Another Look at Merit Scholarships

In my last post, a mom (Rebecca) expressed her frustration with merit scholarship policies. Many parents responded, which I appreciate. It’s clearly an issue that parents like to vent about.

If you missed the post, I’d urge you to read it:

Are Merit Scholarships Are Fair?

I have been in a position similar to what Rebecca described. When my daughter Caitlin went to Juniata College, her merit scholarship came close to covering our Expected
Family Contribution. Consequently, I didn’t even bother applying for financial aid for the next two years because I knew my husband and I wouldn’t qualify for need-based aid.

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Beloit College

That changed when my daughter and son Ben were both in college simultaneously for one year. I filed for the FAFSA  for both of my kids and managed to get a combined $7,500 in need-based aid in addition to my children’s merit scholarships.

With my daughter out of college, I’m now back to getting just a merit scholarship for my son at Beloit College.

A Rich Student Advantage

Rebecca considered it unfair that rich students get merit scholarships even though they have a high EFC.

Well, guess what? Colleges H-A-T-E to give wealthy students scholarships (tuition discounts in higher-ed parlance), but most feel forced to do it to compete with their peers.

If Lawrence University and Knox College, two liberal arts colleges where Rebecca’s son recently received $20,000 merit scholarships, stopped giving awards to rich students these teenagers would look elsewhere. They’d probably check out schools like Beloit, Grinnell, Wooster, Denison, Lake Forest, St. Olaf  and other liberal arts colleges that give merit awards or attend a state university.

 Who Can Charge Full Price

The only colleges and universities that will charge all their rich students the full fare are those that enjoy the highest U.S. News & World Report college rankings. Families will pay $60,000 to attend a school like Swarthmore or Princeton  that are perched at or near the top of the rankings, but they won’t pay sticker price at 99% of private schools. (I also talk about this phenomenon in my book, The College Solution.) These schools charge full price because they can get away with it.

If Harvard, Williams and other rankings alpha dogs started slipping in the rankings, you can be sure that they would start dispensing merit scholarships to attract more rich students to their campuses, which is what the flawed ratings reward.

A new look at merit scholarships

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Franklin & Marshall College

The practice of giving merit aid to rich students was the subject of a meeting in January of the Council of Independent Colleges’ annual Institute of Presidents.

The group unveiled a draft of a pledge, which emerged after discussions with private college presidents, that would encourage schools to wean themselves off merit aid. The aim, according to S. Georgia Nugent, Kenyon College’s president, who was quoted in an article in The Chronicle of Higher Education is to a achieve “saner and more equitable admissions process.”

Just More Rhetoric?

Writing about the higher-ed industry has turned me into a cynic. (The same thing that happened when I was a financial journalist covering the financial industry). I think the latest effort to reign in merit aid is going to go nowhere.

That doesn’t mean that individual schools won’t try to curtail their merit aid. Franklin & Marshall College in Lancaster, PA, is the latest prominent institution that I’m aware of that has been trying to cut off merit aid and restrict assistance to need-based aid.

When I looked at the school’s stats on the College Board, the college states that it meets 100% of need (it failed to include what percentage of students receive this treatment) and sure enough the merit scholarships are teeny tiny.  The average need-based package is $35,712 and the average merit award is $1,500 at F&M.

I’ll have more to say about this topic in my next post. I’m flying to OHare today for a college presentation tomorrow — actually I’m on the plane — and I’m running out of battery.

 

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18 Responses to Another Look at Merit Scholarships

  1. Mike January 30, 2013 at 10:52 pm #

    Merit aid as an incentive to attract more affluent applicants will never go away unless tuition goes down. Not all private colleges are created equally, but they are priced equally. Merit aid or more appropriately in this case, tuition discounting, allows institutions to attract applicants that will still pay the bulk of the bill. If everyone is all of the sudden required to pay full rack rate, many good, small, liberal arts institutions will close based on one simple fact; an undergraduate degree from any but the ultra elite schools (and maybe not even in that case) isn’t worth $250,000. Families who can afford to simply write the check do so gifting “the experience” to their children, but there aren’t enough of them to float all of the private institutions in the US.

  2. Dorothy January 31, 2013 at 12:41 am #

    We’re in the same position as several of the other posters. While I’ve steered my child away from Amherst (my alma mater)/ Williams etc. and towards the small liberal arts colleges that offer merit aid (St Olaf, Oberlin, Lewis and Clark) I admire the philosophy of minimizing merit aid to focus on providing help to the families who really need it.

    How this plays out in the bigger picture of college finances, I don’t know. The reality is that we will take advantage of the system as it stands, since I am convinced by Lynn’s work, as well as that of Loren Pope, that the less selective colleges can offer every bit as good of an education as the pickiest.

    • Lynn O'Shaughnessy January 31, 2013 at 2:27 am #

      Hi Dorothy,

      I couldn’t agree more!

      Lynn O’Shaughnessy

    • Mike January 31, 2013 at 5:23 pm #

      I believe that some of the less selective colleges may even offer a better education than the most hyped (pun intended, Harvard, Yale and Princeton), but the issue still remains, you are seeking value in the schools you are choosing. What would you do if they were all $60,000/year? With no merit aid, that’s what they will all cost. Is any undergraduate education worth that? Is it “fair” to ask anyone to pay that?

      Society is effectively asking the “wealthy” to overpay for an undergraduate education to keep it affordable for the less well off who will be getting needs based aid. There is a price point where this model is no longer sustainable. We are there now.

      Merit aid will never go away. There aren’t enough students with $250,000 of disposable income to fill all the slots charging that much.

  3. Ann January 31, 2013 at 6:06 pm #

    Until colleges address their high tuition costs, the arguments about need vs. merit aid will ring hollow. The cost of a university education has far outpaced the rate of inflation, to the point where college today costs three times what it did 30 years ago, in real dollars. Those with children completing high school currently are playing a completely different game than existed when their kids were born in the mid-90s. Many of these families feel penalized for planning and saving, and they thank their lucky stars that many schools do give merit awards.

    I noticed that the pledge drafted by the college presidents is titled “High Tuition/High Discount Has No Future.” It seems to me that this group’s discussions have focused entirely on the “High Discount” element and ignored the “High Tuition” component. Until that changes, families who are relatively well-off, with hard-working and academically successful kids, will most certainly respond to merit-based discounts. That genie is out of the bottle, and university administrators are in no small way responsible.

    • Theresa February 1, 2013 at 2:29 pm #

      Amen, Anne! Why is the outrage for families who earn more or have managed to save some money for college rather than for the colleges and universities that increase cost of attendance at an obscene rate each year? Just as in other areas of public discourse, it’s more acceptable to condemn the “rich” family rather than the bloated college or university.

      Merit aid, by definition, should be awarded to students solely because of their academic performance. In sports, the MVP award does not go to the athlete with the smallest contract; the job promotion doesn’t go to the employee with the smallest paycheck; the Nobel Prize is not given to the scientists with the smallest amount of funding. In real life, performance earns prizes. By taking away merit awards because they might end up in the accounts of wealthy students, you are telling high school students that working hard doesn’t matter and won’t be rewarded. Apparently, only “fairness” counts.

      • Danielle February 2, 2013 at 7:54 pm #

        Amen! I completely agree.

      • Linda February 11, 2013 at 6:42 am #

        YES, I echo Theresa’s thoughts!

      • Kristi May 4, 2013 at 1:21 pm #

        Theresa, I agree. Most merit earned awards are given to the top 5-10% of a graduating class or for high scores on ACT/SAT exams. Unless you come from a rural school, taking honors and AP classes are necessary to reach even the top 20%.
        Rich or poor anyone can sign up for those high school classes. If you are at the top of the class you should get merit scholarships with no consideration of your parents income.
        If you are low income and top of class you can get a nearly free education.

  4. Karen January 31, 2013 at 6:26 pm #

    One cannot do an apples to apples comparison of EFC, merit and financial aid since differences exists. I believe the FAFSA doesn’t take into consideration geographical cost of living differences among the states. Secondly, the competition of college age kids in each state is different. Some states have more college slots in their states than they do have children who are graduating from high schools and need students from other states to fill them; and other states have too few compared to the number of kids graduating from high school in their state, so trying to get into a lower cost alternative like a state school, can be more competitive. Look at the differences in tests scores of the PSAT by state that qualify for National Merit…they are adjusted by state to ensure the all states can compete…some states have a much higher score to qualify and some states have a lower score. So for those who say, just go to your state school, in their state, their child maybe able to get into the state school easily, and the costs are still competitive. For some families in other states, that is not an option or the cost of the state school can be much higher. I remember reading that more than 50% of the kids that go to a University of California school do not pay tuition (they have a plan for families that make under 80K) and full fair costs 34k (tuition/room and board/fees). So you can have families who are original, long time homeowners, who have a lower cost of living (mortgage and taxes) and have high home equity, but can have a lower EFC and qualify for financial aid than a newer, younger family moving into the same neighborhood. Then to complicate things, throw in the Profile, which is used by some private schools, that does factor in those items; and yes, the best colleges options can vary by family, by state and by college. I guess in the end, we just want all of our kids to do their best (classes, grades, EC) to have the most college options. It is up to the child and family to determine whether it is best to get into debt over going to “name brand” university, or look for other options that best fit their financial situation (state schools, community college, ROTC, financial aid awards, and non name brand schools that offer merit).

    • Wendy February 1, 2013 at 3:31 pm #

      Karen, I think you hit on a key question parents wrestle with – is it worth it to go into debt to go to a top university or is it best to look for other options? I can’t believe that it is best for the parent or child to go into debt just to have a degree from a particular university, but there are so many different arguments out there about this. One that I see a lot in favor of student debt is students should be able to handle paying off loans as long as the total is not more than their yearly starting salary. Many colleges put out statistics that their students average a certain starting salary, say $45,000, and that their average student loan debt is only $35,000. I saw a post the other day that a student coming out of college with a starting salary of $35,000 – $40,000 should be able to handle approximately $25,000 in student loans in their monthly budget. That’s pretty subjective since there would be a wide variation in what else is in that student’s monthly budget.

      On the other side of the coin, there are so many articles out there about students who come out of college and can’t find a job and can’t pay their loans. What if my student has no idea what she wants to study or do for a career? Can I in good conscience say it’s ok to take out $25,000 in student loans (or more) because I know she’s going to be able to pay for them? And what about putting the burden on the parents? I could say go ahead and take out those loans because mom & dad will help you pay them off, but am I going to end up cheating my retirement funds to do that?

      I have to believe that the more responsible thing to do is to pick the school that will result in the least amount of debt coming out and hopefully no debt at all. I haven’t seen enough solid evidence to back it up, but I would hope there isn’t going to be a large discrepancy between the job the student is going to find with a degree from a middle of the road school versus a degree from a top tier school. We all want our students to be successful, but nobody has a crystal ball to help justify which way we decide to go.

      • Karen February 2, 2013 at 8:27 pm #

        Wendy, I do agree about debt. I think the talk about debt and college should also focus on major, availability of jobs and geographical region too. I had read that for some degrees, it can be worth going to a top tier school, like engineering. The article stated that many earn very high salaries and can more easily pay off debt as compared to other degrees/majors which may require graduate school. However, not everyone is cut out to be an engineer! I also think where one (city/state) is seeking employment is also important: unemployment & job availability, cost of living, etc. Also, I had read that 37% of college graduates are in jobs that don’t require a college degree too. I don’t know if this has more to do with the degree, the name of school, area or the person’s employment potential.

  5. Lisa February 15, 2013 at 12:38 pm #

    I think we’ve been brainwashed with the College Culture. We feel guilty if we don’t send our kid to a school with a “name” . Its like the fashion industry, our comfort zone relies on famililiarity and gives us a false sense of security. I think colleges know that we are vulnerable to this
    peer pressure and play on it. A solution is that We have to make them feel threatened so that they can reduce prices. Like in the supermarket, they mark food down because people shop around and find better prices for what they get. Colleges should give a list what they give for the price of tuition. No one asks what the teachers make or what the up keep for schools cost. It will give them a sense of transparency. when you go on open houses, the students give the tour, the administration should also be there to answer questions.

    • Lynn O'Shaughnessy February 16, 2013 at 4:09 pm #

      I agree completely with you Lisa. The most elite schools can charge what they want because their are enough wealthy students to pay the tab. Everybody else plays catch up. I think more transparency – especially on job outcomes – is coming, but it’s not here yet.

      Lynn O’Shaughnessy

  6. Ken March 9, 2013 at 7:42 pm #

    I wonder if some of the lesser known LACs with small endowments and that offer big merit scholarships to attract students will be able to survive? Will we be seeing reduced class offerings, more visiting professors, and other cost-saving measures in the coming years that will adversely affect students? Can we assume that the positive experiences that students have had at these fine LACs in past years will continue as they struggle to keep the doors open? Since my child will be at college 2014-2018, should we be looking at the college’s endowment and other measures of its financial situation among other factors? I’m not sure how to evaluate the strength/weakness of a college’s finances. — Ken

    • Lynn O'Shaughnessy March 10, 2013 at 5:56 pm #

      Hi Ken,

      The vast majority of colleges and universities do not have big endowments. That definitely doesn’t mean, however, that they are teetering on the edge of insolvency. Most institutions are simply revenue based. It’s a balancing act between offering merit scholarships to entice richer students who can pay more than the average student and giving financial aid (in varying percentages) to students who have real need. Looking at endowments will merely show the schools that are routinely at the very top of US News & World Report’s rankings. I disagree that many selective liberal arts colleges are facing serious financial trouble, but if you want to see the ones that are probably in the cushiest position, look for schools that give few if any merit scholarships to rich students. That means they have a good enough reputation that they don’t need to offer carrots to the rich.

      Lynn O’Shaughnessy

      • Michael Johnson June 11, 2013 at 2:25 pm #

        I have often read that future opportunity/success depends not on not whether you go to the name brand school, but whether you were able to go there to begin with. A smart, motivated, and capable student’s decision to go to a non “name-brand” school should not hurt them in the long run. Attendance at a “lesser” school will not suddenly turn a high achiever into a “slacker.” It seems clear that an individual’s first job out of college may certainly be helped by attendance at a more prestigious school. After that, it is up to the efforts of the individual. What is clear, though, is that significant student debt may well limit one’s options for years to come.

  7. mae January 6, 2014 at 6:02 pm #

    As a parent who graduated from a college in Boston, I am looking at how we will send our daughter to college with merit aid. I don’t want my daughter’s saddled with debt, in the event they graduate and the jobs aren’t available. I used to think Ivy was the way to go, but I no longer care about that. , they are creating a nation of educated students saddled with debt. It is not the right way to start a young adult life.

    The NY times pout out a list of colleges that give merit aid. type this link: http://thechoice.blogs.nytimes.com/20

    This was helpful…I wish they would update the info.

    Glad I stopped to read this web blog.

    Mae

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