Scholarships and financial aid

My oldest child is going to be a frosh at American University in the Fall; she wanted to go to school in NY City or DC and is thrilled. We visited many schools, and it was fascinating for me to tag along and watch schools pitch students and families because I spent five years directing the Benjamin N. Duke Scholarship* at Duke–so was very much used to pitching Duke to students with many good options.

Several things became clearer about the opaque nature of college admissions and financial aid/scholarships for me while watching/assisting my daughter navigate these choices.

Universities offered my daughter extremely divergent amounts of scholarships, both merit awards offered via specified competitions (based on a weekend of interviews, etc), as well as money offered under the guise of a variety of names granted outside of an overt scholarship competition, and communicated at the same time that need based aid was denied. Lesson: apply for financial aid even if you know you will be denied.

Duke has a tuition benefit that has a fairly complicated structure but that roughly makes an expensive private University cost $30,000 instead of $60,000 +/-$5,000 depending on tuition versus room and board costs at a given school. This means that a University offering a scholarship simply replaces Duke’s tuition benefit up to its maximum amount. In two cases, my daughter was offered more money than the benefit, which would let me not “use” the benefit and save it for my other two kids (the Duke benefit is limited to two children). One University explicitly discussed this with me (wanting to know how much aid it would take for her to attend sans Duke’s benefit, thus saving it for one of my other kids). Lesson: talk to the financial aid folks at schools.

Back to the other side of the table, I had lunch today with a B.N. Duke scholar that I recruited to Duke several years back. S/he was picking between Duke, Princeton and Harvard. Upon being offered the B.N. Duke, this was communicated by the family to the other schools who upped the financial aid amounts offered (they do not have ‘merit’ scholarships). However, there were limits to what they offered (my experience is that this sort of ‘counter’ depends on the school and how bad they want the student), so the family was faced with a cost of very near zero to attend Duke versus lets say half price at the others (~$120,000 over four years). This family had income in the $150,00-$175,000 AGI territory, and lets say an underwater mortgage on their house. This is precisely the family income range/financial situation at which a scholarship like the B.N. Duke has the maximal recruitment effect.

Lets imagine a different student with family AGI of $40,000 who wins a B.N. Duke. They are going to be getting full financial aid from Harvard and Princeton and everywhere (including Duke, even without a B.N. Duke) if they are the type of kid who wins a B.N. Duke. In such a case, the recruitment effect of the B.N. Duke (or any other scholarship) is greatly reduced for a family with relatively low income; they are going to go to college gratis anywhere they want; they may pick Duke, but it won’t be because of money. And Harvard reports that its yield is 82%; that means Duke has a less than 1 in 5 chance of yielding a kid who is also admitted to Harvard if Duke is average against Harvard. The student I lunched with today came to Duke because of the scholarship (and is thrilled with, and has thrived at Duke).

One of the knocks on merit based aid is that it mostly provides money to families that don’t need the help as much as others. I basically agree and it has been proven to be correct in my experience. However, Universities are responding to incentives by using merit aid to recruit students who otherwise would be less likely to attend. And the maximum impact can be brought to bear on families just above the financial aid cut offs (~$150,000-$200,000) for places like Harvard, Princeton, etc.

Since the B.N. Duke is for kids from North and South Carolina only, we are able to recruit the parents directly as well, since most of them brought their child to campus for a scholarship weekend and we hosted them for dinner. Having a personal connection with the parents is a big advantage that the other scholarships at Duke don’t have (because the students come from all over the world, typically). Hence, the B.N. Duke could be expected to have a higher yield that the other Duke scholarships, which is borne out in most years.

In the end, if you want to provide more money to students based on financial need, that argues for a place like Duke to get rid of merit aid and put it all in needs-based pots of money. However, if you want to recruit kids away from Harvard, merit aid targeted towards families in the $150,000-$200,000 income level is the way to go. A merit scholarship is a surprisingly difficult way to recruit a top student from a low income family to a place like Duke.

*These are my personal thoughts and don’t reflect those of others at the University, or in the scholarship program(s).

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

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