Bloomberg News
Williams College ended its policy of replacing loans with outright grants in student aid packages, in a cost-saving move triggered by endowment losses at a time the recession is forcing families to seek more help.
Swarthmore College in Swarthmore, Pa., and Amherst College in Amherst, Mass., are asking students on financial aid to contribute more from money they earn. Swarthmore is cutting its aid budget by 2 percent.
The changes to college aid policies squeeze families as they face record tuitions and request unprecedented levels of financial assistance. The Department of Education, based in Washington, received 15.4 million applications for financial aid in the first nine months of 2009, a 20 percent increase from a year earlier, according to the latest available data.
"Students and families are more worried than ever about whether they can afford to go to and finish college," Lauren Asher, president of the Project on Student Debt, a Berkeley, Calif.-based research and policy group focused on financial aid, said in a telephone interview. "They're rightfully concerned about how they'll have to borrow to get a degree."
Some first-year students who enter Williams in September 2011 will be expected to take on loans, Interim President Bill Wagner said in a letter dated Jan. 31 and posted on the college's Web site. Williams has been giving aid in the form of grants, without asking students to take on debt.
Families that fall "below a certain income" -- which Williams didn't specify -- won't be expected to borrow, according to the letter. The cost to attend this year is $49,880, said James Kolesar, a spokesman.
The Williams cut drew criticism from David Kane, an alumnus.
"It's a shame," said Kane, a 1988 graduate who runs hedge fund based in Cambridge, Mass., and writes a blog about his alma mater. "Williams ought to be cutting money elsewhere and financial aid ought to be the last cut it makes."
The policy change will save families with the lowest incomes from taking loans as Williams adds to the debt faced by middle-class families, said Michael McPherson, an economist and president of the Chicago-based Spencer Foundation, which funds education research.
Williams, in Williamstown, Mass., was among more than 30 top-ranked private colleges to adopt policies in 2007 and 2008 that replaced loans in aid packages with grants that students don't have to repay.
At some colleges those policies applied to all students who qualified for aid, while elsewhere only the neediest students were allowed to go without loans.
Families getting no loan from colleges still might have education-related borrowing from other sources.
Williams accepted 20 percent of applicants for the class that arrived in September. Harvard University in Cambridge, Mass., offered admission to 7 percent.
The endowment at Williams dropped by $400 million, or 22 percent, to $1.41 billion in the year ended June 30, the college reported in September.
The loss of endowment money meant a rethinking of spending priorities for the college.
"The college's focus is on adjusting to this new reality in ways that protect our core academic mission for the long run, keep Williams widely affordable and accessible, and value the great dedication of our faculty and staff," Wagner said in the letter. "The continuous review of our aid policies is among the most careful of the college's long-term deliberations."
Williams said it tripled its financial aid budget to $43.7 million for the current academic year from $14.6 million nine years earlier.
Once the no-loan program is eliminated from all four classes, it will save the college about $2 million a year, Williams said in the letter. About 2,000 students attend Williams, which was founded in 1793. Alumni include the lyricist and composer Stephen Sondheim and the New York Yankees owner George Steinbrenner.
Williams's announcement may signal that families making as much as $150,000 and receiving financial aid will see assistance cut back, said Donald Heller, a professor of higher education at Penn State.
"This is a reflection of the economic realities facing those institutions that are very highly dependent on their endowment to fund financial aid," Heller said in a telephone interview. "If economic circumstances are causing institutions to relook at who they're giving need-based aid to, it's a healthy and appropriate thing."
While Heller said he doesn't expect applications to drop because of the elimination of no-loan programs, colleges that keep the programs may gain a competitive advantage.
The initial policies were driven by a bidding war for students, McPherson said.
"I would worry very much that schools want to keep the no-loan policy, either because they're embarrassed because they've reversed something or because of marketing considerations," McPherson said.
Amherst College will retain its no-loan program because it "helps those families reduce what feels like a large financial burden to go to college," President Anthony Marx said in an interview.
Amherst's savings expectations for sophomores, juniors and seniors will rise to $2,000 from $1,800, the first increase since 1999, according to Caroline Hanna, a spokeswoman.
Students who receive aid at Swarthmore should plan for an increase of about $600 in the amount they have to contribute from earnings, according to a posting on the college's Web site on Dec. 7.
