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College & Workforce Readiness

Merit Grants Bloom Even as Budgets Wither

By Sean Cavanagh — September 11, 2002 8 min read

Powered by a raw popularity that resounds from family living rooms to governors’ offices, the rise of merit-based financial aid continues unabated. Nothing, it seems, can stop it: not a flagging economy, not rising tuition costs, not the attacks of critics who say the grants give too much money to middle-class students who need it the least.

The appeal of the initiatives, to both politicians and parents, is obvious. High school students with good grades receive state money that in some cases pays every cent of their college costs.

In return, elected officials see more top students applying to in-state universities, ultimately funneling more top college-educated talent into their workforce.

Supporters of the programs, who gathered last month at what was touted as the nation’s first-ever summit on merit-based aid, say interest is still climbing. Officials from 23 states showed up at the National Governors Association meeting in Charleston, W. Va., with several new enthusiasts joining ambassadors from the 12 states that already have merit-based programs.

Many came to the Aug. 27-28 meeting saddled with the same burdens: state budget deficits that offer little cash for new programs; and complaints about rising tuition at their public universities.

Those pressures could eventually make merit programs even more appealing, some said.

“What you used to hear was, ‘Let’s support these programs because we’re helping more people go to college,’” said Kenneth E. Redd, the director of research and policy analysis at the National Association of Student Financial Aid Administrators, a Washington-based professional organization serving colleges. “Now it’s, ‘Let’s protect families from the rapid increases in college prices.’ ”

But state officials with merit programs also issued a warning to colleagues: Don’t create one—especially in this economy—unless your state has a way to pay for it.

“If you make a promise, you’ve got to keep it,” said Robert S. Morgenstern, the executive director of West Virginia’s merit-based program, which took effect this year and uses lottery funds. “There’s a lot of interest in the programs, but the question of how to pay for [them] is always out there.”

A Simple Idea

Doubters say merit-based programs ignore the needs of students who need financial help the most. The financial hurdles for poorer students have never been higher, critics say, and they grow more daunting every year.

Tuition at public four- year institutions has risen by 40 percent on average over the past decade, according to the most recent College Board data. High costs prevent almost half of all college-qualified low-income students from going to a four-year college, according to a 2002 report by the Advisory Committee on Student Financial Assistance, an independent counsel to Congress and the U.S. Department of Education. The amount of unmet need for low-income college students is rising, research indicates. Pell Grants, the main federal aid program for poor students, cover only about half the costs they did 20 years ago, when adjusted for inflation, studies have shown.

Helping more families pay for college was the mission behind the first merit-based aid program in the country, Georgia’s Helping Outstanding Pupils Educationally (HOPE) Scholarship program, which was established in 1993. More than 600,000 students have received $1.6 billion in aid since the program’s inception, including $277 million in 2000-01. Other states, particularly in the South, scrambled to follow Georgia’s lead.

The idea behind merit-based programs is simple: reward high school students with either strong grade point averages, high class ranks, or good test scores with money for college, regardless of financial status. That approach contrasts with need-based programs, which allocate funds on the basis of family incometypically with poorer students getting more.

Over the past decade, the amount of state grant aid not based on need has increased by nearly 280 percent, from about $284 million to $1.1 billion, according to the National Association of State Student Grant and Aid Programs. Need-based aid, meanwhile, went from $2.2 billion to $3.5 billion, a 62 percent rise.

But nationally, state-based aid of all stripes represented only 6 percent of the total help undergraduates received in 2000-01, according to College Board data. Federal loans represented the biggest chunk, at 50 percent, and money offered by colleges, 20 percent.

Georgia’s HOPE scholarships are paid for through a state lottery, and four other states likewise use gambling revenue to pay for merit aid. Other states use money from the huge lawsuit settlement with tobacco companies that was doled out to states, or general revenues.

As state budgets have dried up, many merit-based funds have been spared from cuts because of their special funding sources, said Donald E. Heller, an associate professor at Penn State University who has studied the initiatives. Many need-based programs, such as Illinois’, now face reductions, he noted.

Merit-based aid typically comes in the form of grants, which do not have to be paid back. In Georgia, high school students who graduate with at least a 3.0 GPA and maintain it through college receive free tuition at state public institutions, along with book allowances. (Tuition at the University of Georgia is $3,600 a year.) Students at in-state private colleges receive up to $3,000 a year.

Opponents of merit-based aid say it subsidizes those who least need the extra cash. Students who succeed academically in high school are more likely to come from middle- and upper-income families, they say, and most are already planning to go to college. As a result, families that can already afford to pay for higher education get help they don’t need, critics say.

A study released last month by the Civil Rights Project at Harvard University reinforced those assertions. Titled “Who Should We Help? The Negative Social Consequences of Merit Scholarships,” the report concluded that of all the funding awarded through Georgia’s HOPE scholarships in 2000-01, only 4 percent resulted in increased college access. Ninety-six percent of the money had no impact on expanding college access throughout the state, according to the report, which compared enrollment with scholarship amounts.

‘Political Pandering’?

“The programs do very little to promote access for students from lower incomes,” said Mr. Heller, who worked on the Harvard study. “The scholarships tend to go disproportionately to middle-income students.”

And what the middle-class families want, they get, other critics of merit aid say. That voting segment has the political power to dominate elections, and its support makes merit- based programs all but untouchable, observers on both sides of the issue say.

“It’s shameless political pandering,” argued Tom Mortenson, a higher education analyst based in Iowa, and a frequent critic of state merit-aid programs. He is a senior scholar for the Pell Institute for the Study of Opportunity, in Washington. “The needs being met are political needs, not the economic needs of students.”

Helping middle-income families has appeal at the federal level, too. In 1997, President Bill Clinton signed into law the HOPE Scholarship, a tax credit for college tuition that primarily benefits the middle-class. Critics, like Thomas R. Wolanin, a senior associate with Washington’s Institute for Higher Education Policy, say the program “squanders a substantial sum of federal tax resources,” that might otherwise help needier students, through Pell Grants and other aid.

But Glenn Newsome, the executive director of the agency that administers Georgia’s HOPE scholarships, says it offers a two-pronged benefit that can’t be beat: It keeps talented students in state and encourages academic success, regardless of student income, by promising financial rewards.

In 1993, Georgia kept only 23 percent of its students with SAT scores of between 1,500 and 1,600 (the highest possible score) at in-state universities. By 2000, the state was retaining 76 percent, said Mr. Newsome, who leads the Georgia Student Finance Commission. With those results, the appeal to parents—and elected officials—is obvious, he said.

But the state also has taken steps to help needy students, he said. In 2000, Georgia law was changed to let students receive full benefits of both HOPE and Pell Grants simultaneously, which was not allowed before, Mr. Newsome said. And for 2003, the state agreed to create a new $1.5 million pool for need-based aid.

Brought up in a family that he describes as upper-middle class, University of Georgia sophomore Ryan Hall says he could have afforded college without the HOPE, but ultimately, it was too good to pass up. Out of a graduating class of 72, he estimates that 20 of his classmates from his private high school used it.

“There are a lot of people [who receive it] who aren’t middle-class,” the 19-year-old said, referring to low-income students. “Not a majority, but it’s still an opportunity for people who wouldn’t otherwise go to college.”

Others say there’s no proof that merit-based aid robs from low- income programs. Today, almost 75 percent of all state aid awarded to students is based on need, according to the National Association of State Student Grant and Aid Programs. And in many cases, merit recipients are also low-income: 24 percent of all students who received merit aid nationwide in 2000-01 also received Pell Grants, according to U.S. Department of Education statistics.

“Dollars have not stopped flowing into need-based aid because of merit,” said Kristin Conklin, a senior policy analyst at the National Governors Association. Ultimately, she believes, more states will try to create “hybrid” programs that help students on the basis of merit and need. “The pressure on states to find ways to get more students to college, and help them pay for it,” she said, “is not going to wane.”

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