Ending the Merit Aid Merry-Go-Round

A group of private college leaders are calling for a cease fire in the institutional financial aid arms war. S. Georgia Nugent, the president of Kenyon College, is spearheading a movement to try to get her fellow college presidents to agree to recommit themselves to providing need-based financial aid, rather than merit scholarships and tuition discounts. This is an extremely admirable effort but unfortunately -- as Kenyon College’s own experience shows -- it’s unlikely to have much of an impact.

As Higher Ed Watch has previously reported, public and private four-year colleges are increasingly spending their institutional aid dollars on trying to attract the students they desire than on meeting the financial need of the low- and moderate-income students they enroll. A 2011 report from the U.S. Department of Education’s National Center for Education Statistics shows just how dramatically colleges have changed the way that they spend their institutional aid dollars over the past two decades.

The report found that in the 1995-96 school year, both public and private four-year colleges and universities primarily used institutional aid to try and meet the financial need of their students:

• At public colleges, 8 percent of first-time, full-time students received merit aid, while 11 percent received need-based aid
• At private colleges, 24 percent received merit aid, while 43 percent obtained need-based aid

But by 2007-08, merit aid trumped need-based aid at both types of institutions:

• At public colleges, 18 percent of first-time, full-time students received merit aid, while 16 percent received need-based aid
• At private colleges, 44 percent received merit aid, while 42 percent obtained need-based aid.

Clearly many of these schools are leveraging their financial aid budgets to buy students who could already afford to attend without the help. In many cases, these institutions are trying to lure in top students who will help them improve their standing in the U.S. News & World Report’s college rankings so that they can enhance their reputations and marketability.

But colleges are not just looking for the best and brightest students. They are also working hard to bring wealthy students to their campuses in order to maximize their revenue. The schools generally try to achieve this goal by offering generous institutional aid awards to these otherwise “full pay” students. After all, it’s more profitable for schools to provide four scholarships of $5,000 each for affluent students who will be able to pay off the balance than it is to provide a single $20,000 grant to one low-income student, as the Atlantic Monthly described in a groundbreaking article it ran on enrollment management in 2005.

It is these practices that Nugent and her colleagues are hoping to change. In a draft pledge they recently circulated, the college leaders wrote that current practices are “unsustainable” and have “led to an allocation of higher education resources that is neither efficient nor just.” I wholeheartedly agree but join Robert J. Massa, vice president for communications at Lafayette College and a pioneer in enrollment management, in his skepticism that colleges will be able to change their practices on their own.

After all, even Kenyon College recently expanded its merit aid offerings because it was losing top applicants to competitors who have fewer qualms about engaging in these practices. “I’m very involved nationally in trying to urge colleges to cut back on merit aid, and so I really regret that we end up doing more of it,” Nugent told Kenyon’s student newspaper in November.

“Even with my fellow presidents who are on the same page as I am and think that merit aid has overall caused more problems than it has solved, even many of us who are trying to bring about a new conversation on that are actually giving more merit aid these days,” she said. “So I just don’t know how colleges are going to step off that merry-go-round.”

Colleges likely won’t be able to get off the merry-go-round without external pressure. At New America, we have some ideas we will soon share for how federal policymakers can exert that pressure. Stay tuned.