Planet Money
5:35 pm
Thu March 14, 2013

Colleges Offering Bigger Merit Scholarships Is A Problem (If You Don't Get One).

Originally published on Thu March 21, 2013 10:37 am

A bunch of private colleges have been in a financial aid arms race for years now, offering bigger and bigger merit scholarships to lure the best students.

This is nice for the students who get big merit scholarships. But it's not so nice for everybody else. Colleges have to come up with the money for those merit scholarships somehow — and they've done it in part, by jacking up tuition. (We did a story on this last year.)

"This is not a healthy situation if what we are trying to do is utilize the limited resources that we have to educate students," S. Georgia Nugent, president of Kenyon College, told me today.

At a recent meeting of private college presidents where Nugent spoke, a document titled "High tuition/high discount has no future" was handed out. ("High tuition/high discount" basically means jack up tuition and offer more merit scholarships.)

The document, which we learned about via the Chronicle of Higher Education, says in part:

We believe that a financial model based upon the traditional "high tuition/high discount approach to fee setting is unsustainable"

We believe that "discounting" has led to an allocation of financial aid resources that is neither efficient nor just and has contributed to the rising cost of higher education.

We believe that "merit financial aid" as presently understood is in fact "non-need financial aid"

Nugent told me the document is a work in progress. But the problem is real — and college officials feel it constantly.

"I can give you the example of a student who applied to Kenyon, who we evaluated to have no need based on the assets of the family, " said Nugent. "The family then wrote back to us to tell us they had four other offers from other schools offering aid from $10,000 to $40,000."

She says Kenyon did not change its offer, but that "bidding wars of merit aid" like this are common.

The victims of this shopping around, she says, are students who aren't offered merit scholarships, and who truly couldn't afford to attend the college without financial assistance.

Getting college presidents to agree that the problem exists is easy. Getting them to do something about it is almost impossible.

"It's the prisoner's dilemma," Nugent says. "Typically in conversations presidents will says 'Yes, I agree. I don't want to provide financial aid to families that don't need it. But I can't afford not to do this. If I don't this, the state university down the road will eat my lunch because they are doing it."

Nugent herself has struggled to implement change at her own institution, Kenyon College. Just last year, the college announced several new scholarships for students "regardless of financial need." The school newspaper reported that the college is financing the scholarships with money previously set aside for need-based financial aid.

"It would not have been my choice [to create these scholarships], but that is a result of the competitive admission landscape," Nugent says. "You look at what is happening in your admission pool and you have to be responsive."

Recently, Kenyon also started offering one other merit scholarship: The S. Georgia Nugent Award in Creative Writing. The name was the idea of the alumnus who donated money to fund the scholarship.

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