Report: Merit-Aid 'Arms Race' Is Making Things Worse for Needy Students

By Allie Bidwell, Communications Staff

Public colleges are increasingly engaging in the "merit-aid arms race" more common among private colleges, in order to enroll high-achieving, more affluent students, according to a report released today from New America.

The report, "Undermining Pell: Volume III: The News Keeps Getting Worse for Low-Income Students," authored by senior policy analyst Stephen Burd, found that at nearly half of public four-year colleges studied, low-income students had an average net price of more than $10,000 per year.

When New America first examined the issue, analyzing data for the 2010-11 academic year, about one-third of those public colleges charged low-income students that net price. In short, Burd found things have gotten worse for low-income students in the years since New America first looked into schools using merit aid as a recruiting tool. In the report, Burd examined data from the Department of Education for 1,400 four-year colleges in the 2013-14 academic year.

The problem has become more apparent as public colleges struggle to find ways to stay financially stable with less state funding, and as competition has increased to enroll the most desirable students.

"Overall, too many four-year colleges, both public and private, are failing to help the federal government achieve national college access goals," Burd said in a statement. "They are, instead, creating barriers that could stymie the educational progress of low-income students or leave these students with mountains of debt after they graduate."

The report takes issue with the fact that a commonly-used measure for whether an institution does its due diligence in serving low-income students is the percentage of Pell Grant recipients it enrolls. But as many researchers have pointed out, while receiving a Pell Grant is an indication of financial need, it no longer covers a large portion of college cost for low-income students. Schools with a net price – what’s left over after Pell Grant and scholarship funds are deducted, according to New America – of more than $10,000, then, leave low-income students in the lurch.

Burd found in his report that 94 percent of the private colleges examined charged the lowest-income students — those from families making less than $30,000 per year — an average net price of more than $10,000, 72 percent charged more than $15,000, and 30 percent charged more than $20,000. Additionally, nearly half (47 percent) of public four-year institutions charged the lowest-income students an average net price of more than $10,000.

In the paper, Burd argues that the federal government should take a "carrot-and-stick" approach to encourage schools to enroll more low-income students, while also keeping the net price low. The carrot part of the approach would give Pell bonuses to schools that don’t have the resources to keep net prices low for needy students – the money would go to financially-strapped four-year institutions with more than 25 percent Pell students that graduate at least half of their students overall. The stick, on the other hand, would pressure wealthier colleges that use merit aid to attract students who would boost their rankings and increase their revenue. Those schools — which typically enroll a smaller percentage of Pell recipients — would be required to match a portion of the Pell funds they receive through students.

"It's time to put an end to the merit-aid arms race and to ensure that colleges live up to their commitments to serve as engines of opportunity, rather than as perpetuators of inequality," Burd said.


Publication Date: 3/16/2016

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