Colleges Ease Access to Financial Aid

As tuitions rise, private schools are multiplying grants and capping loans to help middle-class familiesand ensure they attract their kids

Finding a way to pay for college is a problem for nearly every parent, and more private colleges are taking notice. Emory University in Atlanta announced on Jan. 11 that it will cap student loans for families making up to $100,000 a year and that grants will replace need-based loans for students whose parents make $50,000 and under. "It's not only about the lowest economic category," says Emory President James Wagner.

Emory is not the first school to raise the bar for family income worthy of financial aid. Harvard modified its financial aid offerings last March when it took on the task of funding tuition for students from families with incomes totaling $60,000 or less, and minimizing debt for families with incomes of up to $80,000. The University of Pennsylvania made a similar move in March, replacing student loans with grants for families making $50,000 or less. And two years ago, Yale announced it would relieve students from families making less than $45,000 of loan debt. Such efforts began to take shape in 2001 when Princeton replaced all loans with grants for students qualifying for financial aid (see Video, 12/2/06, "Paying Office College Loans").

These changes come among heated discussions on how to minimize the skyrocketing cost of higher education and rising interest rates on loans. The new Democratic majority in Congress has proposed cutting interest rates on federal Stafford student loans in half, from 6.8% to 3.4%, over the next five years. Three-quarters of Stafford loan borrowers come from families with incomes below $67,374, according to the Congressional Research Service. A floor vote on the measure is scheduled for Jan. 17.

Parents Getting Savvy

Changes like those proposed by Emory target not only low-income families, but also middle-income households making substantially more than the $65,000 U.S. median income for a family of four. Wagner says helping parents who are "too wealthy to get the kind of aid necessary and too poor to send [their] kids to your school" was a concern for the university, since only 8% of the Emory student demographic comes from the lowest socioeconomic quartile. Under the Emory Advantage program need-based loans will be capped at $15,000 for families in the $50,001-to-$100,000 income range. After the cap is reached Emory will provide grants to meet any other additional need-based funding until graduation (see, 2/27/06, "The Debt-for-Diploma Crunch").

For private colleges, attracting the best students becomes more challenging with greater competition. With the increasingly voiced sentiment that public schools are just as good as private institutions, parents are becoming more savvy consumers when it comes to deciding where their children will go to school, says Kalman Chany, author of Paying for College Without Going Broke. (see, 10/24/06, "It's the Economy, Student").

Indeed, the the prestige factor of private schools has diminished in recent years, Chany says. "It doesn't matter what decal you have on the bumper of your car. It's what are they going to do with that education" he says. "The parents are viewing this much more as a consumer transaction."

When Chany began advising parents on college finance 20 years ago, "no one would ever list [state university] schools under consideration with Ivy League schools," he says. But today the more appealing sticker price of a state school, the fact that more and more students are continuing on to graduate school, and the aging demographic of college students' parents, who are often ready for retirement by the time their kids graduate, are all contributing factors, he says. In order to remain competitive in the race for students, more and more private schools will put a lid on student debt, Chany predicts.

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