Merit Financial Aid Favors Wealthier Students, Report Finds

When doling out financial aid, schools are increasingly bypassing low-income students in favor of their peers from wealthier families by offering merit-based rather than need-based grants, claims a new report from The New America Foundation based on data released by the U.S. Department of Education.

TNAF reports that in order to boost their position in the prestigious US News & World Report college rankings, schools are increasingly offering financial aid in the form of merit scholarships for high-achieving students. Applicants from low-income families tend to be underrepresented in that group.

According to NBC News, merit-based aid doesn’t take into account the applicants’ financial need. So to make themselves more attractive high-achievers – who tend to be wealthier than an average student – schools prefer, for example, to offer 4 $5,000 student grants based on academic performance rather than one $20,000 grant based on income.

While the federal government issues guidelines on distribution of its grants, it doesn’t regulate aid from an institution’s coffers. Colleges have fiercely fought efforts by lawmakers to force greater transparency in financial aid practices. Colleges, many under tighter budgets as they offer more amenities and hire the best professors, are under pressure to raise revenues and are using tuition prices to do so.

At the same time the cost of attending a four-year college has gone up substantially, with four-year public universities reporting a 5.2% increase in tuition every year for the past ten years. According to the Consumer Financial Protection Bureau, tuition increases are significantly outpacing inflation.

This is considered one of the chief contributors to the student loan debt crisis, with the total amount carried by college students and graduates hitting $1 trillion this year.

The New America Foundation analyzed net price data — the amount students paid after all grant aid was exhausted — to conclude that hundreds of colleges expect the neediest students to pay an amount equal to or even greater than their families’ yearly earnings. For instance, of the 479 private, nonprofit colleges examined, 89 percent charged students with family incomes of $30,000 or less more than $10,000 in net prices and 22 percent expected students to pay about $20,000 or more each year. Needy students then rely more heavily on student loans, either drop out or take on full-time jobs, which diminishes their chances of completing school, the study said.

Stephen Burd, the foundation’s education policy analyst, worries that this approach to aid by the schools could lead to more social stratification in higher education in general and more serious problems with some schools in particular. Although merit aid is mainly favored by private colleges, according to the study, there’s a trend of public colleges increasingly focusing on merit aid as they struggle to balance their budgets in the face of continuing state budget cuts.