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National CrossTalk Fall 2002
News Editorial Other Voices Interview

2 of 3 Stories

"Non-need" Grants
The merits-and demerits-of state merit aid programs

By Kenneth E. Redd

"Don't let the facts get in the way of a good story." In no issue involving student financial aid today is this cliché more appropriate than the growth of state merit aid programs. Merit-based programs typically use college admissions test scores or high school grade point averages to determine which students will receive grants. Students' family income or financial need is not considered for these awards. The largest state merit program, Georgia's Helping Outstanding Pupils Educationally (HOPE) scholarship, provides more than $225 million to Georgia high school graduates with at least a B average.

Recent stories in the Chronicle of Higher Education, the Washington Post, the Philadelphia Inquirer and other newspapers charge legislators in Georgia and other states with using the state funds to pay the college expenses for middle- and upper-income students who do not have financial need. The grant criteria often direct aid to higher-income families because they are more likely to have access to better high schools and college admissions test preparation materials.

"Who's most likely to get a B, rich kids or poor kids?" Thomas Mortenson, a senior scholar for the Pell Institute for the Study of Opportunity in Higher Education in Washington, D.C., recently asked in the Washington Post. "In any academic ranking, the affluent tend to cluster near the top and the poor kids cluster at the bottom."

State officials defend their programs for providing college aid to hard-pressed middle-income families, for promoting and awarding academic excellence, and for inspiring more high school students from all income backgrounds to attend college. Glenn Newsome, executive director of the Georgia Student Finance Commission, recently told the Washington Post, "We wanted to keep our best and brightest students in Georgia which has awarded $1.5 billion in state lottery revenue to HOPE scholarship recipients. If you make a B average, this state says it is going to pay your tuition. That really has driven the whole notion of academic achievement down deeper than I ever thought."

The stories involving merit scholarships have focused on three issues: the growth of merit aid as a national phenomenon; the awarding of merit scholarships to "rich kids" who do not need financial aid; and the negative effects of merit aid on college access for low-income families. Each of these stories has elements of truth, but a more detailed look at these "good stories" shows that the effects of merit aid are more complicated than some may realize.

As with all good stories, a complete look at the facts doesn't always support the conclusions of critics or proponents, and the truth lies somewhere in the middle.

Good Story Number One: The growth of state merit programs is a national phenomenon.
According to the National Association of State Student Grant and Aid Programs (NASSGAP), the total amount of funding provided for merit and other "non-need" state scholarships jumped 283 percent between 1989-1990 and 2000-2001. Need-based grants, on the other hand, grew just 62 percent. Much of the increase in state non-need aid has occurred over the past five years, during which merit spending doubled while need grants grew only 26 percent.

However, the recent increase in merit funding might more accurately be described as a southern trend rather than a national phenomenon. During the 1990s, the 16 southern states (defined as the state members of the Southern Regional Education Board-SREB) collectively increased their spending on non-need grants by an incredible 483 percent. Non-need spending for all other states grew by a more modest 59 percent. Of the $1.1 billion in non-need scholarships awarded to undergraduates last academic year, $887 million (81 percent) was provided by the SREB states, and most of these funds (approximately $500 million) came from just two states: Georgia and Florida.

Perhaps less noticed is the fact that the SREB also collectively had higher growth in need-based grants than other states; during the 1990s, total spending on need-based state scholarships rose by 146 percent in the SREB states, versus 52 percent in the rest of the country. The increase in state need-based aid in the south occurred despite the fact that, starting with the 1999-2000 academic year, Georgia did away with all of its state need-based programs.

Pointing out these regional trends is not to suggest that merit and non-need grants are not a concern in other parts of the country. Large merit programs have been enacted in Michigan, Alaska, Nevada, New Mexico and other states outside the south, and several other state legislatures are considering bills to begin similar programs. These programs are much more recent than the Georgia and Florida programs and thus do not show up on the NASSGAP survey until much later in the 1990s.

But the newer programs generally are not as generous as those in the south, and, given the recent economic recession, it is unlikely that state spending on need- or merit-based programs will increase at nearly the same rates in other states as it has in the south. The southern influence on merit aid may be prevalent for some time to come.

Good Story Number Two: Only the "rich" get merit grants.
It is true that more middle- and upper-income students are receiving non-need state grants. Data from the National Postsecondary Student Aid Study (NPSAS) show that the median income of financially dependent undergraduates who received merit and other non-need state grants grew from roughly $35,100 in 1989-1990 to $51,900 in 1999-2000. The number of recipients from middle-income families (those making between $30,000 and $70,000) jumped 156 percent, and awardees from families with incomes of more than $70,000 nearly tripled.

But claims that only the "rich" qualify for grants often forget that income and intelligence or demonstrated achievement are not always related. While the merit programs do benefit middle- and upper-income students disproportionately, recent increases in awards to meritorious students from low-income families should also be recognized. Data from the NPSAS database show that from 1989-1990 to 1999-2000, the number of non-need-based grant recipients from families with income below $30,000 jumped 110 percent, while the number who received need-based grants increased just 34 percent.

More importantly, analyses that show the changes in the income levels of merit aid recipients often miss a critical point-the demonstrated financial need of the grantees. Federal financial aid rules define students' financial need as the difference between the total cost of attending college (tuition and fees, room and board, books, supplies and other related costs) and the amount students and their families can contribute toward these costs. As college costs rise, financial need-even for middle- and higher-income families-will rise.

In 1999-2000, according to the NPSAS data, more than 80 percent of the students who received state merit grants also applied for federal financial aid. Among the students who applied for aid, more than two thirds of the merit aid recipients had financial need, and the average amount of need was nearly $5,500. Need was even greater for middle-income recipients; 82 percent of those with income between $30,000 and $70,000 had financial need, and their average need amount was $6,200.

Further, undergraduates who received state merit awards were just as likely to qualify for need-based assistance as all other undergraduates. The 1999-2000 NPSAS data show that nearly one quarter of the financially dependent state merit-aid recipients also were awarded Federal Pell Grants, compared with 19 percent of all dependent undergraduates; 24 percent of merit grantees also received Federal Stafford Subsidized Loan, versus 26 percent of all dependent undergraduates; and 13 percent of merit awardees also received institutionally funded need-based grants, compared with 12 percent of all dependent undergraduates. Roughly 14 percent of both state merit aid and all dependent undergraduates received state need-based grants.

Middle-income families are often caught in a college cost and financial aid squeeze. They are "too rich" to qualify for federal grants, and "too poor" to pay full college prices. Despite their relatively higher income levels, many of these families genuinely need the merit-based funds to pay higher education expenses. Without merit grants, student loan debts for a large number of students might be even higher.

Merit aid may not be the perfect solution for these problems, but state leaders deserve at least some credit for trying to fill in the gaps between federal grants and student loans for students with demonstrated need for financial assistance.

Good Story Number Three: State merit aid hurts college access for the poor.
Despite the rapid increases in non-need state grants, the proportion of high school graduates from low-income families who enroll in college still lags far behind the percentages for middle- and high-income students. Thomas Mortenson's analysis of data from the U.S. Census shows that between 1990 and 2000 the share of high school graduates from the lowest-income quartile who enrolled in college grew from just 48 percent to 54 percent, this compares with a gain of 72 percent to 76 percent of those in the third quartile, and 80 percent to 82 percent in the highest quartile.

Critics of merit programs are correct to assume that merit aid, at the very least, has not helped increase college access for the lowest-income families. But federal and state need-based aid also rose during the mid- and late-1990s, and the gaps in college access rates between rich and poor still persist.

One reason the impact of state merit and need grant programs on college access has been limited is that the beneficiaries, regardless of their income levels, are disproportionately traditional-age students who enroll in postsecondary education full-time immediately after high school. Today, these students represent only a quarter of the college population. The vast majority of students are older, attend part-time, or have work or family responsibilities while in college. Very few state aid programs address the needs of this large (and growing) population.

Additionally, aid programs, either need- or merit-based, cannot by themselves close the gap in the college attendance between poor and wealthy families. Many other factors besides financial aid must be involved with growing college access and success, such as academic advising and tutoring, awareness of college admissions opportunities and procedures, family and peer support, and on-campus mentoring. We need more information about these issues before we can improve financial aid and college-going rates for low-income students.

"Don't let the facts get in the way of a good story." That is great advice for a Hollywood screen writer, but not so good for understanding the issues surrounding need- and merit-based financial assistance for college students. Proponents and opponents of merit aid sometimes make judgments on these programs without considering the complex facts involved. A more balanced view of the recent "good stories" involving merit aid might be summarized with these statements:

Total funding for state merit and other non-need programs has grown 283 percent, but most of this growth has occurred in the southern states.

Middle- and upper-income undergraduates have been the primary beneficiaries of the increased spending on merit grants, but many of these students genuinely had financial need.

Despite the increasing reliance on grade point averages and college admissions test scores to determine award recipients, the number of students from low-income families who received state merit and other non-need aid doubled in the 1990s.

Increased spending for non-need state aid programs has not closed the gap in college access between low- and upper-income families, but more spending for federal and state need-based grants has also failed to equalize college attendance rates by income.

Merit- and need-based aid is often focused on increasing the college-going rates of traditional-age students, but less focused on college success of non-traditional students. Merit and need programs also do not address academic support, mentoring, and other factors that may influence college attendance.

If supporters and opponents of merit aid really want to reduce the gaps in college opportunity and achievement between wealthy and low-income families, they should pay much more attention to these other factors.

Kenneth E. Redd is director of research and policy analysis for the National Association of Student Financial Aid Administrators.

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