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Tuition tug of war in higher ed

Campus financial aid planners wrestle with competing drives: Increase diversity or woo high achievers
University Business, October 2014
The number of students identifying as belonging to a community of color has doubled since Frankin & Marshall College has invested more in need-based aid and phased out merit scholarships.
The number of students identifying as belonging to a community of color has doubled since Frankin & Marshall College has invested more in need-based aid and phased out merit scholarships.

Financial aid is in a state of flux, but an institution’s size and selectivity offer clues to what kind of student assistance gets prioritized.

Some public flagships and less-selective private schools are using increased merit aid to lure higher achievers from more prestigious private schools, while some highly selective colleges and universities are phasing out merit aid as they give more need-based assistance to bring lower-income students to campus.

“We’re seeing more and more colleges using merit aid, and the place where it’s really growing is at public universities—particularly with the focus on getting more and more out-of-state students,” says Stephen Burd, the New America Education Policy Program’s senior policy analyst.

At private institutions, the tuition discount rate increased in the 2012-13 school year, to 46.4 percent from 44.8 in 2012-13, according to the latest NACUBO Tuition Discounting Study. But merit doesn’t have to conflict with need-aid, says Robert Massa, a former chief enrollment officer at two private institutions and now vice president for communications at Lafayette College in Pennsylvania.

“We need to attract students who have the ability to pay so that we can afford to assist those who cannot pay,” says Massa, speaking not specifically about Lafayette but about smaller, selective liberal arts schools.

Here’s a sampling of tuition trends at a variety of institutions, and how administrators are deciding what kind of aid to offer as they shape each year’s incoming class.

Falling state funding

The state of Kentucky used to cover about two-thirds of the costs of tuition and instruction, but that number has now fallen below 50 percent, says Angie Martin, University of Kentucky’s vice president of financial planning and chief budget officer.

This has forced Kentucky to offer more scholarships to attract a range of students, from high-achievers who are being recruited by out-of-state schools to students who don’t think they can afford college.

Financial aid strategy snapshots

Hamilton College (N.Y.)

  • Strategy: Eliminated merit aid and began meeting 100% of need; implement need-blind admissions policy
  • Result: Applications up, stronger students admitted, strong alumni giving for aid policies

Franklin & Marshall (Pa.)

  • Strategy: Eliminated merit aid and began meeting 100% of need
  • Result: Average SAT score of incoming students up from 1271 to 1313; percentage of students receiving Pell Grants up from 8% to 22%; number of students identifying as being of a community of color has doubled

Lafayette College (Pa.)

  • Strategy: Reduced merit aid; made scholarship process more rigorous
  • Result: Quality of students increased; yield up 5%

Southern Illinois University, Edwardsville

  • Strategy: Increased merit aid; made in-state tuition available to neighboring states
  • Result: ACT scores of incoming students up from 22.4 to almost 24; retention of freshmen up from 71 percent to 75 percent

University of Kentucky

  • Strategy: Increased merit scholarships
  • Result: Enrolled more National Merit Scholars and students with ACT scores and GPAs that are above university’s average but wouldn’t have qualified for scholarships in the past

“A lot of our aid that we award is merit-based, but it does go to needy students,” Martin says. “We are using merit aid to make sure we have a diversified student population, and we are using it to address need in some instances.”

Kentucky has increased its number of National Merit Scholars and is now in the top 10 public institutions in that category. Kentucky awards full scholarships to a relatively small number of students.

A new scholarship launched last fall for students with ACT scores and GPAs that are above the university’s average but would not have been high enough to qualify them for scholarships in the past. “That program will be growing dramatically in terms of number of awards and dollars over next four to five years,” Martin says.

In-state tuition at Kentucky has more than doubled since 2003, from $2,274 to $5,184 while the rate of increase has dropped from 13.1 percent in 2006 to 4.8 percent in 2014. Since fiscal year 2008, the amount of financial aid given has risen sharply, from $48 million to $86 million. The average out-of-pocket cost for a Kentucky student in 2012 was $1,211 after scholarships and state and federal assistance.

Smaller state schools are feeling the pressure of the increased competition with flagships. At Southern Illinois University, Edwardsville, which has nearly the lowest tuition in the state, administrators have used merit aid to lure higher achievers away from larger public competitors, says Scott Belobradjic, the associate vice chancellor for enrollment management.

“We’re not heavy into merit aid for students without any need,” Belobradjic says. “But it’s just an expectation for a lot of high-performing students’ families. They understand we might not give as big a scholarship, but they want some recognition.”

Tuition and fees at the 14,000-student school near St. Louis are about $9,700 a year. Scholarships of about $3,000 to $4,000 cover about 80 percent of students’ unmet need. About half of graduates leave the school with no debt; the other half averages about $27,000.

The merit push has paid off—the average ACT score of incoming students has risen from 22.4 to almost 24 over the last four years. Retention from freshman to sophomore year also is up, from 71 percent to 75 percent, Belobradjic says.

The school also has made in-state tuition available to students from bordering states, driving enrollment from neighboring Missouri up 47 percent, Chancellor Julie Furst-Bowe says. “In the Midwest, we have declining high school graduation. We’ve really had to increase the amount of aid we provide, both merit and need, over the past few years.”

Shift to need blind

The first class admitted under Hamilton College’s need-blind admissions policy graduated this spring. Based in central New York state and with 1,850 undergraduates, the school eliminated merit aid in 2007 and now meets 100 percent of need. It went need blind in 2010.

“Merit had served its purpose—it allowed us to attract students we might not otherwise have attracted,” says Monica Inzer, vice president of admission and financial aid. “It helped us build the middle class and it helped us draw more applicants and be more selective.”

She believes the rare combination of being need blind (except for transfers and international students) and meeting 100 percent of need through scholarships, work study and loans, is sustainable in the long-term. The school’s tuition discount rate is about 35 percent, and a student’s average debt after four years is between $17,000 and $19,000, which is below the national average, she says.

“We have more applications than ever, we’re meeting 100 percent of need, we’re admitting the strongest students, and our alumni are very proud of this decision and have contributed the money to sustain it,” Inzer says.

Nearby Vassar College in Poughkeepsie, New York, also is need blind and meets full need. With about 2,450 students, Vassar aggressively recruits students from diverse backgrounds and who are low-income, President Catharine Hill says.

And there are no loans in financial aid packages for families earning $60,000 a year or less, which is about the median U.S. income. But across higher education—as in the wider economy—the pressure is increasing on middle- and low-income families, Hill says.

The increase in tuition at once-affordable, high-quality public schools is a concern, though Hill believes middle class families are still finding a way to send students to college. “What’s important about that is if they choose a less expensive school, they may be going to a school that isn’t spending as much per student,” Hill says. “So in the end, they’re paying less but also getting significantly less.”

Deeper applicant pool

A lot of already impressive numbers are trending even higher since Franklin & Marshall College in Pennsylvania increased its investment in need-based aid in 2008 and then phased out merit scholarships a few years later, President Dan Porterfield says.

The shift has brought a stronger applicant pool, and that has driven a substantial increase in funds raised for financial aid. The school raised more than $5 million last year—its best result ever and a nearly 50 percent increase from 2012.

“By responding to every student’s need, by charging what people can afford to pay, we are able to have a deeper student body because we have more aid resources to spread around to more students,” he says. “Investing in a robust need-based budget, combined with effective student recruiting, has proven academically and fiscally to be the smart thing to do.”

Franklin & Marshall meets 100 percent of a student’s demonstrated need through financial assistance, loans and work study. The number of students receiving need-based aid has risen from 37 percent in 2008 to 56 percent this year. The need-based aid budget has gone from $5.8 million in 2008 to $13 million this year, Porterfield says.

At the same time, the average SAT score of incoming students has risen steadily from 1271 in 2006 to 1313 this year, he reports. During the same period, the percentage of students receiving Pell Grants has risen from 8 percent to 22 percent. And the number of students identifying as belonging to a community of color has doubled. For the first time, the college’s acceptance has been below 40 percent for four straight years.

“We’ve also used our aid increases to reduce or hold in check the cost-growth for middle-income-bracket students,” Porterfield says.

Proof of success is that the average debt for students graduating has dropped from $33,000 in 2012 to $27,500 for the class of 2014, he says. The number should fall again next year. Also, students receiving need-based aid have a higher GPA than does the student body as a whole. Students receiving Pell Grants have the highest first-to-second year retention rate at the school.

“I would encourage other presidents, provosts and chief business officers to explore carefully the business and academic cases for increasing their investment in need-based aid,” Porterfield says. “For F&M, that investment is paying enormous dividends.”

More meaningful merit aid

As Lafayette College’s profile gets stronger and enrollment demand grows, officials are seeing a chance to winnow the amount of merit aid offered, says Gregory V. MacDonald, vice president for enrollment management. The college sets aside about 15 percent of its financial aid budget for merit-based awards. And last year, administrators made the merit scholarship process more intensive and, McDonald says, more purposeful. Students being considered for an award are now invited to campus for group activities and interviews with administrators, faculty, alumni and students, MacDonald says.

“Our merit scholarship program is working because we’re asking more of our applicants,” he says. “We’re not just mailing them a scholarship they didn’t even know they were being considered for.” And after the first year of the program, the results were “spectacular”—the quality of students increased, and the yield rose by 5 percent. Offering merit simply results in a broader applicant pool, he says.

“The numbers of families who are needy but are coming up as no-need based on federal guidelines is growing, and that’s where a strong, purposeful merit program is helpful to those families and to the students of higher ability,” he says.

Philanthropy’s focus

At Dillard University in New Orleans, much of the merit aid goes to low-income students also getting need-based assistance. “On a campus like ours, it’s the same,” President Walter Kimbrough says. “We can provide merit aid because 75 percent of our students are Pell Grant eligible. So when we say we’re providing for merit, it’s for low-income students who’ve done well.”

Looking at the national picture, Kimbrough says he is concerned about increasing amounts of merit aid going to students who don’t need help, and also about the large donations to institutions that offer the assistance to attract affluent families and influence rankings.

“We’ve got to keep working to get philanthropists to understand if you give to an institution that’s really just giving merit aid, you’re only widening income equality,” he says.

The challenge for a school like Dillard, a historically black institution with 1,200 students, is to convince foundations and other donors that need-based aid helps more than just the student receiving it. “If you give to institutions like Dillard, you’re changing the trajectory of generations,” Kimbrough says. “You can help students so they can help stabilize a family and change generations.”

Matt Zalaznick is senior associate editor of UB.

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