Last week, the U.S. Department of Education’s National Center for Education Statistics documented a dramatic—and disturbing—shift over time in institutional grants for undergraduates from need-based to non-need-based merit aid.
Of the $62 billion provided to undergraduates in grant aid in 2007-8, institutions were the single largest source, followed by federal, state, and private entities. In the academic year 1995-96, the report found, public four-year colleges provided 13% of students with need-based aid, and 8% with non-need-based merit aid. By 2007-8, the share of students receiving merit aid from public four-year institutions (18%) actually outnumbered the proportion receiving need-based grants (16%).
Private nonprofit four-year institutions, likewise, used to substantially tilt toward need-based grants, but no more. Whereas in 1995-96, 43% of students were provided institutional need-based grants and 24% merit grants, by 2007-8, slightly more (44%) received merit aid than received need-based aid (42%). Moreover, in 2007-8, the average amount of institutional merit aid exceeded the average need-based grant at both public and private four-year colleges.
In the report, grants which had both a merit and need-based component were considered need-based. Students in the highest income quartile were overrepresented among non-need-based merit-aid recipients, and students in the lowest income quartile were underrepresented.
Individual institutions often try to swim against the merit-aid tide. As a recent article by Beckie Supiano in The Chronicle notes, St. Mary’s College of Maryland is seeking to redirect aid away from merit to need-based grants, but the idea is facing some faculty resistance. Colleges worry about unilaterally disarming in the war for talented students with high test scores who can improve the academic quality of an institution, to say nothing of U.S. News & World Report rankings.
While merit aid may be rational for an individual institution, it is not particularly rational for the system as a whole. We all directly or indirectly help fund both public and private colleges, even though only 27.5% of Americans 25 or older end up with a four-year college degree, because everyone benefits when universities advance research and educate more students.
The public return on need-based aid is straightforward: it enables all of us to benefit from the contributions of students who, but for the aid, would not be able to attend and graduate college. This helps explain why all federal aid (even that which has a merit component) is means-tested.
The larger public benefit of state or institutional non-need-based merit aid to students who might well attend college with or without aid is much more difficult to justify. Merit aid may direct students to go to a particular institution or stay in a particular state, but it is unlikely to significantly increase the overall enrollment in college to the same extent as need-based aid.
Instead, merit aid is mostly a weapon in the battle for talent between states, or between individual institutions, which does not benefit the country as a whole. In the case of trade barriers between states, the Constitution prohibits the practice in recognition that such competition is destructive to the nation. So why should the federal government subsidize institutions of higher education engaged in merit-aid wars?
To restore more of a sensible balance between need-based aid and non-need-based merit aid, the federal government could stipulate that if an institution receives federal aid, it must in some measure prioritize need-based aid over non-need merit aid. The guidelines could look at the percentage of overall funds provided by an institution and the proportion of students receiving various kinds of aid. Historic practice could help guide the appropriate targets. For example, if 1995-96 benchmarks were used, public institutions would need to provide at least 1.5 times as many need-based grants as merit grants; and similar guidelines would govern the average size of grants.
Because almost all colleges, both public and private, receive federal aid, the same rules would apply to virtually everyone, and no particular institution would be required to waive the white flag on merit aid. The “peace dividend” of curtailing the merit-aid wars might even end up benefitting low-income students who would not otherwise attend college at all.