Stretching State Aid

To try to drive college completion, states are increasingly awarding financial aid dollars on criteria that include merit as well as financial need, a new report finds.

July 15, 2013

The financial aid debate has long centered on the contrast between need-based aid and merit aid. But at the state policy level, lawmakers are increasingly seeking to strike a balance between the two, even within individual grants.

This year’s annual report on state-funded financial aid programs by the National Association of State Student Grant & Aid Programs is the fifth consecutive report to show an increase in the amount of aid being awarded by states on criteria that include both financial need and merit. Such awards now make up about a fifth of all state financial aid dollars awarded, surpassing for the first time awards given out solely on the basis of merit.

“For a long time the talk was all about access,” said Frank Ballmann, director of NASSGAP’s Washington office. “States are now focusing on making sure that people are making progress toward completion. They want to make sure people are qualifying, getting the credits they need and passing the classes they take.”

The push to incorporate merit and need criteria into awards is part of an overall push by state and federal lawmakers, as well as nonprofit associations, to increase completion rates at colleges and universities. Many states have incorporated performance metrics such as course completion and graduation rates into their formulas for appropriating state dollars directly to institutions. In January the American Association of State Colleges and Universities listed performance funding as the top state higher education policy issue for 2013. Several reports released earlier this year as part of a series of white papers funded by the Bill & Melinda Gates Foundation urged federal officials to tie federal financial aid to some kind of graduation or progression metric.

State financial aid officials say the push to meld need-based and merit characteristics is driven in part by this overall completion push prevalent in higher education. But they also attribute it to states trying to make the most of limited financial resources.

In the past year, lawmakers in both Colorado and Indiana have approved programs that award money to students based on need, but increase awards based on completion of certain credit thresholds. “We don’t have the ability with the limited number of dollars we have to fundamentally change the cost of attending an institution,” said Matt Gianneschi, then-deputy executive director of the Colorado Department of Higher Education, at the time the program was approved. “Instead of trying to have our policies do a poor job of keeping up with a vastly differing universe of costs, we figured it was a more appropriate way to target funds to have some effect on progress.” Gianneschi is now vice president of policy and programs for the Education Commission of the States, a Denver-based education policy think tank.

Colorado’s program distributes aid dollars to students on the basis of financial need. But those students are rewarded with more money for meeting certain merit criteria, such as course-completion thresholds.

Indiana’s plan rewards similar behavior, including maintaining a certain grade point average. “It’s really more about incenting completion than about saving money,” Teresa Lubbers, commissioner of higher education in Indiana, said in an interview in May.

One reason why states may be adopting such criteria is that some research shows that such programs work. According to one study that looked at 50 years of financial aid research, the authors (Susan Dynarski of the University of Michigan and Judith Scott-Clayton of Columbia University's Teachers College) note that tying scholarship dollars to academic goals "can bolster the impact of financial aid on college performance and completion," and that "dollars with strings attached produce larger effects than dollars alone."

Other financial aid scholars, including Sara Goldrick-Rab at the University of Wisconsin at Madison, have challenged that conclusion, saying that it is difficult to tease out of those earlier studies whether the incentives truly drove significant improvement in outcomes. “The truth is that the experimental work needed to test the hypothesis that academic incentives tied to grant aid outperform grant aid without strings attached hasn't been conducted,” Goldrick-Rab wrote earlier this year.

Shifting Funds

The growth in dollars awarded on the basis of both financial need and merit often comes at the expense of dollars awarded on either criterion alone, both of which have seen their share of the overall pool decline. While state aid dollars have seen more growth in recent years than have overall state appropriations for higher education, increased spending has not been large enough to outpace the growth in enrollments or demonstrated need.

Despite several turbulent years for state revenues and budgets, state aid programs have remained relatively level. Last year states awarded about $11.1 billion in state-based financial aid, according to the NASSGAP report, an increase of 1.8 percent over the previous year when inflation is factored in. While that growth hasn't kept up with increasing student enrollment or increasing overall need, it outpaces general state appropriations for higher education, which fell by 7 percent over the same period.

“States are continuing to invest in making higher education affordable,” said Ballmann of NASSGAP. “Even when investing in higher education seems to be a partisan issue, you have Republican governors in states like Texas and Indiana investing in need-based grant programs. And it’s because they understand that the way you attract employers is to educate students with the skills to do these jobs.”

Over all, many of the findings of this year’s survey resemble those of previous years, and the state aid picture has stayed relatively constant. Exclusively need-based aid constituted 47 percent of all aid to undergraduates (slightly up from last year) and exclusively merit-based aid accounted for 19 percent (slightly down from last year). Washington, New Jersey, New York and California gave out the most need-based aid on a per-student basis. Georgia, South Dakota, Wyoming and New Hampshire awarded aid solely on a non-need basis.

The few major changes seen in recent years include both Florida and Georgia limiting their state merit aid programs in the face of revenue constraints. In addition, the Board of Regents in Iowa, currently the only state without a state-funded aid program for students at its public universities, has proposed such a program.


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