Increasingly colleges and universities—especially less wealthy private nonprofit institutions—are using merit aid to attract students who could already afford to attend their institution. New research reveals just how much the practice has grown in the last 10 years and how much grant funding goes to wealthier students.
A study conducted by the National Association for College Admission Counseling shows that the proportion of students who received merit aid from their college or university grew faster than those who received need-based aid in the first 20 years of the century.
While the percentage of students who received merit aid rose 19 and 18 percentage points at private and public colleges, respectively, over the two decades between 1999–2000 and 2019–20, the percentage who received need-based aid rose just 10 percentage points at public institutions and declined at private institutions.
In both sectors, white students were more likely to receive merit aid than nonwhite students, and wealthier students received larger total financial aid packages than those in the lowest income bracket. At public institutions, the median total award for the highest-income students was $4,000, versus $3,374 for those in the bottom income quartile, while for private colleges, the median grants totaled $19,214 and $18,200, respectively.
The report drew upon data from the National Postsecondary Student Aid Study, comparing figures from the 2019–20 academic year, the most recent available, to 1999–2000.
The data didn’t come as a surprise to Angel Pérez, CEO of NACAC.
“Colleges are under an extraordinary amount of pressure to meet revenue goals, and if giving a student a little bit more money in merit-based aid is going to net you enough money to meet your revenue goals, then that’s how we got to where we are today,” he said.
A similar study by Phillip Levine, an economist at Wellesley College and Brookings Institution senior fellow who is an expert on financial aid, evaluated how many students with no financial need nevertheless receive institutional aid. Using Common Data Set figures from the 2024–25 academic year, he found that at private institutions with small endowments, 75.2 percent of students with no financial need received aid. The rates hover just below 50 percent at private institutions with large (distinct from “very large”) endowments (46 percent), R-1 public institutions (41 percent) and other public institutions (45 percent).
He also calculated the average awards for these students. For example, a student with no financial need at a private college with a large endowment received an average award of $24,703.
According to Levine, researchers haven’t known how widespread the practice was among institutions. The most recent study on merit aid prior to his and NACAC’s was published over a decade ago by New America’s Stephen Burd.
Administrators at most institutions would agree that providing large amounts of aid to wealthy students is not ideal, Levine said. But he echoed Pérez’s sentiment that it’s often a necessary strategy to meet revenue goals.
“Enrolling more higher-income students provides greater revenue that allows the school to pay their bills. There are only so many high-income students, and when all the schools are competing to attract the same, relatively speaking, limited pool, you start competing down the price,” he said. “That may generate more revenue for you as an institution, but there are definitely equity concerns with that.”
He also noted the practice serves to obfuscate the true price of attending college.
Pérez argued that more governmental and philanthropic funding for colleges and universities is the only way these institutions will be able to turn away from merit aid.
“In an age of decreasing dollars from federal and state governments, in an age where you are also facing a demographic cliff, where you actually don’t even have enough students in the pipeline to higher education, in an age where the majority of students cannot afford to write a check for the full price of tuition and fees, and in an age where the federal government’s policies are working against the ability to enroll international students, who often—not always, but often—do pay full tuition, there are few levers for higher education leaders to pull,” he said.
“Is it good for students and society? No. But I don’t think they’re left with another choice at this point.”
