Too Much 'Merit Aid' Requires No Merit

On June 9, 1904, Harvard's president, Charles W. Eliot, wrote a letter to Charles Francis Adams Jr. A former railroad executive, Adams was a member of the college's Board of Overseers and, as a grandson of John Quincy Adams, a multigenerational Harvard legacy. The two men were quarreling over the question of raising tuition to ease a financial crisis. Wrote Eliot:

"... You wanted the College open to young men who had either money or brains. ... I want to have the College open equally to men with much money, little money, or no money, provided they all have brains. ... I am inclined to think that you would be more tolerant than I of the presence of stupid sons of the rich."

A hundred and five years later, give or take, I ran into a friend on a Washington sidewalk. He was a brilliant lawyer whose spouse, too, had distinguished herself in the legal profession, resulting in law-firm partnerships and attendant rewards. Their oldest son, on the other hand, was a young man of limited accomplishment and ambition. Now they were filled with anxiety about his future and working furiously to drag him across the college-acceptance finish line.

Yet when I asked after his family, a smile broke out across my friend's face. To his surprise and delight, the son had been accepted by four private colleges of decent reputation. Two had even offered him merit scholarships. "He's never gotten a 'merit' anything before," the father told me, conspiratorially. "He's not a very good student."

Few men, if any, have had more influence on the character of American higher education than Charles Eliot. He won the battle with Adams and kept Harvard's tuition unchanged for 12 more years. But today our colleges and universities are not just tolerant of stupid sons (and daughters) of the rich—they are wasting millions of financial-aid dollars competing for their attention.

In the argot of financial-aid administration, there are only two bases for financial aid: "need" and "merit." Need-based aid is simple in concept, helping students who have little money, no money, and brains. "Merit aid," by contrast, represents a serial abuse of the English language. Too often it is a label deliberately designed to conceal behavior that colleges would rather hide from the public eye.

There are real merit-based scholarships, of course, and colleges sometimes use financial aid to recruit students whose SAT and ACT scores help bid up the institution's U.S. News & World Report rankings. But a substantial amount of merit aid is actually antimeritorious, used to recruit academically marginal students with wealthy parents. My friend and his wife earn an annual income in the high six figures. Those private colleges were hoping that a $5,000 "merit" scholarship would prompt them to pay the balance of a $50,000 tuition bill. In this case, the merit was in a bankbook, not a transcript or test score.

Colleges aren't just guessing about my friend's likely response. A 2012 survey of affluent students and parents asked, "Which attributes would make me consider a school that was not my first choice?" The No. 1 answer was "Offers good scholarships and financial-aid packages." While there is no universal definition of merit, a U.S. Department of Education study in 2011 found that nearly 20 percent of full-time students at four-year institutions who were receiving "merit" aid had entered college with a combined SAT score below 700. Forty-five percent had scored below 1000.

And when colleges need to decide exactly how much money to throw at which stupid sons and daughters of the rich, for-profit consultants with sophisticated pricing algorithms are standing by. In marketing its services, one industry leader, Noel-Levitz, cites a client college that generates more than $10,000 more per student from freshmen with the lowest levels of academic achievement than from those with the highest. Even taking account of the tendency of low achievers to drop out, they're still a better deal, financially speaking.

Catering to children of privilege is a growing trend. In 1995, 43 percent of students attending private colleges received need-based aid. By 2007, that percentage had declined slightly, to 42 percent. The proportion receiving so-called merit aid, by contrast, jumped from 24 percent to 44 percent, nearly doubling in just over a decade. At public universities, the percentage of students receiving non-need-based aid is also growing faster than are the scholarships designed to help people who actually need financial help.

Perhaps not coincidentally, the federal government has poured huge amounts of new money into the need-based Pell Grant program in recent years, increasing the maximum grant and expanding eligibility. This allows colleges working behind the veil of their opaque financial-aid-packaging systems to substitute taxpayer dollars for institutional dollars and redirect the savings to antimeritorious aid. Scarce, hard-won public resources meant to help the poorest students attend college are effectively being siphoned off to benefit those who need and deserve them least.

A few elite institutions don't play this game. Harvard, long past the time of existential financial crises, can afford to admit the reasonably-smart-with-great-"intangible leadership qualities" sons and daughters of the rich. But the same moral question that Eliot confronted over a century ago remains with us, and is all the more important at a time when students from all economic backgrounds need and pursue higher education. "I care for the young men whose families have so little money that it would make a real difference to them whether the Harvard tuition fee were $150 or $225," Eliot wrote to Adams. "You do not seem to care for that large class. To my thinking, they constitute the very best part of Harvard College."

They don't constitute a very big part of Harvard College now—in 2010, only 11 percent of Harvard undergraduates received Pell Grants. And across the nation, the strivers who constitute the very best part of our future are being marginalized by aid officers' pursuit of a blindered strategy of revenue maximization. As a result, financially poor students end up borrowing too much, working when they should be studying, settling for lower-quality colleges, or all of the above.

Financial-aid administrators may feel forced to divert dollars to the undeserving in order to stay ahead of the competition. To arrest this unwholesome trend, taxpayers should stop supporting institutions that use shell-game strategies to subvert the goals of need-based financial aid. The news media should refuse to play along with the Orwellian usage of "merit aid." And trustees, alumni, and faculty members should call to account administrators who sacrifice the academic integrity of their institutions in pursuit of the bottom line.