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September 12, 2013 4:09 PM The “Merit Aid” Fiasco

By Ed Kilgore

Back in the 1970s, private university tuitions were vastly lower (even taking inflation into account) than they are today and needs-based financial aid at those schools was plentiful. And so, at a time when I could not afford to attend the University of Georgia, I was able to matriculate at Emory University (partly because I could commute from home, but still, the scholarship money was the key) without going into debt.

It’s hard to imagine anyone today being able to make the same claim, even though state schools like UGA are a lot pricier than they used to be as well.

The best-known reason for the wildly receding opportunity to attend private colleges without private wealth is, of course, annual tuition rates that resemble the price tags on tricked-out luxury sports cars. But as the New America Foundation’s Stephen Burd explains in the September/October issue of the Washington Monthly, another factor is the growing tendency of private colleges to concentrate financial aid on “merit” scholarships that divert resources from needs-based aid. What began as an effort by expensive but non-elite schools to compete for highly qualified but well-off students to keep selectivity standards high has now been turned on its head, as “merit aid” has become in effect a tuition discount for students able to pay it in full and in cash. And instead of boosting admissions standards, “merit aid” is now lowering them, even as they effectively raise tuition rates and reduce financial aid for needy students.

Burd locates this race-to-the-bottom as originating in Ohio in the 1980s, and more specifically at Ohio Wesleyan University, the first to institute “merit aid” to attract highly qualified students, but which soon struggled to keep up with the competition:

Once the cycle began, it became harder and harder for even schools opposed to merit aid to resist expanding its use. In the 1970s, for example, Denison University, in Granville, Ohio, had flirted with the idea of starting a merit aid program but rejected it on the grounds that it would trigger a bidding war among the colleges for high-achieving students. “Using such scholarships is likely to lead us into a cut-throat competition with other schools to ‘buy’ talent,” Denison’s Admissions and Financial Aid Council wrote in 1977.

Soon “merit aid” was a national phenomenon, and then it gradually became about ability to pay rather than academic “merit,” with poorer and often better-qualified students paying the price.

Today, these tuition discounts usually come in the guise of “merit scholarships,” but often the students who get them are hardly the best and the brightest. For example, 10 percent of college admissions directors at four-year colleges (and nearly 20 percent of those at private liberal arts colleges) admit that they give affluent students a significant leg up in the admissions process—meaning that they are admitting affluent students with lower grades and test scores than other applicants. Indeed, nearly a fifth of all students receiving so-called merit scholarships have less than a B average, and a largely overlapping 19 percent have only mediocre SAT scores, according to a report by the National Center for Education Statistics.
These colleges are, in other words, providing affirmative action for the wealthy, and the scale has grown very large. During the 1995-96 school year, only 24 percent of first-time, full-time students at private colleges received merit aid; by the 2007-08 school year that number had risen to 44 percent.

As Burd explains, the “merit aid” boom has been accompanied by fewer and (relatively) smaller needs-based scholarships, and a growing tendency to exploit federally-provided Pell Grants to “free up” school dollars for aid to wealthy students. So the net cost of college for less-advantaged kids is going up even more rapidly than tuitions. Worse yet:

By now, the trend has spread to many public colleges and universities as well and is rapidly getting worse as those institutions struggle with declining support from state governments. In a survey it conducted last year of nearly 600 college admissions directors, Inside Higher Ed found that more than one-third of public colleges and nearly two-thirds of private colleges engage in “gapping”—providing lower-income students with aid packages that don’t come close to meeting their financial need.

Burd examines a number of potential remedies, including treatment of merit aid as illegal price discrimination, and requiring schools with high net prices for poorer students to match Pell Grant funds. For public colleges, stronger public support is obviously critical to keep them from emulating the worst practices of private colleges. But the big picture issue is that all colleges, and the public authorities that subsidize them to a greater or lesser extent, need to focus on addressing a growing inequality in educational opportunity that is clearly becoming self-perpetuating.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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