In many respects, Vanessa Wills is your typical college junior:
She's got a lot of homework, is sleep-deprived, her laundry is
stacking up in her dorm room - and she's more than $10,000 in debt.
Now the philosophy major at Princeton University is likely to get
help with at least one of her problems: the unbalanced checkbook.
Under a pioneering plan, Princeton is becoming the first
university in the United States to do away with all student loans.
Instead, it will give out only grants. No more student debt. No
more pressure to become an investment banker just to be able to pay
off big loans.
"It was fantastic and so totally unexpected," Ms. Wills says.
"There have been other initiatives to decrease the amount of
student loans, but I don't think anyone expected the university to
get rid of them completely."
An $8 billion endowment makes the gesture possible. And to many
students already pondering the need for a high-paying job the day
after graduation, it's a boon.
But Princeton's tectonic shift seems destined to fundamentally
influence how aid is distributed - and the number of institutions
that feel increased pressure to compete.
Some say it represents a long-overdue, morally sound move by a
school with an endowment that bests the gross national product of
some small nations.
But others argue that the new policy may reduce the aid available
to students who truly need it. Less-flush schools may also push to
offer bountiful packages to top students, thus limiting the pool of
students who will get aid.
Either way, the battle for the top 1 percent of students is sure
to intensify. "It's another blast in the financial-aid wars," says
David Breneman, dean of the Curry School of Education at the
University of Virginia and an expert on higher-education finance.
"It quite clearly gives Princeton a leg up, and gives others a
powerful incentive to respond."
The effects, he and others say, could:
* Cause about a dozen highly selective schools to sweeten aid
policies to compete directly for the same middle-income, high-
performing students Princeton hopes to lure from "public Ivies" and
* Prompt less-selective institutions to use limited aid funds to
attract top students, leaving less for needy students with good, if
not top-flight, credentials.
* Spark a debate about the moral imperatives and best uses of
excess endowment funds - and whether schools might find better uses
for these rather than investing the wealth in students who are
already benefiting from a top education.
* Undermine a nascent set of broad principles for awarding
financial aid that are being considered quietly by a number of
institutions. (See related story, below.)
Though few of America's 600 or so selective institutions have the
financial muscle to match Princeton's move outright, Dr. Breneman
and others say many selective institutions and others outside the
Ivy League circle will feel compelled to shift financial-aid
strategies in order to keep themselves attractive to top students.
"This will intensify the focus of the schools that are a notch or
two down on the pecking order on giving merit aid and more
preferential packaging," he says.
At least, that's what happened last time.
Today's aid battles have their roots in the 1990s, when
applications to several Ivy League institutions dipped slightly -
partly due to "price resistance" on the part of middle-income and
even high-income families, some observers say. Studies showed that
a growing number of students from families with incomes of more
than $200,000 were shunning the Ivies to attend top public
institutions, where price tags were tens of thousands less.
It was shortly after one such dip that Princeton unveiled its
initiatives in 1998. …