By
Melba
Newsome on September 06, 2012 - Businessweek
http://www.businessweek.com/articles/2012-09-06/the-debt-free-college-degree
When she was six, Elaine
Klaiklung emigrated from Thailand to the U.S. with her mother, a single
parent who earns $20,000 a year working in a Charlotte grocery store. By
graduating in the top 3 percent of her high school class, she met or
surpassed the admission requirements for scores of U.S. universities, but she
wished to remain in North Carolina. gI wanted to stay close to my mom,h she
says. gMy whole life, Ifve only had her and shefs only had me.h Klaiklung
applied to the University of North Carolina at Chapel Hill and Davidson College
and got into both. Chapel Hill is often ranked as the best value in public
education. In-state tuition for her freshman year, 2009-10, would be just $5,600
compared with $35,000 at Davidson. But Davidson made Eileen an offer she
couldnft refuse.
gWhen I got my acceptance letter and my tuition bill, it told us that
everything was mostly paid for,h she recalls. gI had heard something about
Davidsonfs no-loan policy, but it didnft make sense because it sounded too good
to be true. My mom was like, eThis canft be right. We need to go talk to
them.f h The admission counselor explained that, because of the Davidson Trust,
the school was able to cover 100 percent of demonstrated need without
loans. Her mother cried. gAt the time, I felt kind of embarrassed. When we
walked back to my car, she said, eIfm so happy. I feel like I should make [the
counselor] something.f h
Klaiklung, now a senior, is a member of what will be the third class at
Davidson to graduate debt-free, and part of the schoolfs ongoing experiment in
how to solve the student
loan mess by eliminating it. (Students can still borrow money if they feel
they need more for, say, a trip to teach abroad, or other expenses.) Davidson is
not the only school to remove student loans from its financial aid packages. In
2001, Princeton University became the first to replace loans with grants. Sixty
percent of Princetonfs Class of 2013 received financial aid, with an average
grant of $36,000. Since then, Harvard, Swarthmore, Stanford, Columbia, and
Vanderbilt are among the 75 or so colleges that have reduced, capped, or
eliminated loans in financial aid packages for all undergraduate students. On a
cost basis, this puts those private institutions on a par with in-state tuition
at public colleges and universities.
All the same, Davidson stands out as an especially intriguing model. It has
fewer students, about 1,900, and a much smaller endowment than the Ivy League,
and because it remains devoted to the relatively expensive and exclusive 19th
century ideal of the university. By its own account, its five-year-old grants
program has been successful, but it remains an open question if itfs sustainable
or replicable.
Located about 20 miles north of
Charlotte in the town of Davidson, the campusfs brick buildings and 100-year-old
oak trees make it seem like a New England idyll in the middle of a Southern mill
town. Its Presbyterian roots are evident in patrician rules and standards that
can seem quaint today. Community service is mandatory. Students are required to
live on campus all four years, although juniors and seniors may seek permission
to move to an off-campus apartment. Their wash is done for free at the campus
laundry. Incoming students must sign the Davidson Honor Code, pledging to
refrain from stealing, lying, or cheating on academic work. They also must
report any honor code violations; failure to do so is itself a violation.
Infractions are brought before the Honor Council where punishment is
decided.
gWe take it very seriously,h says Tianna
Butler, a senior from Salisbury, Md. gYoufll see laptops on the lawn, or
somebody will leave their MacBook in the library and go into the other room to
take a nap. People donft steal your stuff here.h
Established in 1837 as a Presbyterian manual labor school for young men,
Davidson College is named for a local Revolutionary War hero, Brigadier General
William Lee Davidson. A fixture on gtop liberal arts collegesh lists, it has
graduated 23 Rhodes Scholars and counts President Woodrow Wilson, Secretary of
State Dean Rusk, late White House Press Secretary Tony Snow, novelist Patricia
Cornwell, and Charlotte Mayor Anthony Foxx among its alumni. The first-year
retention rate is 96 percent, 88 percent of its students graduate in
four years, and about 95 percent are employed, in graduate school, or on
fellowship within six months of graduation.
Davidson tuition for the 2012-13 academic year is $40,809, with an additional
$11,346 for room and board. Determining how much financial aid a student
receives to cover the $52,000 price tag is a complicated mix of factors,
including income, assets, and the number of dependents who are in or will be
attending college. Grants can include books, spending money, as well as funds to
cover extracurricular activities such as community outreach or fees to take the
LSAT or GRE.
Davidson first tried to curb the amount of debt its students incurred by
capping loans. Students could borrow up to $4,500 a year or $18,000 over a
four-year period. In 2006 an $875,000 annual grant from the $2.7 billion
Duke Endowment allowed the college to lower the loan cap to $3,000 per year.
(When James B. Duke established the endowment in 1924, he stipulated funding for
Davidson, Duke, Johnson C. Smith, and Furman to help increase affordability and
access to higher education. Since then the endowment has awarded Davidson $122.2
million.) Even so, the trustees and then-President Robert Vagt wanted to do
more. gWe were not getting all the kids we wanted to apply to Davidson,h says
Eileen Keeley, vice president for college relations. gA certain segment of the
population saw Davidsonfs sticker price and felt like it was too expensive.h
Vagt wanted to throw out the entire financial aid model by doing away with
loans altogether, but doing so was complicated by an admissions policy that
doesnft take financial need into consideration. gThat leaves you in a more
vulnerable position,h says Vagtfs successor Tom Ross. gIf you look at need
before admission, you can balance who gets in with the amount of aid money you
have.h
Finding a more complete solution was the main focus of a January 2007
trustees meeting. 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.
gThe reaction was eWow! Thatfs a really big number,f h recalls Ross, who served
on the board at the time. gEverybody believed it was the right thing, but it was
a matter of balancing the financial stability of the institution with making it
accessible to any student who qualified to be admitted.h The vote was virtually
unanimous, and the boardfs decision was almost immediately rewarded with an
additional $15 million pledge from the Duke Endowment. The school created
the Davidson Trust to replace loans with grants.
When Tom Ross left Davidson in 2011 to become president of the 17-campus
University of North Carolina system, the schoolfs commitment to financial access
was part of what persuaded Carol Quillen to become its 18th president. Quillen
is the first woman in the top job. The Wilmington (Del.) native earned her
undergraduate degree from the University of Chicago and Ph.D. from Princeton and
spent more than 20 years as a history professor at Rice University. Tall and
slender, with a fresh-scrubbed face and pony tail, Quillen looks more like a
grad student than the schoolfs top administrator. Her advocacy for higher
education extends beyond the institution she leads. She worries that four-year
colleges are becoming less accessible and that cost is denying many talented
students a bachelorfs degree.
Twenty-one percent of Davidsonfs students are minorities—the same percentage
as before the no-loan policy was implemented. What has changed is the
socioeconomic makeup. Four years ago, 33 percent of Davidsonfs students
qualified for need-based financial aid. In the 2012 school year,
45.1 percent—798 students—will receive funding from the trust. The average
grant is $33,995, and awards range from $1,492 to $52,698. The total annual cost
to the college—$24.5 million—exceeds the initial projection and makes
fundraising an urgent priority.
Even students are doing their part. Since starting the Dinner at Davidson
gala three years ago, the Student Government Association has raised $75,000 for
scholarships. Senior JD Merrill traveled to New York and San Francisco to make a
personal appeal to alumni for donations. gPeople assume that I receive money
from the trust because I have fundraised so much for it,h he says. gI donft. But
I see the impact it has had and how my friends benefit from it.h
Since establishing the trust, which currently sits at $90.5 million,
institutional commitment to financial aid has more than doubled. More than 60
percent of alumni have given to the school, some very generously. Class of 1957
alumnus Ted Baker rose to chairman at Florida Rock Industries, his familyfs
business, before it was sold to Vulcan Materials (VMC) in 2007. He recently pledged $25 million
to Davidson, the second-largest gift in the schoolfs history. To keep pace with
the need, the fundraising will remain aggressive, the administration says,
because there is no Plan B.
gThe original motivation
was to assist low-income students, but it turned out to be an effective
recruiting tool,h notes financial aid expert Mark Kantrowitz. gThe school
becomes more affordable but also more competitive and harder to get into.h
Kantrowitz contends that the relatively small number of low-income students,
coupled with sizable endowments, should be prompting more elite schools to
follow Davidsonfs example. gSeventy-five colleges have done this, and I estimate
that as many as 300 could potentially afford to do something similar. For
example, Harvard could afford to make tuition free, so theyfre not being as
generous as they could be.h Free tuition at Harvard? That may sound less
outrageous when you consider that the universityfs endowment for fiscal
year 2011 was $31.7 billion. Yale, Princeton, and Stanford have
endowments of $19.3 billion, $17.1 billion, and $16.5 billion,
respectively. A 2007 study from the National Association of College and
University Business Officers found that while university endowments grew
21 percent that year, to a record $411.2 billion, spending remained
flat at just 4.6 percent of assets.
The report prompted hearings before the U.S. Senate Committee on Finance and
a caustic letter to 136 colleges with endowments of more than $500 million
from Senators Max Baucus (D-Mont.) and Charles Grassley (R-Iowa). The
legislators chided the schools for continuing to raise tuition while hoarding
mountains of cash. Grassley suggested legislation to require schools to spend
5 percent of their assets to slow tuition increases and assist lower-income
students. Private foundations already operate under such a rule. The measure
went nowhere but prodded schools to raise their spending by a half percent on
average.
For a brief time dozens of the nationfs top colleges implemented no-loan
policies. Then the 2008 recession took a toll on their investments and
endowments, prompting some to pull back on their contributions. Dartmouth
announced it would reintroduce loans for students with family income greater
than $75,000. Williams reinstated loans for some but kept the no-loan policy for
low-income students. Cornell University recently announced it would lower the
eligible family income level from $75,000 to $60,000. Yale, which had been
awarding aid to families as long as they could demonstrate need, has reduced it
for those earning more than $130,000 a year. Following investment losses,
Swarthmore College said in 2009 that it was reevaluating its no-loan packages
for needier students.
Davidson appears to be swimming against the tide. Its $500 million
endowment is about one-third that of other elite liberal arts schools such as
Williams, Smith, Pomona, and Amherst. While the economic downturn forced a
reduction in the collegefs operating budgets and a freeze in wages and salaries
for a year, the school refused to pull back on financial aid. gWe were not going
to back away from the financial commitment wefd made, especially when so many
students were in need,h says Ed Kania, vice president of finance. In theory,
replicating the Davidson model is possible, but the current economic climate in
which colleges and universities are more reliant on tuition revenue makes it
less probable.
gWhen it comes to viability, itfs the size of the college endowment that
matters,h says Michelle Asha Cooper, president of the Institute for Higher
Education Policy. gDavidson has to have strategic short- and long-term plans for
funding this program and make sure they are targeting the programs to students
with needs. A lot depends on the economy, the stock market, whether their donors
continue to give. But Davidson seems to be taking the necessary steps.h
At Davidson, at least, it appears that little to no student debt leaves
graduates in less of a hurry to secure a high salary. Merrill wants to return to
his Baltimore high school to teach. Butler thought she wanted to be a lawyer
until she spent a semester working with the homeless. Her summer internship as a
ministry fellow in a Charlotte church dedicated to social justice has her
considering the clergy. Political science grad Gerard Dash already has a
management development job making $70,000 with an industrial supply company in
Atlanta, but hefs most excited about his volunteer commitments, including
organizing for the Obama reelection campaign.
And Klaiklung? gI thought I would go into marketing or business to make
money, but coming here has made me want to do something more in the world,h she
says. gI donft want to just complain about racism or whatfs happening to the
immigrant community without trying to change it. Davidson tells us ewe provide
you with the tools. Itfs up to you to use them to go out and be the change you
want.f The trust has made that possible.h