A new report revealed that colleges and universities are using merit-based aid to attract students who can already afford tuition. The report exposes how much this practice has grown over the past decade and how much grant funding now flows to wealthier students.
Charity funds: Merit aid grows faster than need-based grants
This was revealed in a study by the National Association for College Admission Counseling (NACAC). It says the proportion of students receiving merit aid grew faster than that of those receiving need-based aid between 1999–2000 and 2019–20.
At private colleges, the percentage of students receiving merit aid rose by 19 percentage points over the two decades. At public institutions, it rose by 18 points.
In contrast, the percentage receiving need-based aid increased by just 10 points at public colleges. However, it actually declined at private institutions.
White students were more likely to receive merit aid than non-white students across both sectors. Wealthier students also received larger total financial aid packages than their lowest-income peers.
At public institutions, the median total award for highest-income students stood at $4,000, compared to $3,374 for those in the bottom income quartile. At private colleges, median grants totalled $19,214 and $18,200, respectively.
The report drew data from the National Postsecondary Student Aid Study. It compares the 2019–20 academic year, the most recent available, with 1999–2000.
“Colleges are under an extraordinary amount of pressure to meet revenue goals. If giving a student a little bit more money in merit-based aid nets you enough revenue to meet your goals, then that’s how we got to where we are today,” said Angel Pérez, CEO of NACAC.
Wealthy students without financial need receive large awards
A separate study by Phillip Levine, an economist at Wellesley College and a senior fellow at the Brookings Institution, evaluated how many students with no financial need still receive aid.
Using Common Data Set figures from the 2024–25 academic year, Levine found that at private institutions with small endowments, 75.2 percent of students without financial need received aid. The rates hover just below 50 percent at private colleges with large endowments (46 percent), R-1 public institutions (41 percent), and other public universities (45 percent).
He calculated average awards for these students, at a private college with a large endowment, a student with no financial need received an average of $24,703.
Levine noted that researchers have lacked clarity on how widespread the practice is. The most recent major study before his and NACAC’s reports came over a decade ago from New America’s Stephen Burd.
Levine acknowledged that most administrators would agree that providing large aid packages to wealthy students is not ideal. However, he echoed Pérez’s view that the strategy often proves necessary to meet revenue goals.
“Enrolling more higher-income students provides greater revenue that allows the school to pay its bills. There are only so many high-income students, and when all the schools compete to attract the same limited pool, you start competing down the price. That may generate more revenue for your institution, but equity concerns definitely accompany that,” Levine said.
In a recent development, the United Kingdom has launched a plan to channel funds to charities in England’s most disadvantaged communities. The plan will enable the wealthy in British society to give back to communities that need help the most.