Undergraduates with the greatest financial need will be given grants, not loans, Northwestern announced Thursday. The change will take effect this fall and benefit both new and returning students.

“We did this as a response to our commitments our peer institutions made to low-income students,” said Mike Mills, associate provost for university enrollment. “Another factor is that we really wanted to boost the number of low-income students at Northwestern.”

After Harvard announced that it will dramatically increase its financial aid to middle- and upper-class families, rival colleges have felt the pressure to expand their aid programs as well.

Mills said that Northwestern’s no-loan program has existed for several years, but that it only benefited a small number of students. The program will now expand because there was an increase in the investment returns from the university’s endowment.

“This change means that, on average, the families of freshmen who come here next fall with a no-loan pledge will be paying about $5,000 a year total,” Mills said. He added that the 2008 estimate for a year at Northwestern, including housing, books, tuition, and miscellaneous expenses, is about $49,000.

In addition, federal Stafford and Perkins loans will be capped at $20,000 over four years for all undergraduates. Mills said these changes came out of concern that students who graduated from NU in 2007 had an average of $18,000 in debt.

About 4,800 students now receive some type of financial aid, and Mills estimates that about 1,400 students will benefit from either the no-loan or loan-cap programs.

Students will be chosen for these programs based on their financial need, not their families’ income. Financial need considers factors such as family size, special circumstances and number of family members enrolled in college.

The university hopes the new program will attract more diverse applicants, Mills said.

“There’s a lot of social-science research that shows that greater diversity in freshmen classes means greater experiences for all students,” he said. “The study showed those who went to college in a more diverse environment are more likely to live in multi-ethnic neighborhoods, vote more, be more civic minded, and have more multiracial relationships.”