One of the greatest privileges of serving as Dean is meeting with alumni of the College of Arts & Sciences who have been very successful in their careers, credit much of their success to their Boston University education, and wish to support our work in educating current and future students. Alumni who received scholarships for their outstanding credentials as high school students are among the most grateful, and often wish to support the financial aid program that funded their studies. Their stories are compelling and heartfelt, regardless of where they came from on the socio-economic spectrum, but especially if they understand their merit-based scholarship to have been the key enabler of their college education. My position on such aid often surprises them, and I find that I have some careful explaining to do to secure their trust and investment in what I believe is the far more important form of scholarship donation: need-based financial aid that can be given to lower-income students who have been admitted to BU (and thus by definition are “meritorious”). Such need-based aid is not only critical for many individual students to attend and succeed at college, but also provides us with the ability to diversify our student body in ways that so-called merit-based aid cannot. It also enables greater social mobility and equity in our society.
The challenge of financing college attendance has increased dramatically in the past three decades, as higher education has become much more expensive relative to other goods. As tuition has risen, the proportion of tuition covered by government-provided need-based financial aid has fallen over the past two decades. This has made the ability to pay a more significant feature in the decision to attend an institution, thereby exacerbating existing inequality in the distribution of educational opportunity. To fill the gap, institutional financial aid has grown with tuition, and now accounts for 47% of the financial aid that students receive across the entire higher educational system. Institutional financial aid policy therefore significantly affects who can afford to attend college.
Institutions can choose to use their scarce financial aid dollars to help defray costs for low-income students, thereby providing them an opportunity to attend college. Or they can choose to offer discounts on tuition in the form of merit-based aid in order to appeal to students who have many options for college enrollment but for whom cost is still a factor, even though their families can afford to pay full tuition. For elite institutions with very large, very high-quality applicant pools, there is little to gain by offering merit-based aid; in fact, because they face a highly inelastic demand curve due largely to the positional value that their degrees confer, they can charge very high prices and still achieve a high yield rate. Boston University is rapidly ascending into these ranks. We can thus choose to use our funds to support the low-income students who increase the social diversity of our student body, which, in a virtuous cycle, also augments our high-quality education and prestige.
A large set of institutions competes for those well-prepared students willing to accept merit-based financial aid rather than attend the highest ranked institution to which they are admitted. Indeed, BU retains two such merit-based programs that we use to attract top-notch students who have many choices: Trustees’ Scholars and Presidential Scholars. Since bringing these outstanding students to a campus improves the ranking of the institution, universities that otherwise could not successfully compete for these students have a great incentive to try harder to entice them. However, institutions who use merit-based aid as an enrollment strategy end up competing amongst themselves by spending more of their limited financial aid dollars for these students, rather than spending it on need-based financial aid or on enhancements to the educational programs of the students they can attract without financial aid. In spending money on this zero-sum competition for students, dollars that could have been invested in educational programs, faculty, and the like are siphoned away for this merit aid arms race. Since this merit-based aid competition is zero sum, it does not improve educational quality system-wide. It is therefore a destructive form of competition from a societal perspective. That is, contrary to what one might expect based on its name, merit-based financial aid lowers educational quality from a system-wide perspective.
This destructive merit-based aid system is especially disadvantageous for low-income students because it raises the cost of attendance for those students who do not receive merit scholarships. Given the competitive environment, many institutions feel they must enter the merit aid competition, often for only slightly above-average students, or risk losing status to those schools that do compete. The influence of the US News and World Report ranking system, which ranks according to criteria that include SAT/ACT scores, creates a highly visible competition that significantly affects the financial success — even the viability– of higher educational institutions. Across the spectrum of higher education, institutions have responded by raising their tuition rates so that they can raise revenue and give larger discounts through merit-based aid. They have also pulled back from need-based aid so that the proportion of students receiving this kind of aid is now less than that receiving merit-based aid. The combination of high cost and little or no aid makes attendance at one of these institutions financially risky if not impossible for low-income students. Students who make the gamble must take on unreasonable amounts of debt. They must take jobs that require them to work long hours that are incompatible with full-time academic success, further exacerbating educational and social inequality.
To be sure, merit-based aid may help an individual institution with lots of financial aid dollars to commit to the project to improve the quality of students and therefore the quality of education at that institution. But moving students from one roughly educationally equivalent institution to another does not improve overall quality within our national system. One institution’s gain is another’s loss. And low-income students are systematically priced out of higher education or forced to seek merit-based aid from a less elite institution than their qualifications would permit.
Compare the merit-based aid strategy with the unmitigated good that need-based financial aid, offered to students who qualify in a need-blind competition, can do. If an institution concentrates its investment on such financial aid, then it can maximize diversity without sacrificing quality. This is especially true for an institution like Boston University that receives so many more qualified applications than it can possibly admit in a given year. By enabling a more economically diverse group of students to attend, the institution reaps the benefits of diversity that I have discussed previously in these notes, by attracting outstanding students from low-income families. A great example of the success of such aid is the new Cohen scholars program, which provides financial aid in the form of full grants for students who are eligible for Pell grants (family income < $60,000). As was announced by President Brown, this strategy enabled BU to increase the number of enrolled low-income students from 14.6% to 18.2%. Furthermore, the additional low-income enrolled students were from the top admissions decision group, meaning they were among the most qualified applicants and likely were choosing among multiple top institutions—and chose BU.
This is the message I try to convey to alumni who are interested in making a contribution to CAS. All of our admitted students are meritorious. They all deserve to be here, but some of them can only attend if they receive aid from us to meet their financial need. And by supporting our ambitious financial aid strategy, you can help CAS advance our fundamental mission of academic excellence.