‘No-loan’ Financial Aid Colleges: What to Know

To ease the financial burden on families and students, a small number of U.S. colleges have instituted “no-loan” policies, eliminating federal loans from financial aid packages in lieu of scholarships, grants and work-study.

The idea is that students will graduate without owing money. But the details on eligibility vary from school to school, so it’s important prospective students look at the fine print.

Over the past 20 years, tuition and fees at private National Universities have jumped 132%, or about 40% when adjusted for inflation, according to U.S. News data. Out-of-state tuition and fees at public National Universities have risen 127%, or 38% when adjusted for inflation. In-state tuition and fees at public National Universities have also risen, increasing by about 158%, or about 56% when adjusted.

The Biden Administration’s plan to forgive up to $20,000 in federal student loan debt, which would have affected many of the nearly 43 million Americans who borrowed to attend college, was struck down by the Supreme Court in July 2023. As student loan repayments resume in the fall of 2023, it’s unclear whether any future student loan forgiveness plans will be passed.

Meanwhile, the Education Department announced the Saving on a Valuable Education Plan, an income-driven repayment plan that cuts monthly payments to $0 for millions of borrowers.

The rising cost of attendance and the uncertain prospects for student loan forgiveness are among the reasons attending a college with a no-loans financial aid policy may interest cost-conscious students.

“No-loan schools are basically telling students of modest or even extremely low income that they should apply if they have the grades and extracurricular (activities) to be considered and that they don’t have to worry about the high price tag as long as they are able to get accepted,” says Kevin Ladd, chief operating officer and co-creator of Scholarships.com, and a former U.S. News contributor.

Some schools offer a no-loans financial aid package to all applicants regardless of their financial need and require no minimum contribution from the student. Others include stipulations that make their no-loan policy available only to certain demographics or those with certain qualifications.

According to data submitted to U.S. News by about 1,200 ranked schools in an annual survey, 48 schools reported a no-loans financial aid policy. Many are National Universities, or schools that are often research-oriented and offer bachelor’s, master’s and doctoral degrees, and National Liberal Arts Colleges, which emphasize undergraduate education and award half or more of their degrees across liberal arts fields.

While 48 schools reported having a no-loans financial aid policy, just 20 of those schools reported meeting full financial need with a no-loans policy for each enrolled student eligible for federal loans. These schools specifically offer no loans for all applicants regardless of family income and financial need, though some require students to make a minimum contribution, according to responses submitted in the U.S. News survey.

The majority of schools that offer no-loans financial aid for all are high-ranking schools on U.S. News’ list of Best Colleges, with many ranking in the top 10 of their respective category.

At Stanford, for example, students must contribute at least $5,000, typically made up of money earned during summer work and part-time work during the academic year, according to the school’s financial aid website. In addition, students are required to contribute 5% of their personal assets, such as savings and investments, each academic year.

Princeton University in New Jersey, which instituted a no-loans policy in 2001, announced in 2022 a plan to raise its no-loan income cap from $65,000 to $100,000 and eliminate the required $3,500 student contribution. That move took effect at the start of the 2023-2024 school year.

Just because a college is labeled a no-loans school doesn’t necessarily mean the cost of attendance there is zero dollars. Most no-loan colleges aim to cover each family’s demonstrated financial need – the difference between the cost of attendance and the expected family contribution, referred to as EFC.

The amount of need-based aid that a school offers is usually determined by the information a family provides on the Free Application for Federal Student Aid, called the FAFSA, and sometimes the College Board’s CSS Profile, a separate financial aid application that about 250 colleges, universities and scholarship organizations require.

The majority of schools that meet financial need for all enrolled students without federal student loans use the CSS Profile.

Schools use financial information from these forms – such as income, tax data, assets and household size – to calculate an EFC. While the federal government has a formula for calculating EFC, institutions have their own methodology.

“All of these schools determine the family need calculations a little differently and really don’t disclose how they compute such need,” says John Goodhue, founder and CEO of APO Financial Inc., a Colorado-based investment advisory firm.

Even at a no-loans institution, some families and students may still need to borrow money to cover college costs. Because many of these institutions don’t participate in the federal student loan program, students who borrow typically use a private lender. Students and parents should be aware of the differences between private and federal student loans.

Federal student loans are issued by the government and have fixed interest rates set by law. In contrast, private student loans are issued by private entities like banks and credit unions, which set their own terms. Private loans are generally more expensive than federal loans due to variable interest rates, which are often higher than federal student loan interest rates, according to the U.S. Department of Education.

“Some families end up being surprised and had expected more grant assistance because their personal level of need is higher than what comes out in the CSS Profile, for example,” says Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators. “Take a look at how your school is assessing what that level of need is. If it is through a CSS Profile, then make sure you’re familiar with what the CSS results show so you know what to expect.”

When considering schools that claim to have no-loan policies, students should remember that the parameters vary. Some institutions limit no loans to students from lower- or moderate-income households, and some also still require a minimum contribution from students before the policy takes effect, according to data collected in the most recent U.S. News survey.

Haverford College in Pennsylvania, for instance, limits its no-loans financial aid award packages to enrolled students who come from families that earn $60,000 or less per year, but does not require students to make a minimum contribution.

Denison University in Ohio, University of Florida, William & Mary in Virginia and Lafayette College in Pennsylvania also offer no loans for applicants whose family incomes fall below a certain level, according to each school’s responses to the survey. Specific income thresholds may vary between schools, but these schools don’t require a minimum contribution from students.

Colgate University in New York offers no-loans financial aid packages to students whose family income is $175,000 or less, and students with an annual family income of $80,000 or less can attend the school tuition-free, according to the school’s financial aid website. Students whose families have an average income above $80,000 are required to make a contribution of either 5% or 10%, depending on their income bracket.

Grinnell College in Iowa, Wesleyan University in Connecticut, Colby College in Maine and Vanderbilt University in Tennessee are examples of schools that offer no-loan financial aid to students based on their financial need while still requiring a minimum contribution, according to the survey responses. Wesleyan announced recently that starting in 2024, the school is removing loans from all financial aid packages and will meet the demonstrated financial need of all students.

Any student considering a no-loans university should begin researching all financial aid options available to them from that school, Ladd says. Students should also be aware that many of these schools are challenging to get into and graduate from, he says.

“Researching, visiting the campus and discussing grades – likely majors/programs of interest, campus culture and academic focus required for success, etc. – with someone from the school is the best way forward to determine compatibility,” Ladd wrote in an email.