No-loan policies shown to benefit low-income college students

Stephanie Koons
February 16, 2021

UNIVERSITY PARK, Pa. — Public colleges and universities have long served as engines of social mobility for low-income students in the United States, yet the rising cost of higher education in the past few decades has diminished that role. Researchers at Penn State and Michigan State University contend that no-loan policies, where student loans are replaced with institutional grant aid that does not require repayment, may be one way that higher education institutions can become more accessible to students from low-income backgrounds.

“We believe that it’s beneficial for education at all levels, including higher education, to serve as this social ladder that works to reduce inequality,” said Junghee Choi, a doctoral candidate in the Penn State College of Education Department of Education Policy Studies (EPS). “But over time what has happened is that rather than reducing inequality, it has either reproduced or just strengthened existing inequality.”

Choi, along with Qiong Zhu, a postdoctoral research associate at Michigan State’s Education Policy Innovation Collaborative who recently received a doctorate in higher education from Penn State, and Yi Meng, a doctoral candidate in EPS, present their findings in their paper, “The Impact of No-Loan Policies on Student Economic Diversity at Public Colleges and Universities,” recently published in Research in Higher Education.

“The research has shown that attending selective colleges brings economic returns after graduation,” said Zhu. “It’s important to increase the social mobility of low-income students.”

The study, which examines the effect of no-loan policies on student economic diversity at public four-year institutions, is an extension of a 2019 study conducted by Kelly Rosinger, assistant professor of education in EPS, and colleagues which explored the effect of no-loan policies in elite private colleges. Rosinger and colleagues’ study found that “colleges that adopted a universal no-loan policy, where eligibility is not restricted by income or other criteria, experienced significant enrollment increases for students from the middle-income quintile, but less so for those from the bottom two quintiles.”

“I think the importance of our study is that it gives information to (higher education) administrators,” Meng said. “By examining in detail what the barriers are, I think the study also gives information and resources for them to better think about the best practice in terms of designing the (financial aid) packages and helping low-income students.”

In their paper, the researchers state that cost of attendance is a major barrier to low-income students gaining access to higher education.

“Affordability at public four-year institutions has significantly diminished over the past three decades amid declines in per-student support by states and rises in tuition,” they wrote.

A distinguishing feature of their study, the researchers said, is that they were able to examine the impact of no-loan policies on enrollment at public institutions by using family income information that is more detailed than most similar past studies. Previous studies have relied on documentation of Federal Pell Grants, which are awarded to undergraduate students who display financial need. However, as documented by previous studies, the researchers contend that Pell Grant receipt has limitations for serving as a proxy for low-income status partly because both low-income and middle-income students could be included in counts of Pell Grant recipients.

Rather than using Pell Grant receipt as a measure of low-income status, the team obtained data from Mobility Report Card (MRC), which is based on more than 30 million tax records. The MRC data provides information on the proportion of students enrolled from each income quintile for nearly all higher education institutions in the United States, from approximately 2000 to 2011.

Through their research, Zhu, Choi and Meng found that the adoption of no-loan policies at public institutions increased enrollment shares of low-income students (bottom two family income quintiles), which equates to students with annual parental income of about $40,000 or less.

“However, our study indicates that reducing financial barriers is not equally effective for increasing access across the entire distribution of low-income students,” the researchers wrote in their paper. “We found that the impact of no-loan policies was concentrated on students from the second income quintile and was generally weak for students from the lowest part of the income distribution.”

According to Zhu, the varied effects of the no-loan policies may be related to the heterogeneity of the impacted groups, and policies should be tailored to their unique circumstances. The lowest quintile students face additional barriers besides tuition, such as transportation and daily expenses. She added that they also may experience difficulties in applying for financial aid due to a lack of information.

“I think there are a lot more structural barriers for low-income students to enroll in very highly selective colleges,” she said.

Zhu said those obstacles can be alleviated by supplementing the policies with additional supportive measures for low-income students

“Money matters but money alone may not be enough,” Zhu said. “Coaching and advising on financial aid applications and enrollment processes are very important for low-income students in navigating the college application process. Personalized communications about financial aid could increase enrollment.”

In addition to financial and informational barriers, Choi said, studies demonstrate that low-income students are hindered in the college admissions process by social and cultural issues.

“It’s possible for low-income students to perceive they don’t belong at selective institutions because they don’t know anyone like themselves at those schools.”

One of the limitations of the study, Choi said, is that the researchers weren’t able to explain the specific differences in the institutions’ no-loan policies that led to different results. Even though all institutions implemented no-loan policies that shared fundamental characteristics, the results varied even in schools classified in the same selectivity level. A possible explanation, he added, is that the income categories may be too wide and more precise classifications may be useful in future research.

“It’s really important to have a more nuanced understanding, especially for the most economically vulnerable students,” said Choi.

Zhu, Choi and Meng said that future studies could also investigate the differential impact of different no-loan policy designs. An area that could be explored, Zhu said, is how no-loan policies affect success in college, or even financial and career success after graduation.

Choi added that it is important to consider the long-term sustainability of no-loan policies, which carry a hefty price tag for an institution and may be put on the chopping block due to budget cuts related to the COVID-19 pandemic.

“This line of research can unfold barriers that low-income students have to overcome if they want to go to college,” Meng said.

(Media Contacts)

Last Updated March 01, 2021