Editor’s note:
This piece is part two of a four part series. You can read the rest of the collection here.
Part 1 of this series explained why colleges provide financial aid even to students who appear able to pay the full sticker price. In short, institutions compete for these students. Offering them discounts—often labeled merit scholarships—allows colleges to attract students who generate substantial revenue even if they do not pay the full advertised price.1
Although the practice is widely recognized, documenting how frequently it occurs is difficult because of limited data. This report examines how widespread merit aid for students without financial need has become across different types of institutions.
How merit aid varies across institution types
Using financial aid data from the Common Data Set (CDS) discussed in Part 1 of this series, I examined 722 four-year nonprofit colleges and universities.2 Public institutions are subdivided into those with a flagship or “R1” designation versus other publics. Private institutions are grouped by endowment level: small, large, or very large.3 Data are available for the 2019-20 through 2024-25 academic years.
Figure 1 shows the extent to which colleges in each category provided merit aid in 2024-25. The practice is most widespread at private institutions with small endowments: 64.5% provide merit aid to most of their students without financial need (more than 80%), and only 6.5% offer it to few students (less than 20%). Private colleges with large endowments are next, with 48.8% providing merit aid to most students without need. But public institutions that are not flagships or research intensive (“Other public”) are just as likely as large-endowment privates to offer merit aid to at least 20% of students without financial need (67.7% versus 68.8%).
Private colleges with very large endowments are the only category of institutions that limit their use of such aid. Two factors drive this. First, their large endowments mean they are less dependent on student revenue for their financial health. Second, these institutions are generally highly selective, so they face strong demand from students willing to pay full price.
Collectively, 42.7% of colleges provide merit aid to most students (80-100%) with no financial need and just 26% do so for few (
Merit aid is becoming more common, especially at public institutions
These rates have increased dramatically at public colleges and universities over the past dozen years. One study, using comparable data mainly from 2012-2013, reports that 18% of all public colleges and universities provided merit aid to at least 20% of freshmen without financial need. Figure 1 shows that by 2024-25 the analogous statistics are 54.5% and 67.8% for public flagship/R1 and other public institutions, respectively.
Table 1 documents the change between 2019-20 and 2024-25, comparing full-time first-year students to all full-time undergraduates. The main finding is that merit aid is growing at public colleges and universities. In just five years, the share of first-year students without financial need who received merit aid jumped from 35.7% to 41.0% at public flagship/R1 institutions and from 36.6% to 45.0% at other publics. Public institutions now provide such aid to freshman at roughly the same rate as private institutions with large, but not very large, endowments.
Another striking pattern is that, at public institutions and private colleges with small endowments (often labeled “tuition-dependent”), first-year students with no financial need are considerably more likely to receive merit aid than upperclassmen. At public flagship/R1 institutions in 2024-25, 41.0% of first-year students without financial need received merit aid but only 32.2% of all full-time undergraduates did. Some of that gap reflects rising award rates over time. Today’s freshmen entered a more generous merit aid environment than students who enrolled several years ago.4 But the gap is larger than rising rates alone would explain.
To test whether the gap reflects students losing aid after their first year, I calculated a “continuity rate,” defined as the simulated rate for all undergraduates in 2024-25 if each of the preceding four entering classes kept the award rates they had as freshmen.5 The actual share receiving merit aid is considerably lower than the continuity rate at all public institutions and especially at private colleges with small endowments. This strongly suggests that at least some students who receive merit aid when they enroll lose it as they advance through school.
Merit aid awards for these students are substantial
How much do students with no financial need receive in merit aid? Table 2 shows the average merit aid award alongside the sticker price at each type of institution. The awards are substantial, particularly at private colleges with their higher sticker prices. At private colleges with small endowments, where about three-quarters of first-year students and 58% of all undergraduates without financial need receive merit aid, the average award is $22,623, compared to an average sticker price of $69,457 in 2024-25. That means the average net price paid by students who receive aid despite lacking financial need is $46,834.
At public flagship/R1 institutions, fewer students without financial need receive merit aid (41% for first-year students and 32.2% of all undergraduates without financial need). Those who do receive $7,910 on average.6 In most categories, these awards have fallen after adjusting for inflation between 2019-20 and 2024-25, but sticker prices have also fallen in inflation-adjusted terms, resulting in roughly stable net prices.
These practices make college pricing confusing for everyone
Public discussions of college pricing typically focus on the sticker price, largely because it is the easiest number to find—colleges are legally required to post it. When observers try to correct this focus, they usually point to need-based financial aid. Many students pay less than the sticker price because they qualify for grants based on their financial circumstances.
That is true, but it is only part of the picture. As this report shows, the sticker price is often irrelevant even for higher-income families who do not qualify for need-based aid. The combination of aid awarded to students with and without financial need means that, at many institutions, few students pay the sticker price. In these data, at almost 60% of colleges, fewer than 20% of first-time, full-year students pay the full sticker.7
The result is a pricing system that is opaque for nearly everyone. Lower-income families may not realize how much need-based aid is available to them. Higher-income families may not know that the sticker price often is not binding because of the availability of merit aid. And because merit aid offers vary from institution to institution and student to student, families cannot easily compare prices across colleges until they have applied, been admitted, and received their aid packages. As explained in Part 1 of this series, institutions are responding to the competitive pressures they face. That leaves students and families in the dark about the prices they will actually pay. The next report in this series examines how institutions use such merit aid strategically.
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