It's clear from the data regarding the use of merit-based financial aid -- showing hefty increases in its use over the last decade at most types of institutions -- that many colleges really like it. And in one-on-one conversations about the practice, many college leaders say they favor institutional scholarships based on merit, either because it allows them to recruit different sorts of students or because it actually bolsters their financial coffers, by drawing students who can pay large tuition bills over and above the grants.
But you get a very different sense about the subject from the public discourse surrounding financial aid, from the slew of reports in the last year criticizing the practice to discussions like the one held Monday at the annual meeting of the American Council on Education in Washington. Panelists at the session largely criticized the practice, with a mild counterpoint offered by David Longanecker, executive director of the Western Interstate Commission for Higher Education, who said, “Things are not as bad as some might think.” Audience members, including many college presidents whose institutions offer such aid, offered nary a peep to defend merit aid.
The panel led off with comments by the moderator, William E. (Brit) Kirwan, chancellor of the University System of Maryland,  who argued that colleges have forgotten about poor students. “Too many states and institutions have lost balance and are subsidizing students who are already college bound,” he said. He pointed out that the rise of "Hope-like scholarships" -- Hope is the Georgia scholarship program financed by the state lottery -- have created a regressive tax on low income families to pay for the education of the middle class. Studies have found that the vast majority of people playing the lottery come from low-income households, while most of the beneficiaries of the state grants come from middle-income families.
Citing her own research and those of others, Sandy Baum, professor of economics at Skidmore College, said that only about 40 percent of institutional aid at public colleges and universities  is now need-based. “The primary goal doesn’t seem to be to help those who can’t afford college,” she said.
Lucie Lapovsky, a professor of economics and former president of Mercy College, who co-wrote the College Board study with Baum, pointed out that public colleges have been giving more and more merit aid, but that the majority of federal aid is still handed out to students in the lowest financial quartile. Private institutions, she noted, have the most progressive policies on the financial support as more of their discount rate goes to support need-based grants.
However, Longanecker offered some contrary statements. He pointed out that worries over the rise of merit-based aid are mostly overblown as many states, such as Georgia, never really gave much in the way of need-based grants. Prior to the Hope Scholarship, Georgia spent around $3 million on need-based aid, but the scholarship has allowed the state to spend $50 million today on students with need, about 20 percent of the annual funds spent on the scholarships.
“It’s not untoward for states to try something a little different,” he said. Longanecker also argued that Hope-like scholarships allow legislatures to build state support for higher education. He also said that these scholarships may create more buzz about higher education and spur more high school graduates to consider college.
Finally, he argued that some of the underlying perceptions about the success of need-based aid may be wrong. He pointed out that many of the students who get into college because of need-based grants never make it to graduation. “We used to think that if we gave them some money, they would go and complete their education,” he said. “But that doesn’t seem to be the case.”
He acknowledged, however, that students on need-based scholarships may not be able to graduate because they must work long hours to pay for their educations.