Using scholarships for tuition discounts ‘getting out of hand’

Merit scholarships are widely seen as exactly what their name suggests: financial awards institutions dole out to deserving students based on proven academic achievement.

But a growing chorus of scholars and higher education experts believe that deepening enrolment challenges have turned those scholarships into something else entirely: tuition discounts colleges use to lure students away from the competition.

“The term ‘merit aid’ is really a misnomer for non-competitive institutions,” said Robert Massa, vice-president emeritus for enrolment at Dickinson College and co-founder of consulting firm Enrollment Intelligence Now. “It’s a competitive pricing strategy. And it’s really gotten out of hand.”

The strategy has become more common at public universities because state funding has decreased over the past two decades, prompting institutions to look to higher-paying out-of-state students to fill empty seats. From 2001 to 2017, spending on non-need-based aid at public institutions rose from $1.1 billion (£875 million) to $3 billion, and 52 per cent of public institutions more than doubled their merit aid spending, according to data from New America; over 25 per cent more than quadrupled it.

Often, Dr Massa said, out-of-state students who receive merit scholarships still pay significantly more than residents, and the extra aid can push an applicant toward one particular public institution over a selective private.

Stephen Burd, a senior writer in New America’s education policy programme, said the real problem with the growth in merit awards is that it is edging out need-based aid, especially at public institutions. From 2001 to 2017, public institutions spent a total of $32 billion on non-need aid, a figure that he said is uncomfortably close to the $49 billion they spent on need-based aid. And as the drive for students has grown more intense, he is sure that gap has narrowed.

Jerome Lucido, executive director of the University of Southern California’s Center for Enrollment Research, Policy and Practice, thinks reliance on merit aid will become more universal in the wake of the pandemic’s disastrous impact on institutional financial health and the end of federal Covid subsidies.

“It tends to be more in play at small private colleges and regional publics nowadays,” he said. “It’s not good, but you have to feel for these institutions. They’re in a real financial bind.”

An unsung equity issue

Merit scholarships are also more likely to go to white and Asian students than Black or Hispanic ones. Data from the National Center for Education Statistics shows that in the 2019-20 academic year, 62 per cent of Asian undergraduates and 59 per cent of white students at private non-profit institutions received some form of institutional aid, compared with 53 per cent and 51 per cent of Hispanic and Black students, respectively.

Mr Burd said such disparity constitutes an equity issue that has long flown under the radar. From 2001 to 2017, the number of public institutions that spent more than $10 million a year on what he said were relatively wealthy students more than tripled, from 29 to 89.

“It’s really white, wealthy students getting this aid more and more,” he said.

Dr Massa said there should be some kind of requirement, or at least expectation, that institutions only offer non-need-based merit aid after they have met all their other students’ demonstrated financial need.

“Ideally, merit aid can actually help with equity, and it does at many institutions. Where this starts to break down is at institutions with gaps between financial aid and merit, those that do not meet 100 per cent of demonstrated need and yet are giving a tonne of institutional aid to attract new students,” he said. “A lot of these institutions don’t seem to see a conflict there. I see a major one.”

After this summer’s Supreme Court decision striking down affirmative action, Professor Lucido said he hopes higher education leaders will reassess their use of merit aid, or at least work harder to increase it, as a way to offset the potential diversity costs of the decision. But he is not sure many will be on board.

He added that plenty of institutions have a good balance of providing aid to low-income students while using merit scholarships to woo higher-paying, wealthier applicants whose tuition can help subsidise their peers’ education; he pointed to California State University, Los Angeles, where low-income students make up more than 70 per cent of the population.

But more institutions are increasingly prioritising enrolment goals over meeting financial need, he said, and apportioning their institutional aid accordingly.

“We need to hold those schools accountable,” he said.

Short-term strategising

Merit scholarships have become part of the narrow calculus governing the enrolment strategies of many struggling institutions, Professor Lucido said. What was once a tool used almost solely by competitive private institutions has been adopted by many public universities, a trend that began after the 2008 recession.

“The scholarships are not based on merit, really; they’re based on an economic algorithm to determine what families that can pay some big slice of tuition will be willing to pay,” he said.

Mr Burd, who has written extensively on the subject of non-need merit aid, said those strategies became most aggressive in the South, starting with the University of Alabama, the “poster child” for merit-aid tuition incentives and the flagship that recruits more out-of-state students than almost any other public institution. Between 2001 and 2017, the University of Alabama increased its non-need aid spending by more than $123 million, according to an analysis New America conducted based on the university’s common data sets.

That led to a domino effect, where other state systems adopted the tactic to remain competitive choices for applicants, first with Alabama and then, increasingly, with each other.

Dr Massa believes that using merit scholarships primarily to boost yield is bad not only for diversity but for business.

“It’s the kind of ‘quick nickels are better than slow dimes’ thinking,” he said. “But discounts can’t keep going up and up forever…You can’t count on them as a sustainable enrolment strategy.”

Still, he acknowledged, changing course is easier said than done.

“The competitiveness in the current market has created a kind of prisoner’s dilemma, where nobody will move first because they think – perhaps rightly – it will hurt their enrolment,” he said.

Mr Burd was even more pessimistic about finding a solution.

“We look into this and often just come to the conclusion of ‘Well, you just have to blow the whole system up and start again,’” he said.

This is an edited version of a story that first appeared on Inside Higher Ed.