When Katie Callahan was making her college choice four years ago, she was astonished to discover that a small, private college in Maine, which is among the most competitive in the country, would be more affordable for her than the public schools she had considered as safety options. Callahan, the daughter of a teacher and a retired freelance writer, graduated from Colby College in May with no debt. This enabled her to move into a Beacon Hill apartment, just a 15-minute walk from the startup company where she works, rather than having to commute from her parents' home in Maine.

Transformative Impact of No-Loan Programs

Colby and Bowdoin College are part of a small but growing group of private colleges that have substantial endowment funds and no longer include student loans in their financial aid packages. Schools like Harvard, MIT, Brown, Amherst, Smith, and Williams have adopted no-loan programs in recent years. They aim to send a clear message to prospective low- and middle-income students: if you have the academic ability to get admitted, you can afford to attend. This can be a life-changing experience for young people, as Claudia Marroquin, the dean of admissions and student aid at Bowdoin, pointed out.No-loan programs are one of the ways colleges are attracting low- and middle-income families. Many schools also offer no-tuition deals for families with certain income levels. For example, MIT has expanded its financial aid program so that undergraduates with family incomes below $200,000 can expect to pay no tuition and a maximum of $23,970 for other expenses. Families earning under $100,000 can pay nothing at all.However, some college leaders and higher education observers are worried that generous aid programs may be at risk due to politicians on both sides of the aisle who want to tax large college endowments. Progressive critics of the higher education system believe that wealthy colleges with ample resources should contribute more to public higher education. Many conservatives, on the other hand, want to punish universities they see as liberal indoctrination mills that have saddled too many students with unmanageable debt. President-elect Donald Trump and his allies have said they will use federal funding and taxation to "reclaim" the university from "radical leftists."In 2017, as part of the federal Tax Cuts and Jobs Act, income from endowments of 33 schools with funds larger than $500,000 per student started being taxed at 1.4 percent. Since then, efforts to increase taxes on university endowments have increased. This is a concern for schools like Amherst College that rely heavily on endowment income to support their operating budgets. Michael Elliott, Amherst's president, said that endowment taxes would take away from the college's ability to support a diverse student body.Some higher education observers believe that seeking socioeconomic diversity on college campuses is essential after the Supreme Court banned the use of race-based affirmative action in admissions last year. Ohio Senator and Vice President-elect JD Vance introduced a bill last December to increase the tax rate on income from large private university endowments from 1.4 percent to 35 percent. Senate Democrats blocked the legislation. It is not clear how Vance wants to use the revenue from the increased tax.In Massachusetts, a bill targeting private university endowments over $1 billion is still under review. The legislation would subject colleges to an annual excise tax of 2.5 percent on endowment assets, which would cost Harvard University about $1.2 billion a year. State Representative Natalie Higgins, one of the bill's co-sponsors, said the intention is to use the revenue to make public higher education free and invest in child care.Henry Morgan, the executive director of the nonprofit advocacy group Public Higher Education Network of Massachusetts and a student at Hampshire College, said that revenue from the state endowment tax would be enough to make public higher education free for residents, helping a wider range of students than private colleges.Massachusetts has made efforts to make higher education more affordable in recent years, including launching free community college and expanding financial aid programs. Federal, state, and institutional financial aid now covers tuition at the University of Massachusetts campuses for families with adjusted gross household incomes of $75,000 or less.Opponents of endowment taxes argue that private colleges are promoting socioeconomic mobility by making high-quality education affordable through financial aid. Levine said that excluding loans from financial aid packages is expensive for colleges, which is why the wealthiest colleges with abundant resources per student are likely to offer such programs and are often the least expensive for low-income students."When you adopt a no-loan program, you're essentially giving up revenue," Levine said. Since colleges rely heavily on endowment returns to fund no-loan programs, higher endowment taxes could force these wealthy colleges to cut or end programs that not only provide low-income students with a prestigious degree but also a future without the burden of college debt.Smith College in Northampton eliminated loans from its financial aid packages in 2022. Before the policy change, about 37 percent of Smith students took out loans. Last year, less than 12 percent of students borrowed. Joanna May, the vice president for enrollment, said that part of the goal was to allow students to focus less on repaying loans and more on their post-graduation plans.In 2008, Bowdoin launched its no-loan policy, and the percentage of college graduates taking out loans dropped from 51 percent to 22 percent in 2023. About 53 percent of first-year students at Bowdoin receive financial aid, with an average grant of $68,000 for the entering class. Bowdoin estimates the total cost of attendance to be about $89,000.US colleges and universities spend more of their annual endowment withdrawals on financial aid than on other categories such as academic programs, endowed faculty positions, and campus operations. Colby College in Waterville, Maine, adopted a no-loan policy in 2008 and has since increased financial aid for middle-income families. Colby now caps the total amount families pay for tuition, room, and board at different income levels. Families earning up to $200,000 pay no more than $20,000 a year, and those earning up to $150,000 pay no more than $15,000 a year. Families with incomes less than $75,000 pay nothing.David Greene, Colby's president, said that the college spent about $28 million on financial aid a decade ago and now the budget exceeds $70 million. "We have made it an absolute priority," Greene said. "We need to continue to expand opportunities for these students and figure out how to fund them."