RALEIGH, N.C. — Davidson College said it will eliminate loans from its need-based financial aid packages and replace them with grants and work study, a move school officials said would allow students to graduate debt-free.

The liberal arts college had capped loan amounts in recent years to reduce student debt, but higher education experts said it's the only college of its kind to halt loan handouts in need-based aid packages.

Davidson will raise new money to pay for the grants and work opportunities. One recent capital campaign raised about $90 million for financial aid, and future campaigns will help sustain the program, said Chris Gruber, vice president and dean of admissions and financial aid.

"We're not taking anything away from the college's other programs," Gruber said recently.

The announcement comes as education leaders across the country debate ways to prevent college campuses from welcoming only rich students.

Elite universities such as Princeton and Columbia have eliminated or significantly reduced loans by awarding more grant money.

Others, such as Harvard and Yale, have stopped requiring lower-income families to contribute to the cost of attending — an amount of money usually expected based on federal financial aid calculations. And even public universities, such as the University of North Carolina-Chapel Hill, have stopped forcing loans upon the neediest students.

Such policy changes are expensive, and they're rare among small, private liberal arts colleges. Davidson officials had been looking at ways to reduce student debt for years.

"It would have been nice to see what the effect of such an implementation would be, but there was no model out there," Davidson President Robert Vagt said. "We hope that kids will not just pass by Davidson because of the price tag."

Loans will still be available if students choose to finance their education that way, Vagt said. But he predicted students would embrace the new policy, citing examples of students who passed up opportunities after graduating because of their debt.

"It forces them into a career decision," Vagt said. "They took higher-paying jobs rather than jobs they had their hearts set on."

Annual tuition and fees run about $30,000 at the college, 20 miles north of Charlotte. About a third of the school's 1,667 students receive need-based aid, officials said. Right now, Davidson's need-based aid includes about $1.9 million in loans.

The cost of eliminating need-based loans in the future is expected to reach $3.5 million a year as the number of high school graduates from low-income families increases, Gruber said.

Higher education experts applauded Davidson's move and predicted it might encourage other liberal arts colleges to follow suit.

"To have an example like Davidson out there is enormously important," said David Warren, president of the National Association of Independent Colleges and Universities.

Schools with the richest endowments are more likely to make such a policy change, Warren said, but he added that Davidson has less money in terms of endowment-per-student than some of its peer institutions.

"It's a very bold and even courageous move," he said.