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September/ October 2013 Merit Aid Madness

How Ohio colleges started a tuition discount war for wealthy students that has now spread across the country.

By Stephen Burd

Delahunty acknowledges that colleges have helped encourage this sense of entitlement by giving out awards that are not tied to actual need, and that Kenyon is an active participant in the arms race. But while Kenyon is experimenting with cutting back on merit scholarships, there seems to be no way for the school to disarm unilaterally. “Kenyon, Wooster, Oberlin, and Denison are all going after the same group of kids both in the Midwest and nationally, and we’re all trying to stand out,” Delahunty says.

So, increasingly, are public institutions, both in Ohio and across the country. Declining government support and institutional status-seeking have worked hand in hand to encourage state colleges and universities to join the same merit aid arms race as their private counterparts.

Miami University in Oxford, Ohio, provides a good example. Michael S. Kabbaz, Miami’s indefatigable associate vice president of enrollment management, is on a mission to make the school into a “destination institution” for out-of-state students who are at the top of their class and whose families can afford to pay full freight. To capture the attention of these students, the public university offers many of them hefty amounts of merit aid.

“I come to work every day realizing that if we’re not out there being much more aggressive in attracting these great students, they have options virtually anywhere in the country,” says Kabbaz.

Increasingly, Miami’s focus is on competing nationally against Big Ten schools, like Indiana University, for top students. This goal may seem far flung from the traditional mission of public universities. But given the fiscal realities Miami is facing, Kabbaz sees no alternative to the approach he is pursuing.

Over the last five years, the state of Ohio has slashed spending per student at its public universities by nearly 30 percent. Back in the 1970s, state appropriations covered about three-quarters of Miami University’s annual budget. Today, it accounts for only 11 percent. The school now relies on tuition revenues to cover 55 percent of its budget.

“We can’t control what the state has in store for us over the next ten, fifteen, twenty years,” Kabbaz says. “But we can develop alternative revenue sources so we are able to sustain whatever comes down from the state.”

These issues came to a head for the university in 2009. In addition to the state budget cuts, the school suffered a major financial blow when it missed its enrollment target by 350 students. “That created urgency for the university,” Kabbaz says. “The university said that this could never happen again.”

It was at this point that the university’s “nonresidency strategy” came into focus. The Strategic Priorities Task Force—convened by Miami’s president, David C. Hodge, and made up of faculty and administrators—urged the school to significantly expand its out-of-state recruiting. The committee warned that a failure to do so would be harmful to the institution because of the state budget cuts and Ohio’s shrinking college-age population.

“Widening our reach in enrollment will not be easy, nor will it be accomplished without significant investments in our capability to recruit, attract, and retain students less familiar with Miami’s reputation for excellence,” the task force wrote. “Even so, it is necessary for our future prosperity.”

In the years since, the school has placed recruiters in affluent areas of the country, including Connecticut, northern Virginia, and San Diego. Today, nearly 40 percent of Miami’s students come from outside of Ohio.

The institution also established automatic scholarships for both in-state and out-of-state students who achieve high standardized test scores and good grades. For example, students who have SAT scores of at least 1400 in critical reading and math and have earned a cumulative grade point average of 3.70 are eligible for half-tuition or full-tuition scholarships for four years. About 70 percent of the school’s students receive some sort of scholarship through the program.

Supplementing these efforts, Kabbaz has created the Academic Scholars Program, in which the highest-achieving students receive more-generous aid awards than they would get through the school’s main merit scholarship program. The university also offers these students special academic opportunities, such as personalized mentorships with top faculty, participation in funded research projects, and guaranteed internships.

All in all, Miami University provided $44 million in institutional aid this year, with two-thirds of it going to non-need-based aid. According to data that the school has provided to the College Board, the university was only able to meet the full financial need of about 17 percent of the student aid recipients on its campus in the 2011-12 academic year. Meanwhile, 22 percent of freshmen had no financial need and received merit scholarships that year, with an average award of about $6,500.

Miami’s stress on market positioning and revenue maximization through the use of strategic tuition discounting or price discrimination is now quite typical of public universities. Indeed, public university presidents appear to be even more resistant to the idea of giving up non-need-based aid than their private college peers. According to the Inside Higher Ed survey, 71 percent of public four-year colleges said they wouldn’t eliminate merit aid even if their competitors did so. In comparison, only 48 percent of private college leaders disagreed or strongly disagreed with the idea.

At schools such as Pennsylvania State, in-state students attending the university’s flagship campus in University Park pay about $16,000 in tuition and fees annually. Yet despite the fact that Penn State spends nearly $14 million a year on institutional aid, its lowest-income in-state students pay an average net price of nearly $17,000. At the same time, about 6 percent of the school’s first-time freshmen received an average of $3,800 in so-called merit aid in the 2010-11 school year. Institutions of higher learning used to complement the government’s efforts to promote equal opportunity by using their financial aid resources to open the doors to the neediest students. But those days appear to be in the past.

For several decades, starting in the 1950s, groups of private colleges worked together to try to prevent bidding wars from breaking out over much-sought-after students. By the 1970s, as many as 150 colleges across the country were meeting with their competitors to compare the aid awards they were offering to students.

The most famous of these was the Overlap Group, which was made up of twenty-three elite private colleges, including all of the members of the Ivy League, the Massachusetts Institute of Technology (MIT), and a number of highly selective liberal arts colleges in New England. These schools essentially agreed to determine the appropriate aid award for every student admitted to more than one of the institutions. According to the colleges involved, these arrangements were meant to ensure that students could choose among the institutions without cost being a significant factor, and that the colleges could reserve their aid dollars for the neediest students.

Stephen Burd is a senior policy analyst in the Education Policy Program at the New America Foundation.

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