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By Donald E. Heller
often speak with policymakers, researchers and
parents about state-sponsored financial aid programs.
While almost every state has a grant program that awards
scholarships to students based on financial need, the trend in
recent years has been toward the creation of programs that
award grants based on some measure of merit, rather than
financial need.
Legislators and governors have noticed these trends,
and for those states that do not yet have merit scholarship
programs, or have only small-scale, limited programs, there is
great pressure to make available more funds for merit aid.
Most state financial aid programs were founded after
the enactment of the federal Higher Education Act of 1965.
One of the provisions of the 1972 reauthorization of the act
was the creation of the State Student Incentive Grant (SSIG)
program. This program created a federal-state partnership
whereby the federal government provided matching funds
for state-run, need-based grant programs. SSIG sought
to reinforce the goals of the Higher Education Act’s Title
IV programs to promote access to college for low-income
students. While in 1969 only 19 states had need-based
scholarship programs, totaling under $200 million in awards,
by 1974 these programs had expanded to 36 states and $423
In the 1990s the Clinton administration attempted to
kill the SSIG program (since renamed LEAP–Leveraging
Educational Assistance Partnerships), but Congress has
continued to fund it. Its funding level has not kept pace
with the growth
of the state need-
based scholarship
programs, however.
This has helped
open the door to
the creation and
expansion of new
merit scholarship
programs by the
states, moving them
further away from
the goal of using
grants to promote
college access for
needy students.
The inexorable
trend toward merit
scholarships has been well documented. Between 1982 and
1998, state funding for need-based grants for undergraduates
increased 88 percent (in current dollars). During the same
period, funding for merit programs increased 336 percent.
Winter 2001
The Dark Side of Merit Aid
Funding for merit programs has greatly expanded, often at the expense of need-based financial aid
In 1982 the share of grant dollars in
the merit programs was 9.3 percent of
the total appropriated by the states; by
1998, this share had doubled to 18.6
While the Georgia HOPE
scholarship program has garnered
much of the national attention,
other states have jumped on the
merit aid bandwagon in recent
years. Alabama, Florida, Kentucky,
Louisiana, Maryland, Michigan, New
Mexico, Texas andWashington have
either created newmerit programs
or have greatly expanded the funding
for existing programs, often at the expense of need-based
financial aid.
There are a number of characteristics of these merit aid
programs that are troubling from the standpoint of public
policy. Having examined several of these programs, including
how they are funded and the criteria used to determine
“merit,” I have reached the point where I can formulate a
clear set of recommendations for policymakers who wish to
craft these programs in a manner to ensure that they are the
most abhorrent to the goal of promoting college access for
low-income students.
The recommendations are:
• Use a high-stakes test to determine who will receive the
• Have no income eligibility requirements for the
• Fund the scholarships from state lottery revenues or
tobacco settlement funds.
Use a high-stakes test to determine who will receive
the awards
The relationship between standardized tests and
socioeconomic status is well established. In general, groups
who have traditionally been underrepresented in higher
education in this nation—poor, African American, Hispanic
and Native American students—score lower than students
from higher income, white and Asian American families.
Thus, the use of a high-stakes test to award merit scholarships
is likely to channel money away from students who need
the financial assistance to enable them to attend college, and
award it to students who are likely to attend college without
the financial help.
An example of this phenomenon can be found in the
newly implemented Michigan Merit Award Scholarships.
This program, which provides one-time grants of up to
$3,000 for college, awards the aid based on students’ scores in
From the perspective
of public policy and
the use of public
resources, it makes
little sense to give
financial aid to
individuals who would
attend college without
that assistance.