Merit Aid for Parents

Catherine has kindly offered me the keys to make the occasional post here at KTM. My kids are too young to have issues with math education yet, so I will probably stick to posts about college admissions, which has been a big topic lately. I thought I'd start with a primer on merit aid.

Merit aid is probably the least well-understood piece of financial aid. The entire way that colleges figure out what you will pay is purposely vague anyway. It is based on a sense that a college that costs a lot is perceived to have a high value, while lowering tuition makes a school seem like it is lower in quality. I’m not kidding here – a few years ago, a consultant recommended that to raise our enrollment, we raise our price by 10K per year and raise average financial aid per student by 9.5K. They figured that would actually attract more students by making us look high quality and generous with aid.

The cost of college is adjustable – an institution won’t tell you the real cost until after you have been accepted and they see your FAFSA (which is basically the information on your tax return – imagine if a car dealer asked for that information before you started negotiating!) Most schools have a discount rate, which is the ratio of the real cost to the sticker price, but the published discount rate isn’t meaningful. Instead, the discount rate is different for every student.

So what should a parent understand about this process? First, the largest non-need based scholarships are grouped together as merit aid. You never apply for merit aid specifically. Instead, you are considered for merit aid as part of the admissions process. For the most part, privates give more merit aid as part of so-called enrollment management, though as Catherine noticed, state schools are also starting to compete with merit aid, especially for out of state applicants. Enrollment management is the process of getting a class of students with the desired statistics (grades/scores) that can pay the bills. So a student who is in the bottom 25% of the admitted students will be asked to pay full fare (or full fare minus any federal or other need-based financial aid, but that’s another topic). The admissions and financial aid folks know this person is probably excited to be admitted at all, so will make it work. Another student in the top 10%, on the other hand, has other options and is likely to get a better package with some kind of scholarship.

To some extent, every college wants the same students, but some schools give more merit aid than others. The Ivies and the top liberal arts colleges, which admit ~10% of their applicants, don’t give much merit aid. They don’t have to – even their top 25% applicants are excited to get the admissions letter and they can fill a strong class without discounting tuition.

There is a book out there that discusses all this in more detail, called The Financial Aid Handbook: Getting the education you want for a price you can afford.

If you go to the Amazon link and search inside the book for merit aid, you can get the main points. The Amazon site also lets you look at their list of sixty schools that give a significant amount of merit aid. You will notice that the 75% verbal/math SAT score for most of these schools is 1300-1400. So a student with 650+ SATs and solid grades can potentially score some good deals, although not at schools anyone has necessarily heard of! Also, the 25%/75% SAT numbers are public (although as the CMC scandal shows they may not be totally accurate.) You can see an example here, and find many others at collegeapps.about.com

The final thing parents and students should know is that, within a tier of institutions, you can bargain with financial aid. If Oberlin gives you a better package than Macalester, it is worth seeing if Macalester will match or beat it. However, Yale will not be impressed by an offer from Oberlin, but would try to match or beat an offer from Harvard or Princeton.