Princeton U. introduces new financial aid initiative

The new system may impact how other Ivy League schools, including Penn, disburse financial aid. A new Princeton University financial aid proposal will revolutionize the way in which the school allocates funds to lower- and middle-income families. The proposal may also lead the rest of the Ivy League, including Penn, to revamp their financial aid systems. Aimed at reducing student indebtedness and boosting the level of competition among the eight Ivy schools, the plan will cost Princeton about $6 million a year. If implemented, the next batch of incoming freshmen would be the first to benefit from the revamped system. The new aid system represents a threat to Penn and other Ivy League schools, as Princeton may be able to to lure high school students by offering them more attractive financial aid packages. The proposal -- expected to be approved Saturday by Princeton's board of trustees -- eliminates all student loans for families with incomes below $40,000, replacing them with grants, which do not need to be repaid. Families in this income bracket could receive a maximum of an additional $4,000 of grants. Families earning $40,000 to $57,500 will be awarded more scholarship aid and fewer loans, based on a sliding scale, according to Princeton spokesperson Justin Harmon. And the New Jersey university will cease to count home equity -- the value of a home minus mortgage payments -- in determining aid packages for families earning less than $90,000, making such families eligible for more financial aid. Janet Netz, an economics professor at Purdue University in Lafayette, Ind., and the author of a research project examining competition in higher education, categorized Princeton's policy as "detrimental" to its Ivy League peers, adding that "competition is going to heat up quite a bit." Armed with a $4.8 billion endowment and only 4,500 students, Princeton can afford to implement these sweeping changes, Harmon said. Princeton currently spends $24 million a year on financial aid, 95 percent of which is covered by its endowment. Of the $50 million Penn allocates annually for financial aid, only $2.3 million, or 4.6 percent, is covered by the University's approximately $2.5 billion endowment. And with 4,000 undergraduates receiving aid each year, this percentage lands Penn at the bottom of the Ivy League in its endowment-financial aid ratio. The University must secure an estimated $100 million to $200 million in donations in order to allow more of the endowment to be spent on financial aid, Penn development officials said last September. Penn Student Financial Aid Director William Schilling noted that Penn's larger student body and smaller endowment would cause the University to lose an extra $10 million to $12 million if it decided to adopt a policy similar to Princeton's. He stressed that Penn is engaged in an "aggressive attempt" to increase undergraduate endowment aid. Officials will begin to discuss Princeton's new policy in the upcoming weeks, he said. "Everyone is always looking for ways to keep institutions accessible to middle- and lower-income families," Schilling noted. Princeton's attempt to differentiate itself from the rest of the Ivy League in term of aid packages is a complete departure from past practices among Ivy League schools. As recently as 10 years ago, 23 private colleges and universities in the Northeast -- including all members of the Ivy League, the Massachusetts Institute of Technology and 14 others -- collaborated on the amount of financial aid offered to students who were admitted to several schools in the group. The U.S. Department of Justice launched an investigation in 1989, threatening to charge the schools with violating federal antitrust law. Although MIT initially refused to settle, both parties reached an agreement in 1993 -- shaping the future of aid allocation. The new guidelines required that admissions officers disregard an applicant's financial situation while allowing some schools to develop joint financial aid applications. But the rules prohibited the institutions from offering merit-based scholarships and discussing individual aid packages. "It used to be that if a student was admitted to Penn and Princeton, both institutions would agree on what the family could afford and then adjust costs," Netz said. "Now if you're faced with a choice between four years of grants from Princeton and four years of $10,000 loans from any other Ivy League school, which one would you choose?" But this is not the first time that Princeton has bucked Ivy League tradition. In 1986, while the schools were still collaborating on financial aid packages, Princeton initiated a practice of offering $1,000 merit-based grants to students in an attempt to make their aid packages more attractive. After a series of complaints from other members of the Ivy League, Princeton discontinued the program.