impact and moral and philosophical underpinnings of the move.

"When Princeton does something like that, it becomes a ripple through the industry," says Barry McCarty, dean of enrollment services at Lafayette College in Easton, Pa. "My concern is what is going to happen to students - some of whom will obviously be very happy. Others will be losers. Not at Princeton, but at places where financial aid has to compete in a rather fierce way with other needs of the institution - technology, library services, energy, to say nothing of capital needs."

Michael McPherson, president of Macalester College in St. Paul, Minn., an economist and co-author of "The Student Aid Game," agrees the recent change benefits Princeton students financially.

"But is that the best thing you could do with that endowment money?" he wonders. "It's a genuine dilemma. Many of these students would willingly pay much more than they are being asked to pay now. It's like saying: 'Welcome to Princeton or Harvard. You are being provided access to the best education that American society has to offer - and, oh, by the way, here's a hot fudge sundae, too.'"

Dr. McPherson is not alone in wondering about such things - or questioning the nation's decade-long slide away from "need-based" aid that helps low-income students. The trend has been strongly toward more merit aid - which can be applied to students who do not need aid, while those that do need it go without.

To Ms. Wills, the Princeton student, the practical effect is positive. "This will help relieve pressures [a lot of students] feel to go into certain majors so they can pay off loans," she says. "I know people who go into consulting and investment banking because those are lucrative careers that can pay off debts."

If this spreads, she adds, it will mean fewer students who feel compelled to attend another school simply because the aid offer was better. While it will affect only her final year of school - cutting about $4,000 from her accumulated loans - she thinks it's the right thing morally.

"I chose Princeton over Swarthmore, even though Swarthmore had a better aid offer," she says. "But I know people who had that same decision and chose the school they didn't like as much for financial reasons. It's good that other universities will be forced to step up to the plate."

E-mail claytonm@csps.com

(c) Copyright 2001. The Christian Science Publishing Society

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