Michigan State University ranked fourth for most increased merit-based financial aid in 2017 with about $53 million since 2001, according to a report by Stephen Burd, senior writer and editor with the Education Policy program at New America, a think tank.
In 2001, excluding federal and donor-funded scholarships, MSU only pledged need-based financial aid.
MSU dedicated more than $68 million towards non-need-based, or merit-based, aid for the 2019-20 school year.
There are a variety of reasons why universities increase their merit aid dollars, Burd said, with state budget cuts among one of the highest.
“I think that state budget cuts have led colleges to have to find alternative revenue sources,” Burd said. “So they look more and more to out of state students. Because it’s so competitive to get the types of out of state students they want, who tend to be wealthy, it becomes almost an arms race, where schools have to give out more and more non-need-based aid to get them.”
However, Burd said that the U.S. News national college ranking system also helps persuade prospective students to attend. MSU is ranked 84th in National Universities and 34th in Top Public Schools.
“Rising up the U.S. News, in a lot of ways, encourages you to get wealthier students with better SAT scores, to get a better ranking,” Burd said. “So schools will say, ‘We’re just reacting to state budget cuts. It’s not our fault. It’s the state legislators.’ And there’s some truth to that, but at the same time they’re chasing rankings.”
Merit-based aid dollars have been steadily increasing since 2003, when MSU first began to offer institutional merit-based aid, Burd said. Although the majority of aid dollars go to need-based aid, this percentage has plummeted from 89% to 61%.
“That means that they’re leaving ... people who have financial need with bigger and bigger funding gaps,” Burd said. “Which means that those students have to find other ways to get money, and a lot of the time that means that people have to take on work at jobs outside of school which can be very distracting to getting through school.”
Merit aid surpassed need-based financial aid briefly during the 2005-06 school year. Although more aid dollars were committed to need-based aid in the following school year, the merit aid kept increasing over time.
MSU’s increase in merit aid puts students who have financial need at risk of not receiving the aid they need to get through college, Burd said.
“Non-need-based aid, in a lot of cases, is tuition discounting,” Burd said. “And even if it’s a few thousand dollars or whatever they take off the tuition for fairly wealthy students, they’ll still bring in a lot of revenue. And so our concern is that there are fewer seats available for in-state lower-income students and that there are fewer aid dollars available as well.”
Some students worry about what would happen to their financial aid if universities got rid of merit-based aid since they don’t demonstrate high financial need on the federal level.
Federal financial need is calculated through the Expected Family Contribution, or EFC, which means students can be financially needy and still have a higher EFC, Burd said.
“I don’t really buy the argument that middle-income students are left out in the works if you just go by financial need,” Burd said. “Basically, because the costs are so high, a lot of middle-income students have a lot of financial need as well, so merit aid ... is not the only thing that is available to them.”
Burd said the issue with merit-based aid is money typically goes towards wealthier students.
“The people that non-need-based aid is really helping are majorly the upper-middle-income students from the suburbs and wealthier,” Burd said. “A lot of times I feel like in these discussions, people try to pit low-income students against middle-income students to try to say, ‘merit aid is for middle-income students.’ ... Pell grants are the strictest as to who can get them ... but institutional aid, there’s a lot more room, and so colleges could be giving money to them.”
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Unless the reasons for increasing merit aid change, there’s a possibility that this increase will continue in all universities, including MSU.
“There have been some signs of a couple of schools where they are taking another look at this because they are finding that there are too many people are dropping out because they’re not meeting enough need,” Burd said. “Overall, all the incentives are still in place to keep ratcheting up the amount of non-need-based aid they give.”
