Okay, so you've just graduated from college and thinking ahead to paying back those student loans. One college in North Carolina has decided to offer its students a loan-free future. Davidson College is eliminating loans from the financial aid packages it offers. Starting in August, Davidson promises to fund unmet financial needs of students through grants and part-time jobs.

NPR's Elaine Korry reports.

ELAINE KORRY: Imagine not being saddled with college loans, starting out in life debt free. A year at Davidson College runs more than $38,000, enough to make any parent gulp. President Robert Vagt wants to make Davidson affordable for all students, especially the ones with limited financial means.

Mr. ROBERT VAGT (President, Davidson College): When they look at the price, they don't even apply, and what this will mean is that students will begin applying to Davidson who in the past had thought there's no way my family can do $40,000 a year.

KORRY: Currently, about a third of Davidson's 1,700 students receive financial aid, a package of grants, employment and loans. A few years ago the school began cutting back the limit on loans, first to $5,000 a year, and then to $3,000. So the new policy could ultimately save students $12,000 over their college career. Vagt says the decision started as a moral choice, but it wouldn't have succeeded without support from the Board of Trustees.

Mr. VAGT: Commitments by the trustees themselves to help fund this over the interim period, and they adopted a plan which will raise the endowment over the next four years to permanently finance it.

KORRY: Massively endowed Princeton University has already eliminated loans from student aid packages. Davidson is the first liberal arts college in the country to follow Princeton's lead. Terry Hartle, with the American Council on Education, says it's a welcome step for parents, but it's also a smart business decision.

Mr. TERRY HARTLE (American Council on Education): This is a terrific marketing move. Davidson is a very highly respected private college, but it's not necessarily well known outside the southeast. This will give it a great deal of national attention, and I would suspect that next year they will see thousands more applicants than they are seeing this year.

KORRY: Hartle says lots of small liberal arts colleges would love to follow Davidson's lead, but few have the financial wherewithal to pull it off.

Elaine Korry, NPR News.

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