The New York Times reports:

Williams College, which two years ago replaced all loans in its student financial aid packages with direct scholarships that did not have to be repaid, is rescinding the policy amid the fallout of the economic downturn.

Say it like that and it sounds pretty sleazy. We can afford to spend almost $100 million on new construction (Stetson/Sawyer and Weston) but we can’t scrape up $2 million a year to keep our No Loans promise? Pathetic.

Williams is one of several dozen colleges and universities, most of them private, that have removed loans from aid packages within the last three years in favor of scholarships. Such policies, similar to one announced by Princeton in the late 1990s, were a response to the steep loan debt accumulated by some students. Colleges often embarked on no-loan policies as a result of financial windfalls.

Jacques Steinberg, author of The Gate Keepers, is a smart guy. Why must he write so stupidly?

The elimination of loans at elite colleges had nothing to do with “the steep loan debt accumulated by some students.”

1) The initial move by Princeton was caused by the rise in endowment money dedicated to financial aid. (Morty has told this story several times.) There was just so much money in these accounts, money that could only be spent on financial aid, that Princeton had (almost literally) no choice other than to eliminate loans.

2) Once Princeton did so, Harvard and Yale had to follow suit. Harvard and Yale are wonderful universities, but who would choose them over Princeton if doing so required taking out $15,000 or so in loans? Almost no one. Since Harvard and Yale will never permit Princeton to (significantly) out-yield them in the competition for the most desirable students, they had to eliminate loans as well.

3) Other schools went along, at least those schools rich enough to do so. Competition was the fundamental driver, not a newly awakened sense among college administrators that, “Hey! Look at all that debt!” Indeed, I am aware of no evidence that the real debt burden faced by students in 2000 was any higher than that faced by some of my classmates from the 1980s. (Nominal and real tuition increased dramatically over that time period, but not the debt burden, at least among elite schools.) Williams wants at least some of the cross-admitted students, especially students from non-rich families, to choose it over Harvard/Yale/Princeton. Without matching the no-loans policy, it has no chance of attracting those students.

Yesterday, I predicted that Haverford would follow Williams. Here they come!

Jess Lord, dean of admission at Haverford, another private college that does not require financial-aid students to take loans, said in an e-mail message, “At present there are no plans to change” that policy.

I thought the same about Amherst. Perhaps I underestimated Tony Marx’s committment to socio-economic diversity?

Representatives for Amherst College, Davidson College and the University of North Carolina said Monday that they would continue to maintain no-loan policies similar to the one being rolled back by Williams.

Hmmm. Assume that 50 students are admitted to both Williams and Amherst. Right now, 25 go to one and 25 to the other. I have no problem telling the 25 that choose Williams that they are making the correct choice, that they should trust whatever intuition they have that Williams is a better fit.

But what would I say if those students had to take on $10,000 in debt to come to Williams instead of Amherst? Could you honestly claim that Williams is $10,000 better than Amherst? I could not. Now, of course, this dilemma won’t apply to rich kids who don’t need to worry about loans anyway. They’ll still choose Williams!

What about poor students?

A Williams spokesman, Jim Kolesar, said the college expected to save about $2 million after the first four classes that are subject to the new policy have arrived on campus. And Mr. Wagner said Williams’s most needy students “will not be expected to borrow at all.”

Wagner might argue that poor students don’t need to worry since Williams promises — Really! We are telling the truth this time! — to not force them to take out loans. But those poor students should think twice about attending Williams in this new world because it is very hard for them to accurately predict their family’s income over the next four years.

Assume that Williams promises that families that make less than $60,000 won’t need loans. Your family makes $50,000, so you think you are all set. Your turn down Amherst and come to Williams. But then your parents get a raise or some extra overtime the next year and, just like that, your family income is $61,000. You sure don’t feel “rich,” but, according to Bill Wagner, you are no longer needy. Time to take out some loans!

If you had chosen Amherst (or Davidson or Yale or Princeton or . . .), then you would not have to worry about that. Those institutions have (plausibly?) promised to never ask you to take out any loans. Could you honestly recommend that a poor student who does not want loans — perhaps because she plans on a poorly paying career in social work — should choose Williams over Amherst even if, this year, she does not have to take out loans at Williams? I couldn’t. The risk of a (small) change in family circumstances is too great.

So, the moderate income students will (should!) choose Amherst over Williams. The poor students will (should!) choose Amherst over Williams. But at least we will still attract our fair share of the rich students! Not that there is anything wrong with that . . .

Williams’s endowment was still valued at a seemingly robust $1.4 billion last year. But in his letter, Mr. Wagner said, “Williams is in a strong financial situation by virtually any comparison — except with the Williams of three years ago.”

But the Williams of today is more than wealthy enough to afford a no-loans policy. We are in better shape than Amherst. There is more fat to cut. I don’t blame Haverford and other poorer schools for getting rid of loans. They have almost no other choice. Williams has the resources to continue with no loans. Why aren’t we?

I hope that Adam Falk will rethink this policy change. If Amherst is loan-free, then Williams should stay the same. Once again, I am thankful that Tony Marx is the president of Amherst. With luck, he will keep us true to our principals.

PS. Don’t forget Vicarious’s ’83 brilliant takedowns of Steinberg here and here.

PPS. Looks like we need a new category name at EphBlog. Would “Loans Again” be a good summary phrase for this discussion? Comments welcome.

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