New Research Confirms Need-based Aid More Effective than Merit Aid for Promoting Persistence

By Charlotte Pollack, NASFAA Research Analyst 

One of the main goals of the planned college ratings system, as detailed in the framework released by the Obama administration in December 2014, is to increase student success rates. In an attempt to measure access, affordability, and outcomes, the Postsecondary Institution Ratings System (PIRS) may collect completion data from the Integrated Postsecondary Education Data System (IPEDS) and/or the National Student Loan Data System (NSLDS), the administration said. 

As schools continue to be held accountable for and measured by the completion rates of their students, the longstanding debate between need-based and non-need-based aid wages on, with many voicing concerns about the negative affects merit-aid could have on access and attainment for low-income students and students of color. A recent study, "Institutional Merit-Based Aid and Student Departure: A Longitudinal Analysis," examined over 4,000 students across five years and found that need-based aid is more effective than merit-aid for promoting persistence.

Using data from the Indiana Commission for Higher Education’s (ICHE) statewide longitudinal data system (SLDS), the study explored the relationship between institutional merit-based aid and whether a student departs from the statewide system of higher education. Accounting for factors such as precollege ability, student background characteristics, college academic domain, collegiate social domain, finances, on- and off-campus living, differentiation by financial aid types, and the amount of aid received, the researchers identified four major areas related to decreased odds of departure:

  • Need-based aid;
  • Increased loans, as a proportion of the total aid package;
  • Living on-campus; and
  • Credit accumulation.

While the study found no significant relationship with the effect of merit-based aid on departure, previous research on the topic of merit-based aid and persistence has been mixed. Some studies found that receiving merit-based aid at urban commuter institutions was negatively associated with persistence while others found merit-based aid attracted top students but wasn’t successful at retaining them. 

The researchers point out that high-income students were overrepresented among merit-based aid recipients, potentially indicating institutional dollars are flowing disproportionately to high-income students whose families may have the greatest ability to pay. This research also draws further attention to the argument that inequalities are increased by merit-based aid. The study’s authors suggest further research related to college choice, academic momentum, and student departure and graduation at individual campuses to further inform this topic.

As ED further develops the ratings system to measures student outcomes, including college completion, NASFAA will continue to advocate for concerns related to limitations of current postsecondary data surrounding retention and graduation rates, among other metrics.


Publication Date: 1/15/2015

Theodore M | 1/15/2015 11:0:56 AM

The point about loans is very interesting.

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