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Why do colleges offer merit scholarships?

QuietThinkerQuietThinker Posts: 145Registered User Junior Member
Hi, As a parent I am glad that many colleges offer merit scholarships for good students. But what is the true reason for these colleges to be offering scholarships? I thought a college is a business like everything else. Why do they care so much about attracting top students or their rankings? Money is money whether it comes from a student with a 3.9 high school GPA or 3.0 GPA, right? I used to wonder why many colleges go to great lengths ( kudos to them, however ) to offer full rides to NMFs and the like. It almost seems like some colleges are bribing their way to go up the rankings.
Post edited by QuietThinker on
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Replies to: Why do colleges offer merit scholarships?

  • mom2collegekidsmom2collegekids Posts: 63,261Registered User Senior Member
    Money is money....but, it's not just a situation that money from a low stats student is just as good as money from a high stats student.

    Schools need money from ELSEWHERE...grants for research, money from alumni, etc. Tuition money is only a fraction of incoming cash.

    rankings and prestige help bring in that OTHER money.


    It's a domino effect....build, offer merit, attract students, attract profs, get more research dollars, make donors/alums happy, rankings rise, more money comes in, more apps come in, etc, etc.
  • sdg144sdg144 Posts: 12Registered User New Member
    I agree with the answer above. I'll also add: be wary of schools that offer merit aid. Often times these schools are trying to boost their rankings and merit aid is a way to use students as a tool to do so. Sometimes merit scholarships scream I can't attract the best student's on my own so here's a coupon. Plus, a lot of prestigious colleges have or will begin phasing merit aid out, because these scholarships almost always prove detrimental to a college's diversity (another part of rankings).
  • 2collegewego2collegewego Posts: 2,585Registered User Senior Member
    ^^ I don't believe US News & Wrld Report uses diversity in its ranking. Can you please tell me what ranking system includes diversity?
  • TomSrOfBostonTomSrOfBoston Posts: 1,250Registered User Senior Member
    Merit aid is a boon to "donut hole" families: too rich to qualify for need based aid, not rich enough to write out a check for $50,000/year. And not all donut hole families are white, as sdg144 seems to think.
  • Ana1Ana1 Posts: 416Registered User Member
    High test scores/NM students are important because Moody's and the other credit agencies use them to determine a school's credit and bond ratings. In order to evaluate the school's ability to attract future applicants to maintain an x total enrollment, it has to demonstrate to the credit agency data to show its desirability. Rankings is one of the indicators used. Schools do not park the endowment in cash, nor do they spend their own money for all the capital improvements they do.

    From S&P:
    "Rating Factors
    Demand (higher education is a consumer product), Management, Finances, Debt

    Demand as a Rating Factor

    Institutional niche/mission
    Enrollment trends
    Admissions flexibility (acceptance rates, matriculation rates, retention, student graduation rates, freshmen, transfers, and graduate/professional students)
    Student Quality (standardized test scores, freshmen in top 10-20% of high school class, retention rates, graduation rates)
    Competitive profile (win/loss statistics, overlap pool, pricing compared with peers)
    Market responsiveness
    Ignore commercial rankings—like U.S. News


    AAA Ratings
    Amherst College, MA
    California Institute of Technology, CA
    Columbia University, NY
    Dartmouth College, NH
    Harvard University, MA
    Massachusetts Institute of Technology, MA
    Princeton University, NJ
    Stanford University, CA
    Yale University, CT
    Grinnell College, IA
    Pomona College, CA
    Princeton Theological Seminary, NJ
    Rice University, TX
    Rockefeller University, NY
    Washington University, Mo
  • oldfortoldfort Posts: 17,181Registered User Senior Member
    Merit aid is used to buy talent, which in turn would bring up the school's admission stats, and improve its ranking.
  • MD MomMD Mom Posts: 6,728Registered User Senior Member
    About sdg's coupon comment...Some schools have big endowments and merit scholarships present one way to use that money.
  • entomomentomom Posts: 23,658Registered User Senior Member
    college's diversity (another part of rankings)

    What rankings are you referring to? Not USN & WR:

    Methodology: Undergraduate Ranking Criteria and Weights - US News and World Report

    x-posted w/2collegewego
  • annasdadannasdad Posts: 4,825Registered User Senior Member
    I think there are probably several reasons. The rankings issue that previous posters have mentioned is an unfortunate fact, I'm afraid, but I don't think that's all of it.

    One is to make people think they're getting a bargain. Instead of charging what they really require to keep the doors open, some may artificially boost that, then give essentially everyone a big scholarship discount. Instead of pegging COA at $30,000 (for example), peg it at $45,000 and offer automatic $15,000 "discounts" to everybody. "College X must really want my kid, they're offering her a ton of money to go there!"

    And of course if your competitor is doing it, then you're pretty much forced to do the same.

    But I think there are other reasons, too. I don't buy the argument that colleges are just like businesses. The public universities were established with the goal of making college affordable, even for those who cannot afford private schools. Many, perhaps most, of the private schools were founded by churches who did so partly to prepare future church leaders, but also because they considered providing an education to be part of their mission. I have no doubt that in both cases, some of that initial altruism has been lost - colleges are reflective of our society, which has become more money-focused over the last half century - but I think there are still traces of the original understanding of the college's missions; and with it, a dedication to help truly gifted students afford an education.
  • Ana1Ana1 Posts: 416Registered User Member
    ^Just google "credit ratings institutions of higher learning" and there are tons of reports from credit rating agencies, articles for college management that explain in detail that everything has to do with $$ratings and how to improve the institutions ratings, and the problems for public and private colleges. Do not forget that merit does not have anything to do with need. A gifted student who gets the AB Duke scholarship would had their need covered in any ivy or Duke, but Duke tries to attract that gifted student from the ivies since it knows that if all things are equal, the student would choose the ivy.

    Among Moody's top five factors that support a rating upgrade it lists:
    "Sustained improvement in market position and brand identity, and growth of balance sheet wealth, including enhanced fundraising."

    "Why are Credit Ratings important to us? First, management cares deeply about them: an institution’s creditrating helps to determine the cost of borrowing. As a result management decisions are often made with an eye towards improving or maintaining a high credit rating.

    Credit Agencies Offer Working Definitions of Financial Distress
    5 warning signs of financial distress:1) Declining Enrollment"
  • mom2collegekidsmom2collegekids Posts: 63,261Registered User Senior Member
    One is to make people think they're getting a bargain. Instead of charging what they really require to keep the doors open, some may artificially boost that, then give essentially everyone a big scholarship discount. Instead of pegging COA at $30,000 (for example), peg it at $45,000 and offer automatic $15,000 "discounts" to everybody. "College X must really want my kid, they're offering her a ton of money to go there!"


    ^ This goes on a lot at many of the lower ranked privates. They increase their tuition to match the "big boys" and then hand out awards to nearly all that apply.

    This reminds me of a pricey music program that a certain private univ offers in the summer. The cost used to be about $3k for about 6 weeks. Then they increased it to about $4500 and began offering $1500 "merit scholarships". The recipients and their parents were flattered and the school started getting more students enrolling. Obviously, the scholarships were never funded because it was just an accounting game.


    That's not what's going on when schools are awarding big merit to top students. Those scholarships are funded.
  • sylvan8798sylvan8798 Posts: 4,445Registered User Senior Member
    sdg144 wrote:
    I agree with the answer above. I'll also add: be wary of schools that offer merit aid. Often times these schools are trying to boost their rankings and merit aid is a way to use students as a tool to do so. Sometimes merit scholarships scream I can't attract the best student's on my own so here's a coupon. Plus, a lot of prestigious colleges have or will begin phasing merit aid out, because these scholarships almost always prove detrimental to a college's diversity (another part of rankings).
    Your post doesn't really support your contention that people should be wary of schools that offer merit aid. Nor have you provided any evidence (or even a supporting argument) that such scholarships do or might prove detrimental to a college's diversity.
  • fireandrainfireandrain Posts: 3,464Registered User Senior Member
    When discussing merit awards internally, colleges don't call these merit awards -- they call them "tuition discounts." They offer discounts for the same reason retail stores do -- to get you to buy their product and feel good that you are getting a great deal.

    From the college's perspective, while they are giving you a $10,000 discount, they are still getting a $35,000-$45,000 check from you, guaranteed for four years.

    The merit aid is all part of enrollment management. Read this article that ran in Atlantic several years ago; it's an eye-opener: The Best Class Money Can Buy - Magazine - The Atlantic
  • laticheverlatichever Posts: 1,126Registered User Senior Member
    If a school offers merit aid, it doesn't mean it's not a good school, but it probably means that it's not at the very top of the ratings. I don't believe that any of the top 30 or so ranked schools (US News) offer merit aid. Closely related to no merit aid is the fact that none of these schools have honors programs--which are another means to attract students above the normal average for the institution. At the top ranked schools, there is the attitude that everyone admitted is equally meritorious--both in terms of aid an academic program.

    But in some specialized cases even a top school will use aid for competitive reasons. A few years ago, the Yale School of Music (a graduate school) received a donation of $100 million for the purpose of eliminating tuition. Yale is elite in music, but wasn't Juilliard. Suppose you are a top musician. You are now presented with this question: Do I want to go to Juilliard and pay $33,000, or Yale for free? Increasingly, Yale has become the answer. (Note: Juilliard has an undergraduate BFA, and Yale doesn't.)
  • WaverlyWaverly Posts: 2,669Registered User Senior Member
    Notice few top colleges offer merit. They don't need to. Mostof the rest would have a hard time filling up with full pays. Merit money has become a discount to get closer to state school prices for the middle/upper middle class who can pay a fair amount, but not the $60K many privates are charging.
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