Merit aid at public colleges does hurt in-state students, report concludes

'Public higher education has changed,' says author

Public colleges awarding high levels of merit aid are more likely to enroll more out-of-state students and fewer in-state residents than they did 15 years ago, according to a new report from New America.

For the study, researchers examined the use of non-need-based aid at 424 public colleges and universities, finding that merit aid practice is not limited to flagship institutions but extends to regional ones as well. Data was sourced from the Common Data Set.

Furthermore, researchers concluded that institutions awarding more merit aid enroll fewer Pell Grant recipients and charge low-income students higher average net prices.

Nearly half of public four-year institutions award at least 10% of their students merit aid, and 18% award non-need-based aid to at least 20% of their students. Schools dedicate less than half of the $9 billion in annual undergraduate grants to need-based aid. 

"Public higher education has changed," says Steven Burd, lead author of the report. "There's this general question about the mission of public education, and whether schools are abandoning that mission," he says.

According to the report, some of this change is due to the falling level of state financial support and the need to draw in higher-paying out-of-state students to subsidize in-state students—although this possibly leads to less racial and economic diversity.

"What I worry about is where the discounts are going way below the cost of instruction, to students who don't need that discount to attend college," says Nate Johnson, a higher education analyst.

The study concludes that another primary driver is the move by colleges to increase their ranking scores. They may offer significant merit aid to compete to enroll the academically strongest students—resulting in less money for the population who needs financial aid.

"Somebody who's not in a system, who doesn't have to play that game, needs to create incentives and set rules that put everybody on a level playing field where they will succeed and benefit when they serve low-income and in-state students," Johnson says

To combat this trend, some states et limits on the percentage of out-of-state students that may enroll—although those levels range. University of North Carolina campuses, for example, are capped at 18% out-of-state residents, while the University of Colorado at Boulder may allow up to 45% of its freshman class to come from other states.

"The burden to fix this problem really falls to state and federal governments, rather than individual institutions," Johnson says (Woodhouse, Inside Higher Ed, 5/18; Burd, New America, 5/18).

The takeaway: Public colleges that award high levels of merit aid are more likely to have lower rates of in-state students and Pell Grant recipients, and are more likely to charge low-income students higher average net prices, according to a New America report.

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