The Rapid Rise of Merit Aid

WASHINGTON -- It will shock no one who pays close attention to college enrollment and financial aid patterns that over the last 15 years, colleges and states have awarded ever-greater proportions of their financial aid based on students' academic and other merit, rather than their financial need. But what may be a surprise is that the shift is so sizable that students from low-income backgrounds have seen their share of all institutional and state financial aid drop significantly.

Those findings emerge from a report released Tuesday by the Education Department's National Center for Education Statistics, which drew its information from four administrations of the National Postsecondary Student Aid Study, spanning the years from 1995-96 to 2007-8 when colleges and states ramped up their awarding of financial aid based students' academic credentials.

That trend has been well-documented, most recently in Inside Higher Ed’s survey of college and university admissions directors. But by examining (through demographic, geographic and other prisms) which sorts of students are receiving which types of aid, the federal study adds some evidence of its impact.

Many institutions – particularly those that are moderately selective – have embraced merit-based financial aid out of the belief that offering partial scholarships will help them attract paying students away from higher-profile peers. Numerous states, especially in the South, have put in place hefty aid programs based on academic merit to try to keep academically qualified students within the state’s borders for college. But many student aid experts roundly pan the approach for abandoning the historical goal of using financial assistance to draw into higher education those who would have been unlikely to attend otherwise.

The overall drift evidenced in the report is dramatic. In 1995-96, about 32 percent of all undergraduates received grant aid based on financial need and 6 percent received aid unrelated to students' financial need (typically, though not always, based on some measure of academic merit). The average amounts that year were $4,000 for merit-based awards and $3,600 (in constant 2007 dollars) for need-based grants.

By 2007-8, the federal study shows, both proportions had increased, with 14 percent of students receiving merit-based grants and 37 percent getting need-based awards.

At four-year institutions, the shifts toward merit were much more acute. In 1995-96, private nonprofit and public four-year colleges were far likelier to give need-based grants than merit-based ones (by margins of 43 vs. 24 percent at private nonprofit colleges and 13 percent vs. 8 percent at public universities). In 2007-8, 18 percent of public university students received merit-based awards and 16 percent received need-based grants; at private colleges, 42 percent received merit aid and 44 percent received need-based assistance.

The table at bottom shows how the two types of aid flowed to students with different traits. But perhaps the most important findings in the report -- given the historical emphasis on financial aid as assistance for the needy -- may be these:

From 1995-96 to 2007-8, the proportion of merit aid recipients in the highest quartile of family income rose from 23 percent to 28 percent, while the proportion of merit aid beneficiaries from the lowest economic quartile fell to 20 percent from 23 percent.

While the proportion of low-income recipients of need-based aid increased during that period as well, the overall effect of the trends is a shift in the fortunes of different groups of students. In 1995-96, 41 percent of students in the bottom quartile of family income received grants from states or colleges, as did 13 percent of those in the top income quartile. By 2007-8, the numbers were 37 percent and 18 percent, respectively.

Students in the second lowest quartile also saw a small decline (from 27 to 25 percent) in the likelihood that they received financial grants between 1995-96 and 2007-8.

Merit and Need-Based Grants for Undergraduates, 2007-8