NACUBO's Misleading Spin on Merit Aid

With its annual reports on tuition discounting, the National Association of College and University Business Officers (NACUBO) does a great job showing the harm that private colleges are inflicting on themselves through their high tuition, high aid strategies. The organization, however, doesn’t provide an honest picture of how these policies are harming low-income students.

There is a red-hot arms race occurring among selective private and public colleges for the best students they can get, as well as the wealthiest. The richest private colleges and universities -- with billion dollar and even multi-billion dollar endowments -- can afford these practices. However, the vast majority of private colleges have small endowments. As a result, their heavy discounting is putting a lot of these schools at risk, as their net tuition revenue is barely rising. Plus, with so many colleges engaging in the same practices, it's unclear whether schools are deriving much benefit from discounting. As this year’s survey shows, more than half of the schools that provided enrollment data to NACUBO saw their enrollments drop despite their heavy discounting. Ken Redd, NACUBO’s director of research and policy analysis, wrote a great paper 17 years ago predicting the damage these practices would do. The paper was appropriately entitled “Discounting Toward Disaster.”

But while NACUBO does a great job showing how these policies are hurting schools, the group is a bit disingenuous in describing how these policies are affecting students, particularly those from low-income families who can’t afford to go to college without substantial amounts of financial aid.

NACUBO goes out of its way to try to put the best spin on private colleges’ financial aid practices, by counting "merit aid" that goes to financially needy students as need-based aid. It's important to point out that at expensive private colleges, fairly well-to-do students can have some financial need because the prices are so high. So applauding colleges for their commitment to need-based aid because they are giving some of their merit aid money to students with financial need is misleading. Students who come from families making well over $100,000 annually may have some financial need when attending colleges that have a total yearly cost of attendance of $70,000. Colleges should not be praised for using their precious institutional aid dollars to recruit affluent students, while leaving low-income and working class students with large amounts of unmet need – which may make it much harder for them to persist and graduate.

Here, in my opinion, are the three most important numbers in the report that belie NACUBO’s positive spin:

• Only about 41 percent of institutional aid dollars at these schools are solely being used for true need-based aid (where merit is not a factor). That seems like a pretty small share to me, and may explain why so many of these schools (outside the Ivy League and a select group of elite private liberal arts colleges) are "gapping" students, leaving them with large amounts of unmet need. As I reported in my latest Undermining Pell paper, 94 percent of the 824 private colleges I examined charged the lowest income students an average net price over $10,000; 72 percent had an average net price over $15,000; and just about a third of the schools left the lowest income students on the hook for more than $20,000. The average net price is the amount of money students and their families are on the hook for after all grant and scholarship aid is taken into account.
• More than one-fifth of the institutional aid dollars these colleges are giving out go to students with absolutely no financial need. Despite NACUBO’s spin, that’s not an insignificant sum. That’s billions of dollars that could be used to help students who truly need it to be able to afford to attend. Less gapping would very likely mean that fewer of these students would end up dropping out.
• Nearly two-thirds of private college chief business officers NACUBO surveyed reported that they are using "financial aid strategies" as part of their recruiting. That is financial aid leveraging -- meaning that they are using their institutional aid primarily to bring students in, instead of providing aid to those who need it most.

NACUBO does a great service by putting these tuition discounting numbers out and showing the harm that institutions are doing by sticking with their high tuition, high aid strategies. But it’s disappointing that the organization continues to go out of its way to put such a positive spin on how these policies affect students. What is needed is less spin and more straight talk to their members about how damaging their financial aid “gapping” practices are doing to the students who need the most financial help.