We asked Stephen Burd, senior higher education writer and editor at New America, a Washington, D.C.-based think tank to answer questions raised by our Paying for College 101 Facebook Group regarding merit scholarships, also known as merit aid. The interview was done by phone and email and the answers have been edited lightly for clarity and length.

Merit Aid and Non-Need-Based Aid

1.  You’ve written about non-need-based aid. Can you help us understand what that is and how it’s different from merit aid and need-based aid?

Non-need-based aid is scholarships or tuition discounts that colleges give out to students whose families do not have financial need and can generally afford to go to some sort of college (whether it be a four-year public or private college or community college) without financial aid. People sometimes call it merit aid, but that’s not entirely accurate because schools can give merit aid to financially needy students as well. In both cases, though, the money is given regardless of whether the students have financial need or not. In contrast, need-based aid is given specifically to meet financial need.  

I’ll simplify here:

• Need-based aid: Goes to students who have financial need, according to the definition of the federal government, the states, or the schools themselves.
  
•  Merit Aid: Money that is given out regardless of financial need. It can go to students with financial need or those without it. 
  
•  Non-need-based aid: Merit aid (or tuition discounts) that go specifically to students without financial need.
  

2.  Do you think it’s fair that families who are told they don’t qualify for financial aid (but still can’t afford to pay for college in full) are able to receive merit aid? 

Overall, I think college is just too expensive for most families, be they low-income or middle-income, or increasingly upper-middle-income families. And that’s what is unfair about the system. Both low-income and middle-income students/families are getting the short end of the stick. The only group that is benefiting are those in the top 20 percent of the income scale. 

I think families have some confusion when it comes to need-based aid. The federal government gives out need-based aid, like Pell grants, which are almost exclusively given out to low-income families. As a result, middle-income families think that need-based aid only goes to poor people. But that’s not true. Middle-income families and even upper-middle-income families can get need-based aid from their (expensive) colleges. For example, families earning as much as $180,000 are eligible for need-based aid at Harvard. Obviously, most schools can’t afford to go that high. I’m just trying to emphasize that you don’t have to be impoverished to get need-based aid.

3.  What do you think of colleges offering merit aid to attract wealthier students if it helps them survive financially?

Obviously, colleges need a certain amount of wealthy full-pay students to survive. But I don’t think they need to give out merit aid to get them. If a college can’t attract these students on their own merits, then maybe they aren’t providing a product worth maintaining. There are a lot of very expensive private colleges with small endowments that are struggling to survive, and are offering very wealthy students deep, deep discounts. But those discounts are not sustainable, and financially needy students are often being burdened at these institutions with unmanageable levels of debt. I’m not sure it’s a tragedy if some of those schools go under.

4.  Does the student receiving merit aid still pay more than the student who gets need-based aid?

In most cases, yes. Schools will provide relatively small scholarships and discounts to lure wealthy students to their schools. It’s far cheaper for them to give out five scholarships/discounts of $5,000 each to wealthy students than to provide one low-income student $25,000. Those students will still pay most of the tuition and room and board. But they get the bragging rights of having gotten a scholarship or discount. Schools will sometimes give full rides to the absolute best students, but most wealthy students get smaller awards.

5.  Does the merit aid awarded to a student from a higher-income family reduce the amount of money available for families with financial need?

It really depends on the school and what their commitment is to helping low-income students. I’ve found that schools that spend the majority of their aid on non-needy students tend to leave low-income students with substantial funding gaps. Low-income students and their families have to cover those gaps by taking on more debt, including expensive private and PLUS loans, or working longer hours at jobs that distract from their schoolwork.

6.  You mentioned on the phone (in relation to tuition costs/aid) that “there’s going to be a reckoning.” Can you tell me what you think/hope that might look like, and how long that reckoning might take? 

I think the reckoning is starting to occur. Schools need to move away from the high-tuition, high-aid model. Private colleges are becoming too expensive for all but the excessively wealthy, and publics are starting to go down the same road. The free college and debt-free college proposals that Democrats have put out are meant to deal with this. 

Burd says that ultimately, there will be a point where it’ll come down to what people are willing to pay. And from the comments and discussion we’re fielding, what people are willing to pay– especially for a campus experience that is under revision–is changing drastically.

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Use R2C Insights to help find merit aid and schools that fit the criteria most important to your student. You’ll not only save precious time, but your student will avoid the heartache of applying to schools they aren’t likely to get into or can’t afford to attend.  

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