Colleges shift financial aid focus to merit rather than need

Wealthier students are benefiting from the move to merit-based aid packages, while low-income students are hurt by higher tuition and less aid, according to a new report.

In recent years, merit-based scholarships have surpassed those awarded based on financial need at both public and private colleges, according to a report released last week by the New America Foundation, a nonprofit, nonpartisan public policy institute.

In a little over a decade, the percentage of students in private schools receiving merit aid, or non-income-based scholarships, nearly doubled, to 44 percent in 2007-2008 from 24 percent in 1995-1996, while the percentage of those receiving need-based aid dropped slightly to 42 percent from 43 percent, according to the study.

At public colleges, scholarships based on merit shot to 18 percent from 8 percent in the same years, while need-based aid climbed at a slower pace, to 16 percent from 13 percent.


“Financial aid has increasingly become a weapon that four-year colleges wield as they fiercely compete for the students they most desire,” the report’s author, Stephen Burd, wrote. “It’s clear that many of these schools are leveraging their financial aid budgets to buy students who could already afford to attend without the help.”

College financial aid shifts focus from need to merit: Chart shows increase in merit-based financial aid and decline in need-based aid.MSN News

At the same time, colleges have expected low-income students to pay higher tuition, the report said. The study, which analyzed U.S. Department of Education data for the 2010-2011 school year, found that hundreds of colleges ask students from low-income families, those that make $30,000 or less annually, to pay tuition that is equal to or more than their families’ yearly earnings.

Nearly two-thirds of the private colleges analyzed charged students from the lowest-income families an average net price — or cost after scholarships — of more than $15,000 a year.

That means low-income students are often burdened with large amounts of debt, Burd said.

“Basically, they’re facing higher net prices and either taking on more debt or finding other ways to pay,” Burd said in an interview. “We’re finding more and more low-income students working full time in order to pay tuition or dropping out with the expectation that they’ll re-enroll later, which makes it less likely that they’ll graduate.”

The trend is the result of schools using scholarships to strategically attract wealthy, talented students to boost both their revenues and standings in college rankings, Burd said. A school will benefit more by providing four scholarships of $5,000 to attract affluent students who will be able to pay the balance than by offering a single $20,000 grant to one low-income student, according to the report.

“The poorer schools are trying to bring in more otherwise full-pay students for their survival,” Burd said. “For the richer schools, it’s very much about the rankings, it’s very much about prestige.”

The report calls out Boston University and George Washington University as examples of schools that have aggressively used merit scholarships as a tool to increase their prestige while neglecting financial aid for low-income students. Students whose families earn $30,000 or less pay an average net price of $23,932 at Boston University and $14,670 at George Washington, according to the report.

Colin Riley, a BU spokesman, declined to comment for this article, but last week he told The Boston Globe that the report incorrectly interprets how the university distributes financial aid.

“This takes one data point and makes an inference about our policies that is inaccurate,” Riley said, adding, “All of our applicants are eligible for merit aid.”

Michelle Sherrard, a spokeswoman for George Washington University, said in a statement that the school is “committed to ensuring the affordability and accessibility” for all students.

“We recruit students across all cultural and socio-economic boundaries to achieve a diverse population,” Sherrard said. “To ensure affordability, the university offers an innovative program of fixed tuition and guaranteed financial aid for its undergraduate students.”

Sherrard also noted that George Washington has increased the proportion of students who are eligible for Pell Grants, federal aid that is awarded based on financial need, from 9 percent in 2009 to 14 percent in 2012.

Private colleges praised by the report for accepting large numbers of low-income students and being affordable for them include Amherst College, where low-income students pay an average net price of just $448 per year, as well as the Massachusetts Institute of Technology, Grinnell, Vassar, Wellesley and Williams College.

A spokeswoman for Santa Clara University — cited in the report as the most expensive private college for low-income students, with a net price of $46,347 — said in a statement that the figure is incorrect due to an error in data reported to the Department of Education. The school’s actual net price for low-income students is $21,206, she said.

Public college tuition varies by state: Map shows variance in tuition for public college students by state.MSN News