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No Loans

Our friends at Dartblog cover the hypocrisies of “no loan” financial aid.

Please. Don’t make more of this “no loans” thing. It’s very misleading. Princeton is very generous, but even then many of the students take out loans. According to Princeton’s own literature, 18% graduate with debt.

How is that possible? The literature says no loans! Some borrow to fund study abroad or other adventures. Some skip a paying summer job and need to borrow to cover the lost money. There are probably many reasons.

The point is that “no loans” is pretty much a fraud. They still get to make up a number and insist that the kid can afford to pay it. At Princeton, 18% can’t. Remember, it’s their definition of ability to pay, not the kids and not the parents.

And it’s worth noting that we’re just talking about student loans. Parental loans are a completely different ball of wax. No college is making a “no loans” pledge to parents.

The schools are also free to pull a number out of thin air and say this is your expected family contribution. I’m told by a savvy number cruncher that anyone making more than $120k is expected to contribute $60k. Note the $120k is pretax and the $60k is post tax.

As you might imagine, many parents need to borrow from home equity or other sources.

Even at the richest schools, these promises are hollow and some of the most misleading propaganda put out by the college industrial complex.

I used to rail against the College’s ending of its “no loans” financial policy a decade ago. And Williams does continue to spend too little money on students and too much on other stuff. But, former Provost Will Dudley shared* some interesting results a few years ago highlighting that total borrowing by Williams students seemed about the same during the loans and no-loans period. Why? It is unclear but many poorer students come from families with debt, especially expensive credit card debt. Taking out student loans — even if the Williams aid package is so generous you don’t “need” to — and paying off those debts can make perfect sense from the point of view of the entire family’s finances.

*Note that Will, unlike current provost Dukes Love, refused to make those findings public. So, unless you were an insider — a rich and/or engaged alum — you never got to see them.

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#1 Comment By abl On July 17, 2018 @ 3:31 pm

The fact that 18% of Princeton graduates have debt doesn’t mean that 18% of Princeton graduates have to have debt. I think that finaid calculations are imperfect, and that schools regularly err on the side of expecting parents/families to contribute too much. But this article is full of overstatements. For example, I don’t know how Princeton calculates finaid, but the 120k / 60k number sounds pretty off-base for a typical family/student based on my recollections of Williams (which I do not think is more generous than Princeton).

The main problem with this article, though, is that it’s falling into the trap of letting the perfect be the enemy of the good. The author’s thesis is effectively that because “no loans” at Princeton is at most an imperfect guarantee, it has little redeemable value. The problem with this argument is that even if “no loans” doesn’t get you all the way to where you need to go, it gets you a heck of a lot further than a “yes loans” policy.

It is unclear but many poorer students come from families with debt, especially expensive credit card debt. Taking out student loans — even if the Williams aid package is so generous you don’t “need” to — and paying off those debts can make perfect sense from the point of view of the entire family’s finances.

This is an interesting point. I don’t remember how loan eligibility works — are students eligible for federal loans if their college finaid package fully meets their demonstrated need, for example? — but if a parent could do as you suggest, that could be a wise financial decision. I suspect, however, that the number of parents who do this is vanishingly small. Regardless, even if this is true, this is a detail that indicates why tracking only student loan debt fails to tell you everything that you need to know about college affordability. A family who takes out student loans to pay off high interest credit card debt under a no-loans policy is in far better financial shape than they would be under a yes-loans finaid policy. Potentially the family’s “total
student loan debt on graduation” would look the same, but that doesn’t mean that the no-loans policy provides no meaningful benefit.

#2 Comment By Alum-Anon On July 17, 2018 @ 4:02 pm

Certain SLACs will fund a student in the gate but then reduce their commitment as the student in question nears graduation. Such a reduction is often surprising in light of previous support and therefore unlikely to be anticipated, which tends to increase reliance on student loans.

One observation that might be made is that an offer of initial full support in some cases will prove decisive in recruiting students. The second observation that might be made is that such a policy, abusively constructed, could lead these same students and their parents to make suboptimal decisions regarding the financial impacts of their choices of institutions.

#3 Comment By DDF On July 17, 2018 @ 4:10 pm

“The problem with this argument is that even if “no loans” doesn’t get you all the way to where you need to go, it gets you a heck of a lot further than a “yes loans” policy.”

Well, maybe. The problem with “No Loans” is that it gives applicants a misleading picture of what to expect. And this is all the more objectionable because Williams could just tell applicants the truth.

Why not just provide a handy table, diving all students into family income buckets (big enough to preserve anonymity) which would show, for each bucket, the number of students in it, the min, max, mean and median amount of loans taken out?

#4 Comment By DDF On July 17, 2018 @ 4:11 pm

are students eligible for federal loans if their college finaid package fully meets their demonstrated need, for example?

I am no expert, but I believe that they are, at least if the package includes any expectations for family contribution or student term/summer earnings, as (I think!) all (?) Williams aid packages do . . .

#5 Comment By PTC On July 18, 2018 @ 11:47 am

DDL- How much more money could Williams put toward receding tuition?

Williams could give everyone a full ride for one year for about five million bucks? The school could drastically reduce tuition.

That would be more worthwhile than a 11 million dollar bookstore in the digital age- I would imagine.

#6 Comment By abl On July 18, 2018 @ 2:52 pm

Well, maybe. The problem with “No Loans” is that it gives applicants a misleading picture of what to expect.

I just am not convinced that Princeton’s “no loans” policy is misleading.

No matter how generous schools like Princeton are, there will likely be the occasional family who will still take out loans, not because Princeton is insufficiently generous, but because trading federal student debt for existing private debt is beneficial. Families whose need is truly and fully met by Princeton, without having to take out loans, who nevertheless take out loans for this reason, have not been let down or mislead by Princeton’s “no loans” guarantee.

Likewise, no matter how generous schools like Princeton are, there will likely be the occasional family who is unwilling to contribute what Princeton demands irrespective of the reasonableness of that demand. Donald Trump may be unwilling to downgrade his vacations to a slightly less luxurious private island in the Bahamas, and instead grumpily take out student loans for Baron’s Princeton education. I actually have an acquaintance who is a perfect example: her family drove luxury cars and owned a vacation house nicer than my primary house, and had a yearly cash income more than adequate to support such a lifestyle. Nevertheless, they were unwilling to make the financial sacrifices necessary to afford what Princeton (well, a similar school) demanded of them — which would have required going on less extravagant vacations and foregoing regular purchases of new luxury cars for several years. Although this family could have fairly easy shouldered the burden of my acquaintance’s college expense — even after these sacrifices, they would have lived a far more comfortable life than most in their community — they were unwilling to, and took out loans.

The question with a “no loans” guarantee isn’t whether some families nevertheless end up with loans. The question is whether Princeton’s determination of parental contribution is consistently reasonable. My guess is that it is. I suspect there are occasional circumstances in which Princeton gets this wrong, and that not all of these mistakes are corrected through appeals. But I haven’t seen anything that implies that there is anything systemically faulty about Princeton’s aid determinations, and I don’t think that the occasional miss renders Princeton’s “no loans” guarantee empty.

#7 Comment By Alum-Anon On July 18, 2018 @ 4:34 pm

Hey abl, I’ve got a great idea. Why don’t you unnecessarily politicize what hitherto has been an apolitical argument in a scornful accusation trying to justify your views on this policy, as if the objections to it are not sound?

#8 Comment By Abl On July 18, 2018 @ 5:17 pm

Alum-Anon—

I’m genuinely curious how my post politicized anything. I couldn’t even guess what represents the conservative/liberal position on this.

#9 Comment By Alum-Anon On July 18, 2018 @ 6:13 pm

I’m genuinely curious how my post politicized anything. I couldn’t even guess what represents the conservative/liberal position on this.

(needlessly cites current president as hypothetical representative example)
(claims to not understand how this politicizes the discussion)

#10 Comment By Abl On July 18, 2018 @ 7:53 pm

Ah, yea, sorry—I sometimes forget how sensitive people get these days. I’m citing him as an example of a rich guy, and just as part of an obviously silly hypothetical (Trump would just pay). Replace in my above example with if it helps you feel better/uncomplicates my point.

#11 Comment By Alum-Anon On July 18, 2018 @ 8:29 pm

It’s not a question of sensitivity, it’s just a question of whether it provokes unnecessary conflict in a conversation that is not germane to the example.

#12 Comment By abl On July 18, 2018 @ 10:34 pm

It’s absolutely a question of sensitivity. My comments weren’t mean-spirited, nor do they cast Trump in a light that he does not regularly (and triumphantly) bask in. I don’t think any conflict would have been reasonably provoked by my comments, either on the left or on the right, in a time in which more ordinary passions prevailed.

That said, I recognize that we are not in that time, and so I am very sorry. I’m not being sarcastic: I think the point that I made was sound, and instead of discussing that point, we are quibbling about something as idiotic as whether merely invoking the name of the President counts as unnecessary politicization.

#13 Comment By abl On July 18, 2018 @ 10:36 pm

Again, I want to note that although I believe Trump to be a somewhat bizarre cheapskate, I am 99.99% confident that he would pay Baron’s tuition at Princeton happily. My example was meant in jest and only used Trump to personify a generic wealthy man, and not to otherwise cast dispersions.

#14 Comment By Alum-Anon On July 20, 2018 @ 12:59 am

abl, I’m glad to see you resisted your urge to fire a couple of political cheap shots entirely beside the point of what should by all rights be an entirely apolitical discussion. Even more glad to see you took my concern seriously as opposed to lambasting it with loaded terms like “quibbing” and “idiotic,” and resisted the urge to spin it out over multiple off-topic posts.

My suspicion is your point (such as it was) doesn’t reflect the majority of applicants and applicants’ families who buy into what disturbingly resembles mere marketing, and as a consequence are unpleasantly surprised when shortfalls in the tens of thousands of dollars suddenly and unexpectedly appear later in the student’s career.