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Merit-Based Financial Aid Puts Low-Income Students at Disadvantage

by Kelly Petty, published

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When it comes to financial aid students have few choices to fund their college education. Beyond scholarships, students have a choice between loans or grants offered by federal, state or private entities. The Pell grant offers federally-funded assistance for students who come from lower income families.

Brookings Institution Fellow Beth Akers says that need-based assistance like Pell is being undermined by its more competitive cousin, merit-based aid:

“There are clear costs of shifting funds away from low-income students to support merit based grant programs.  While it is conceivable that merit based grant programs improve our collective welfare and are thus a justifiable expense, it remains unproven.  States should proceed with caution.  Rather than expanding the availability of merit aid, states should focus on generating the evidence needed to determine whether merit based grant programs are a good use of tax-payer dollars.”

Citing data from the National Postsecondary Student Aid Study for 2011-2012, Akers argues that instead of rewarding students for academic achievement, merit aid puts low-income students at a disadvantage by funneling money for those at an economic disadvantage to those who don’t suffer from income inequalities.

According to Akers, a National Association of State Student Grant and Aid Programs study found that at least 30 percent of state aid is awarded on the basis of achievement rather than financial need. Further, she claimed that while Pell grant award amounts substantially decrease as parental income increases, state aid only sees a nominal decrease regardless of household income.

However, Akers numbers don’t match up with other findings in the study. NASSGAP found that from 2011-2012, states awarded about $11.1 billion in total student financial aid, an increase of about 3.2 percent, with a majority of it in the form of grants.

Of that total, nearly $9.4 billion was allocated to grant awards, with 74 percent being need-based and 26 percent being non-need-based.

Additionally, funding for undergraduate need-based grant aid increased nationwide from about $6.4 billion in 2010-11 to about $6.8 billion in 2011-12, which represented an increase of 6 percent.

Non-grant loans, loan assumptions, conditional grants, work study, and tuition waivers saw a slight dip of 4 percent from the previous year. The numbers reflect the shift in students being burdened with student loans and opting for other sources of funding.

She also believes merit-based aid is used as a tactic to artificially inflate enrollment numbers, bring quality professors and high achieving students to public institutions who would have otherwise gone to private ones, and reduce “brain drain” -- the idea that smart people leave states that have less economic incentive.

The problem is this notion is predicated on the idea that low income equals low achievement. The goal of state and federal legislators, including the Obama administration, has been to close the achievement gap between students in low income and higher income households.

Akers criticized programs like the Georgia HOPE Scholarship program as giving money to students who would have otherwise enrolled in higher education institutions. But, despite challenges over maintaining the lottery-based program, HOPE and other programs like it are further pushing The U.S. Department of Education’s goals of ensuring every student is college and career ready by encouraging and rewarding rigorous coursework.

Additionally, Georgia offers 11 different state scholarships and grants, meeting the needs of its students from a diverse set of backgrounds. In fact, over the last 20 years, the HOPE GED grant has created eligibility for over 340,000, with more than 86,000 using the grant to attend public or private colleges and universities.

Akers also fails to consider that the Pell grant alone cannot pay for the complete cost of college and that students may seek other forms of aid.

In Georgia, for example, students who receive the HOPE scholarship can still receive the Pell Grant. As such, if a student maintains HOPE eligibility, 90 percent of their tuition costs could be covered for up to 127 semester hours plus the Pell grant supplements with a variable annual amount, which currently is capped at $5,645. Students who receive Pell are also eligible to receive it for up to 12 semesters or roughly 6 years.

It’s a numbers game that a student can max out if they are made aware of all options. What state legislators are struggling to deal with is a struggling economy that is not bringing state budgets back to better years prior to the financial crisis.

Even still, high school counselors must educate students on all financial aid options and what academic requirements must be met to be eligible.

Akers conceded:

“An alternative motivation for merit based grant programs is less self-serving.  Merit aid programs have the potential to increase high school student achievement.  For those students who are performing below their potential, the promise of a financial award may prompt them to work more diligently to prepare for college.”

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