Colleges Turn to Merit Aid in Recruiting Top Students : Education: Competition and economics drive the trend, study says. Critics fear loss of need-based assistance.

Faced with empty seats and intense competition for top students, colleges and universities are increasingly turning to “merit aid”--scholarships based on high grades and test scores rather than financial need--to lure the best young scholars to their campuses, a new study shows.

The trend, reported by two economists who study college financing issues, is disturbing news for many in American higher education, who fear that more discounting of tuition for the academic elite will shrink the funds available to help disadvantaged students get through college.

“I don’t think that many people are getting hurt yet,” said Morton O. Schapiro, a USC economics professor and co-author of the study. “The danger is the trend. If merit aid is going to squeeze out need-based aid, that is incredibly problematic.”

Proponents of merit aid say there is nothing wrong with rewarding scholastic achievement, noting that colleges and universities for years have recognized top athletes with scholarships and that merit grants can serve as incentives to encourage academic excellence.

But Schapiro and Williams College economist Michael S. McPherson found that spending on merit aid is growing at twice the rate of spending on need-based aid. It increased about 13% a year above inflation between 1983-84 and 1991-92.

In 1991-92, four-year colleges and universities spent about $505 per enrolled freshman on merit awards, a dramatic leap, even after adjusting for inflation, from the $177 spent per student about a decade ago, according to their study, released by the Consortium for Policy Research in Education in New Jersey.

Although private colleges devote more dollars to merit aid than do public institutions--about $742 per freshman compared to $252 per freshman--public four-year colleges are allocating a greater proportion of their total institutional aid budgets to merit awards. The study found that in 1991-92, public colleges spent about 56% of their aid dollars on merit awards, up from 44% in 1983-84.

A major exception is the University of California, which spends the lion’s share of its financial aid budget on students who cannot afford to pay full tuition. But higher education experts worry that the state’s changing political climate--and renewed attacks on affirmative action--could focus greater attention on the idea of awarding scholarships on the basis of academic merit.

Schapiro said the trend suggests a sea change in higher education, which traditionally has frowned on giving money to good students who are not financially needy.

“People have had it beaten into them that a great institution doesn’t give merit aid,” he said. “People still think of it generally as not a good thing. But they do it. The change is in the reality of merit aid. (Colleges and universities) are recognizing the necessity of it now.”

A decade ago, when the college applicant pool was teeming and tuition was stable, there was little pressure to consider merit aid, Schapiro said. Now, changing demographics, rising costs and a new consumerist approach to college-shopping are forcing many institutions to borrow strategies more common in the business world.

Some institutions, such as George Washington University in the nation’s capital and Emory University in Atlanta, see merit aid as a legitimate strategy for enhancing their academic luster.

George Washington now spends about $9 million annually on merit awards, up from about $2 million six years ago. Merit scholarships typically range from $5,000 to $7,500--representing more than a 20% discount off the total annual tuition and fees of $24,000.

Robert Chernak, vice president of student and academic support services, said the increase in merit aid was motivated by the university’s desire to “change our niche in the marketplace and improve our yield” of students whose first choice would be an Ivy League school.

The results have been dramatic. Six years ago, Chernak said, nine students in its entering freshman class of 1,200 were National Merit Scholarship winners. This year, that number is up to 60. The average Scholastic Aptitude Test score has risen 30 points, to 1155, and the number of freshmen who were in the top tenth of their high school graduating class has risen 10%. Applications are up, and the school’s acceptance rate is down.

At Emory, where about 15% of the $19-million aid budget goes for merit awards, the average grade point average has risen from 3.36 in 1983-84 to 3.7 this year, while the average SAT score has increased 80 points, to 1225. And increasing merit aid has not hurt the university’s ability to enroll minorities: African Americans make up 10% of the student body this year, up from 3.3% a decade ago, said Anne Sturtevant, director of financial aid.

At USC, where spending on merit aid has risen 64% over the past three years, the average SAT score topped 1100 this year for the first time in the school’s history. That is a 100-point jump from a decade ago, said Cathy Thomas, director of financial aid. The campus is also retaining more students, she said. College officials attribute those gains in large part to concerted efforts to draw excellent students through merit awards.

Thomas said USC’s spending on merit aid has not come at the expense of poor students, noting that the school continues to meet 100% of financial need requests. About two-thirds of merit scholarship holders also receive grants based on financial need, she said.

At University of California schools, the investment in merit scholarships has been more modest, largely because of the scarcity of funds and a high enrollment demand.

About $9.2 million has been budgeted for merit scholarships this year, up from $6.6 million last year. By contrast, the nine-campus system will spend $130.5 million to fill need-based grant requests.

Kimberly Hart, coordinator of university programs, said the growth in merit aid spending is a result of rising costs and a greater demand for financial aid. In the UC system, merit aid, given mainly through Regents Scholarships, is awarded for a combination of academic achievement and financial need, she said.

Ward Connerly, the UC regent who recently called on the university to reconsider its affirmative action policies, said that merit aid is one of several critical issues facing UC this year “as we try to reorient ourselves and be consistent with what the public wants. . . . There is a perception that we have lowered academic standards and that merit is not important.”

In fact, the figures show that many public universities are using merit aid to lure high-achieving minorities and increase their campuses’ racial diversity.

Still, Roberto P. Haro, a San Jose State professor who has studied the impact of finances on Latinos’ low college-graduation rate, predicted that public debate in California will begin to focus on shifting dollars from need- to merit-based scholarships.

Citing the coming review of affirmative action policies at UC, a proposed ballot initiative that would bar the state from granting preferences based on race and pressures on the California State University system to cut remedial education, he said, “Those are warning signs that people are going to say, ‘No preferential treatment for any group. Make it all based on merit, then there will be a level playing field.’ ”

Schapiro and McPherson say the trend toward more merit aid might have some beneficial social effects. Studies show that the best students tend to cluster at a few institutions, so merit awards give second- and third-rung schools leverage to “buy” top prospects from more prestigious colleges. That, the economists said, could generate a more equitable distribution of the nation’s most talented college students.