Ohio State is about to score a financial aid touchdown

The Buckeyes have grabbed the ball again. Ohio State has just announced it will use its endowment to eliminate student loans within the decade. If no-loan degrees are a national priority, then colleges have to step up. Those that have the money should use it to get rid of them on their campus starting now. Once praised as the "great equalizers," nearly all state flagship institutions have become unaffordable to low- and middle-income students. After a year of astronomical endowment gains almost all flagship universities do have the resources to eliminate loans at least for their undergraduates.

The bullets below compare endowments of flagship state institutions to the borrowing of their undergraduates. This information shows that it would take only a very small percentage of endowments yearly to end all student borrowing on their campuses. 

  • UNIVERSITY OF VIRGINIA
    • 37,409,528 loans (federal undergrad including Parent Plus)
    • $14,500,000,000 endowment
    • 0.3% of endowment (to cover yearly loan disbursement)
  • UNIVERSITY OF NORTH CAROLINA CHAPEL HILL
    • 32,332,890 loans
    • $5,100,000,000 endowment
    • 0.6% of endowment
  • UNIVERSITY OF TEXAS, System
    • 546,939,313 loans
    • $31,000,000,000 endowment
    • 1.8% of endowment
  • UNIVERSITY OF WISCONSIN MADISON
    • 75,000,013 loans
    • $4,000,000,000 endowment
    • 1.9% of endowment
  • UNIVERSITY OF WASHINGTON
    • 103,613,829 loans
    • $4,700,000,000 endowment
    • 2.2% of endowment
  • OHIO STATE UNIVERSITY
    • 176,171,764 loans
    • $6,800,000,000 endowment
    • 2.6% of endowment
  • UNIVERSITY OF CALIFORNIA, System
    • 653,420,825 loans
    • $22,000,000,000 endowment
    • 3.0% of endowment
  • UNIVERSITY OF PITTSBURGH
    • 125,407,284 loans
    • $4,170,000,000 endowment
    • 3.0% of endowment
  • UNIVERSITY OF FLORIDA
    • 64,359,152 loans
    • $2,000,000,000 endowment
    • 3.2% of endowment
  • UNIVERSITY OF OKLAHOMA
    • 91,111,182 loans
    • $2,700,000,000 endowment
    • 3.4% of endowment

Many public and private colleges already protect their low-income students from loans by either eliminating them totally or reducing them sharply. It is a key policy to preserve enrolment numbers which have declined for years at many institutions. But what Ohio State is doing is very different. By substituting federal loans with grants, Ohio will regain control of its future and will be no longer be vulnerable to constant changes in federal policy. It will boost applications as substituting grants for loans means sharp reduction in tuition.
People are taking notice. There are calls to tax endowments. Others want to remove the tax-exempt status that colleges and universities enjoy. It is in the interest of institutions to ward off these attacks by voluntarily providing no-loan degrees. It would be simple to do so. Every year the federal government sends a report to the colleges with the loan amount each student would borrow. Colleges merely have to replace the loan amount with a grant of the same size.

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There are some cautions. State colleges that follow Ohio’s example will have to negotiate with their state legislatures to avoid reductions in support once politicians realize their financial strength. Cynically, they have cut their support of higher education knowing full well that students must then load themselves up with federal loans. Ohio has lowered its funding for public higher education by 21.4 percent in real terms since 1980 .

Another caution is that endowments depend on private donors many of whom may expect special treatment encouraging a culture of privilege.  About half of the students who apply to Ohio State gain admittance. Imagine a large donor who finds her child on the wrong side of that half. It costs a college little except its integrity to change its decision and admit her child. To everyone’s shock (or not), this culture has led to scandals such as Varsity Blues prompting widespread anger in the public.

One way to mitigate these problems would be through public-private partnerships that bring state and donor resources together. These matching arrangements could encourage states to increase their contributions to their colleges and universities knowing that private donors would be assuming some of the burden. At the same time states could strengthen laws against private donors gaining any favor from their generosity.

The Federal Department of Education should encourage wealthy state and private institutions to present a plan on how and when they can grow their endowments to decrease the dependence of their students on loans. Without government pressure colleges will avoid this responsibility. Democrats are calling for states to join the federal government in financing higher education. States may be more willing to collaborate if they know their colleges will help.

In order to reach its goal to become a no-loan campus, Ohio plans to grow its endowment by $800 million for scholarships and grants. If it does, the Buckeyes will not only be a football power but a power for good.

Robert Hildreth is a former International Monetary Fund economist whose professional work involved restructuring South American debt and marketing sovereign debt loans. He founded the Hildreth Institute dedicated to restoring the promise of higher education.

Editor's note: The percentages of endowment have been updated in the bulleted list to correct a formatting error that had removed the first digit.