Paying the Bill : Merit-Based Aid

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More and more colleges, especially those that seek to build their reputations, are offering aid that is not based on need. Known as merit-based aid, these awards are often given to students in recognition of particular abilities, talents, or other criteria. Recipients may also have financial need, but need is not the basis for the award. There are three major sources of funding for merit awards: states, the colleges themselves, and private individuals and groups. The federal government has no merit awards for undergraduates. Merit grants are often referred to as scholarships.

Colleges have learned that merit aid in the form of a $5,000 or $10,000 scholarship can encourage students with little or no financial need to accept an offer of admission at an institution they might otherwise decline. This kind of “tuition discounting” can help a college increase its yield. A large merit scholarship, often a full ride, extended to a student with an outstanding record may result in a catch for the college—an academic superstar whose presence can help raise standards and contribute positively to intellectual life on campus.

Some less selective public research universities like the University of Oklahoma and Iowa State University have pursued this approach by aggressively targeting National Merit Finalists. These students may receive a generous scholarship if they inform the National Merit Scholarship Corporation that the university is their first choice and if they subsequently apply and enroll. National Merit Finalists usually have stronger academic profiles than the typical enrollee at such an institution and are thus seen as very desirable potential students.

Non-need-based financial aid is a controversial topic in higher education. Some colleges, usually the most selective, argue that all of their aid should be need-based to ensure that financial need is not a barrier for students. Other colleges want to be able to give scholarships to academically talented students with no financial need, while still awarding most of their aid to those with demonstrated need. The debate over the two approaches to aid is sure to continue, and in fact shows signs of intensifying as colleges compete for students with special qualities they seek and as the demand for need-based aid grows in a challenging economy.

Some schools award financial aid based on a combination of need and merit. Before these schools award institutional aid, a student must demonstrate a certain amount of merit based on grades, rigor of courses taken, test scores, and other factors. Students with high need can be admitted and receive only federal aid, because their merit standing is not outstanding enough to receive need-based institutional aid. Other students with high need and high merit might be awarded full need. Boston University and the University of Puget Sound, for example, make awards on the basis of combined merit and need.

I talked to several parents who had not considered private schools because they thought the cost was prohibitive. Well, that’s not always true. The most selective schools don’t give merit aid, but others do. We were really fortunate that our kids were high achievers and worked hard in high school. They got a lot of merit-based aid. - Mother of family not eligible for need-based aid with two children in private colleges

Seeking Scholarships

Scholarships from non-college-based sources are an additional source of financial aid. They represent a very small percentage of the total amount of money available for financial aid overall, but they are definitely worth pursuing. Awarded to students for a variety of reasons—academic achievement, talent, writing competitions—these scholarships are generally sponsored by organizations, foundations, and businesses. Local Rotary Clubs and Lions Clubs, for example, award scholarships to high school students in communities across the country, and some large businesses offer scholarships for their employees’ children. These awards are typically paid directly to a college to offset the cost of attendance. The amounts vary widely, from a few hundred dollars to several thousand. Most are fairly small, maybe $1,000 or less, but even those can add up to make an important difference. Local scholarships typically have fewer students competing for them than do national awards, and hence the chances of winning one are generally higher.

We encouraged our kids to apply for community-based scholarships. They are easier to get because you’re only competing against people from your own local area.  - Savvy parent of freshman and senior

A number of states have their own merit scholarship programs as well; these programs vary in generosity and how they can be used. HOPE scholarships, for example, cover full tuition at any state-supported institution for all Georgia students with a minimum GPA. The Florida Bright Futures Scholarship Program has several options, one of which covers 100 percent of tuition and fees at public or private institutions for Florida high school graduates who meet certain academic and community service criteria and who choose to stay in-state for college.

Although most state scholarships are applicable only to in-state institutions and sometimes to a particular campus, others are more flexible and can be applied anywhere a student chooses to attend.

If a student receives an outside scholarship in addition to a need-based package that contains federal aid, federal law requires that the aid package be reduced by the amount of the scholarship, since financial aid may not exceed demonstrated need whenever federal funds are involved. Colleges are usually willing to substitute the scholarship, dollar for dollar, for all or part of the self-help components of the aid package rather than the gift aid component. This means that although a scholarship will not increase the actual amount of your package, it can make your package more desirable. Colleges vary somewhat in their policies and flexibility with regard to the treatment of outside scholarships, so it is worth asking the financial aid office of each college that admits you how such a scholarship would be handled.

Should You Use a Scholarship Search Service?

High school seniors and their parents often receive letters from businesses offering to help the student find or apply for financial aid. These letters may look very official and suggest that the student and family must participate in a special program to find out about financial aid opportunities.

It is easy to see why such businesses exist. Many families feel overwhelmed by the process of sorting out the many different kinds of financial aid available. A service that promises to ferret out thousands of dollars in awards in return for a fee of a few hundred dollars may seem like a good investment. But is it?

Financial aid experts generally agree that no family needs to pay for help finding financial aid. At best, these services provide information about funding programs that is already in the public domain. At worst, they may be shady businesses that defraud or exploit vulnerable families. The Federal Trade Commission cautions families to be aware of the following approaches that can signal a scam:

• “The scholarship is guaranteed or your money back.”
• “You can’t get this information anywhere else.”
• “I just need your credit card or bank account number to hold this scholarship.”
• “You’ve been selected by a ‘national foundation’ to receive this scholarship,” or “You’re a finalist” in a contest you’ve never entered.

Most financial aid, whether federal, state, or college funded, is awarded through college financial aid offices after you’ve applied, completed your FAFSA and any other need analysis forms, and been accepted. Information about private scholarships is readily available, for free, from many sources. The counseling office at your high school is the first place to look. It can be particularly helpful as a source of information about scholarships awarded by local businesses and community organizations, in addition to national programs. Several Web sites, which make their money through advertising rather than fees, also provide good information about scholarship opportunities. Two sites definitely worth checking out are www.finaid.com and www.fastweb.com.