Redefining Aid Choices

Should colleges be credited for helping students with financial need, even if their aid policies aren’t explicitly designed to do so? That’s a question that a new survey from the College Board raises, and critics can reasonably disagree on the answer.

Private college presidents have for years defended the practice of tuition discounting in the form of merit aid, saying much of the support they provide inevitably winds up in the hands of students who also have financial need. A new report from the College Board, titled "Tuition Discounting: Institutional Aid Patterns at Public and Private Colleges and Universities," lends credence to that argument. Indeed, the report notes that the largest portion of discounting aid – 64 percent – was “meeting need” at private four year colleges in 2007-8, even if the discounts were provided without consideration for a student’s ability to foot the bill.

Tuition discounting has become prevalent at private colleges, which often place the sticker price of attendance beyond the reach of many families, only to “discount” that price by offering institutionally funded financial aid to many or, more typically, most students. Critics of the practice say it steers institutional aid dollars toward students who could pay more, while also artificially inflating the sticker price of many colleges.

While discounting has remained relatively steady at public institutions, the College Board’s survey shows the practice remains on the rise at private colleges. The discount rate, which illustrates the gap between a college’s published price and the amount of tuition and fees it actually collects from students, is estimated at 33.1 percent for 2008-9 at private colleges, up from 28.6 percent in 2000-1.

Private colleges typically lure freshmen with even higher discounts than are offered to returning students, and a recent survey from the National Association of College and University Business Officers placed the 2008 freshmen discount rate at 42 percent.

Citing a lack of reliable data, the College Board did not include athletic scholarships and tuition waivers in its calculation of the percentage of discounting going toward need or merit aid. Sandy Baum, one of the authors of the survey, said the survey includes these aid dollars in a separate category because colleges often do not track whether students who receive this type of aid have demonstrated financial need. Even so, other surveys often consider these dollars “non-need based,” because they are given without regard to need.

Distribution of Total Discount Rate by Type of Discount, 2007-08

Source: College Board

The College Board’s approach to deciphering the true percentage of institutional aid going toward students with demonstrated need illustrates an interesting tension within higher education. Some would argue an institution’s priorities are best measured by the amount of aid they intentionally steer toward students with financial need, while others say the more pressing issue is whether students with need get help – even if they got help because of academic merit or other non-need based criteria. Baum, senior policy analyst with the College Board, falls into the latter camp.

“We don’t care what it’s called,” she said. “We care who is getting the money.”

From a recruitment perspective, colleges may also have good reasons for calling aid “merit-based,” even when it often goes toward students with financial need.

“If you say to a kid ‘Here is money because you’re poor,’ it might not make them as happy as saying ‘Here’s money because you’re smart,’ ” Baum said.

Private colleges remain the biggest discounters, but the report details the extent of the practice in the public sector as well. The average discount rate for public four-year colleges was 17.6 percent in 2007-08, and public two-year colleges had an average rate of 12.6 percent, the survey found.

The use of discounting in public institutions raises a “much bigger public policy question,” Baum said.

“The issue should be what’s the mission of public higher education, and why is it that they need to attract students with higher test scores [through discounting],” she said.

It is worth noting that more students will have demonstrated need as tuition rates escalate, at least during a period when incomes are not rising in tandem. Average published tuition and fees for private colleges, for instance, rose to $27,139 in 2008-09, up from $16,344 – a 66 percent increase – in 2000-01. At an average of $6,811, public four-year colleges posted significantly lower tuition and fees than privates in 2008-09, but that still marked an 88 percent increase from eight years earlier.

When discounting came into vogue, the theory among private colleges in particular was that the practice could help bring in high-achieving students who would raise the profile of an institution and attract more full-paying students who could help subsidize others. But that wasn’t a lasting proposition once discounting became so commonplace, said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

“There was a sense in which the very first institutions that engaged in this practice did in fact move up the food chain,” he said. “The problem is, the next thing you know everybody and their uncle is doing it, and you are not really likely to leapfrog among your peers [once discounting is commonplace]. And the net effect is that hundreds of millions of dollars of resources are being distributed to people on the basis of attributes other than their unmet need.”

And if that merit aid still ends up in the hands of students with financial need?

“It may overlap with need just on a random basis, but that doesn’t make it a sensible student aid policy,” Nassirian said.

Jane Wellman, who heads the Delta Project on Postsecondary Education Costs, Productivity and Accountability, said it makes sense to drill further into whether students with financial need receive aid traditionally labeled as “merit aid.” Even so, the fact that some merit aid ends up in the hands of students with need doesn’t reveal much about institutional priorities, she said.

“You would not conclude from this [data] that financial aid is being used strategically to meet the goal of access,” Wellman said. “It shows there’s a lot of aid that’s going on in a blended category that requires new language.”