Merit Scholarships Don't Help College Students Who Need It Most

(Bloomberg View) -- America's top colleges and universities are providing students with more financial aid than ever. But more of the money should go to the families who need it most.

Overall, U.S. colleges dole out $58.7 billion in aid to students. At private colleges and universities, some 25 percent in annual grant money goes toward "merit scholarships," regardless of family income. Some public schools devote an even greater share of resources to merit aid: At nearly one-third of state-funded universities, at least half of all financial aid goes to students who don't need it.

In theory, there's nothing wrong with colleges offering incentives to attract exceptional students. In practice, most merit scholarships aren't tied to any rigorous measurement of merit at all -- many private schools offer them to virtually every accepted student, including those who can afford to pay full tuition. Flagship public universities aggressively use merit aid to lure out-of-state students, who pay more than in-state residents, even after the discount.

The result is an aid race that is driving up costs and putting a college degree even further out of reach for low-income students. At half of the country's public colleges and almost all its private ones, the price of college amounts to a third of a needy family's annual income. Between 2011 and 2014, the proportion of private colleges where the net price totaled half their annual income rose from 69 percent to 72 percent.

Many college administrators are reluctant to abandon merit aid, out of fear of losing high-scoring students and dropping in college rankings. But adopting a purely need-based system doesn't require sacrificing academic standards. If colleges are concerned about missing out on talent, they should expand efforts to identify and recruit qualified low-income students who aren't applying in the first place.

Congress has a role to play as well. It should pass legislation tying schools' access to federal financial-aid funds to the rates at which they enroll and graduate low-income students. And college scholarship programs funded by state governments should give preference to qualified students from disadvantaged backgrounds.

With applications rising, college-admissions officers are increasingly harried. Relying on merit aid allows universities to streamline the admissions process, evaluating and rewarding students based more on past performance than on future potential. Such an approach does both the institutions and the applicants a disservice.

--Editors: Romesh Ratnesar, Michael Newman.

To contact the senior editor responsible for Bloomberg View's editorials: David Shipley at davidshipley@bloomberg.net.

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