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Davidson's No-Loan Policy

How a private college switched to need-based grants.

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Melba Newsome's 2012 feature for Bloomberg Business highlights a success story. Davidson College replaced student loans with need-based grants. The board estimated the cost of the no-loan policy for a their 1,900-member student body.

The finance team had run the numbers and determined that implementing the no-loan policy with a need-blind admission policy would cost $20 million a year and require an additional endowment of $70 million. 

They simultaneously enacted a need-blind admissions policy. Essentially, Davidson's board decided to admit based on merit alone and write grants for whatever amount of tuition—and living expenses—they couldn't afford.

Expenses have exceeded expectations.

The total annual cost to the college—$24.5 million—exceeds the initial projection and makes fundraising an urgent priority.

However, unexpected benefits have also emerged.

“The original motivation was to assist low-income students, but it turned out to be an effective recruiting tool,” notes financial aid expert Mark Kantrowitz. “The school becomes more affordable but also more competitive and harder to get into.”

And alumni giving has increased as word has spread about Davidson's radical new policies.

What is a provocation or insight that might inspire others during this challenge?

Colleges and universities can eliminate student loans by endowing grants to cover tuition and living expenses on the basis of demonstrated financial needs.

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Photo of Aafsar Dhuka

It would be interesting to see how many schools would be able to cover the entire student loans with grants. Some schools have a lot of alumni and supporters to make this possible.