More colleges are eliminating student loans from their financial aid packages and replacing them with scholarships and grants that do not need to be repaid.
Carleton College, a private liberal-arts college in Minnesota, recently joined that list. The school said it is removing student loans from aid packages for both new and current students. Instead, it will offer grants and scholarships.
In its announcement, Carleton said one-third of every incoming class over the past decade has come from middle-income households, and those students will benefit most from the change. Alison Byerly, Carleton's president, said in a statement that eliminating loans will 'expand opportunities for students' and free them from 'the burden of student loan debt that might otherwise have impacted their professional decisions and ambitions.'
Students can still choose to borrow loans outside the college's financial aid package, and they remain responsible for their expected family contribution based on income. Carleton said the change is funded by $80 million in donations, and the school is seeking another $48 million to sustain the program.
The trend is not limited to secular schools. Asbury Theological Seminary in Kentucky said Tuesday that it will phase out federal student loans and shift toward scholarships. Its press release said the move will let students 'graduate with less debt and greater freedom to serve wherever they are called.'
Princeton University was the first school in the US to replace student loans with grants in 2001. Harvard and Yale later launched similar initiatives as colleges tried to respond to the $1.7 trillion student-debt burden affecting over 40 million Americans.
For founders and students alike, the math is simple: debt changes behavior. When repayment weighs on graduates, it can shape job choices, income expectations, and runway for the next stage of life. Schools that can fund aid with donations instead of loans are effectively buying down future pressure on their customers and, in some cases, on the wider economy.
The harder question is whether this model can scale without constant fundraising. Carleton's own plan depends on outside donations, which means the tuition-and-aid system still leans heavily on private capital to solve a problem that loans helped create in the first place. Founders who care about margins should recognize the same tradeoff: if you want to remove friction, you need a durable funding source, not just a new promise.
