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Elite Institutions Increase Grants to Students
Princeton University’s announcement in January that it will replace loans with grants for all undergraduates started a chain reaction as other elite universities increased the size of the grants they will give to undergraduates and cut the amounts students must earn or borrow to finance their education.
Following Princeton’s announcement, Harvard University cut the "self-help" portion of its financial-aid packages—the part that students are expected to pay through earnings or loans—from $5,150 to $3,150 a year for all scholarship students; the Massachusetts Institute of Technology said that it plans to increase by $3,100 a year the average size of grants to undergraduates; and Dartmouth College announced that it will replace all loans with grants for first-year students whose families earn less than $45,000 a year, as well as make small cuts in the amounts students must borrow. All four institutions characterize the changes as designed to ease the burden on students. In recent years, as rising college costs have far outpaced inflation, graduating students have been saddled with increasing amounts of debt.
Critics of the increased subsidies warn that the nation’s students could be hurt if resources are siphoned away from need-based aid and devoted instead to a bidding war over a small pool of applicants. While Princeton—with an endowment worth more than $8 billion, according to the National Association of College and University Business Officers—can afford to support all students, less wealthy institutions have to make hard choices about where to allocate aid dollars. If such institutions find themselves losing top candidates to universities that offer more generous financial aid, they may be tempted to counter with special "preferential packages" for the most highly qualified students, who are not necessarily the neediest.
"There will be winners and losers from this development," says Ronald Ehrenberg, professor of economics and industrial and labor relations at Cornell University. "Princeton, Harvard, MIT, and Dartmouth will likely increase their enrollments of low-income students, and their graduates, with smaller loan burdens from college, will have more freedom to choose public-service careers that do not offer high pay. The downside is that an increased use of preferential packaging at selective privates with smaller endowments will mean either less financial aid and larger loan burdens for other accepted applicants at these schools, or higher tuition to cover the costs of the additional financial aid."
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