Breaking the Southern Mold on Merit-Based Scholarships

_{In this Oct. 6, 2014 file photo, students and others gather in front of Old Main at the University of Central Arkansas in Conway, Ark., to hear former President Bill Clinton, center, and Democratic political candidates speak Monday, Oct. 6, 2014. (AP Photo/Danny Johnston, File)}

RCEd Commentary

State merit-based higher education scholarships, while popular with voters, are among the least efficient and least equitable ways to spend public money on higher education.

They spend heavily on students who would likely finish college anyway and magnify quality gaps in K-12 education by channeling funds to graduates with strong high school backgrounds, while leaving out those who have not had comparable opportunities.

Across the South, merit-based scholarships funded by state lotteries have proven hugely popular with voters and legislators. Most are modeled after Georgia’s “HOPE” program, offering generous scholarships to students based on high school grades and standardized test scores.

Despite their popularity, merit-based scholarships have been criticized by fiscal conservatives as ineffective at reducing costs and by liberal groups for failing to adequately increase college access for poor and minority students. Both are right, which is why merit-based scholarships cannot be counted on to meet future workforce needs.

This is evident in places like Arkansas, where the higher education coordinating board acknowledges the systemic flaw and seeks changes in its new master plan for higher education – Closing the Gap 2020. The plan would earmark 25 percent of the state’s grant aid for students who otherwise could not afford higher education. The plan still has to be approved by the state legislature. While it is bound to be unpopular with some, the direction it suggests is the best way to improve educational outcomes for all Americans.

Even without its merit-based aid program, Arkansas provides substantial public support to students at all income levels, averaging about $7,650 per student at public institutions according to the State Higher Education Executive Officers Association. That is a little more than the national average of $6,550. Most of that is an “invisible scholarship,” money provided to institutions to hold down resident tuition rates that otherwise might soar. (Just look at private college prices or out-of-state tuition rates in most states.) Tuition at public four-year institutions in Arkansas runs about $1,500 below the national average. This is a huge benefit to the state’s middle class since everyone admitted to a public institution gets the subsidy regardless of grades or family income. 

Then there’s the part of Arkansas’s investment that goes directly to qualifying students as financial aid. According to the most recent survey by the National Association of State Student Grant and Aid Programs, Arkansas spends about $1,070 per undergraduate resident student on financial aid, primarily through Academic Challenge Scholarships funded by state lottery profits. This compares to an average of $710 per student across the nation.

But the use of standardized test scores instead of income to qualify students diminishes the program’s impact. Arkansas requires a score of 19 on the ACT to qualify for merit-based state-funded scholarships, but has no minimum income requirement. That means many receive the award who would likely graduate anyway, while a big part of the population where aid could have the biggest impact is left out. Students with somewhat lower test scores have good odds of completing a degree – but only if they can afford it. Nationally, most students from high-income families who score 15 to 18 on the ACT complete a college credential of some type within six years. Most low-income students with similar scores do not. For them, eligibility for financial aid is more likely to tip the balance.

Arkansas should spend its limited public funds carefully to educate more citizens for an ever-changing workforce. Based on U.S. Census data and analysis by the Georgetown Center on Education and the Workforce, Arkansas will need about 236,000 more residents with higher education credentials to meet its 2020 workforce needs. Other states face similar gaps.

These gaps—in Arkansas and across the nation—cannot be closed without focusing on low-income students. Nationally, half of public school students currently qualify for free or reduced-price lunches. In Arkansas, it’s 61 percent. All states also need to do a better job of getting minority students, many of whom are low-income, into and through postsecondary programs. In 2014, 46 percent of whites ages 25 an older nationwide had a postsecondary degree. But only 23 percent of Hispanics and 33 percent of blacks had earned an associate degree or higher.

Applying a quarter of Arkansas’ available financial aid to help needy students could seem modest on the surface. But the $35 million the state would spend to support disadvantaged students would be a four-fold increase and a critical step toward increasing the effectiveness and equity of the state’s investment.

While many continue to debate the value of merit-based aid programs, it is clear that poor and minority students often lack access to the high-quality K-12 schools that prepare students well for college. That doesn’t mean they can’t succeed in higher education when given the chance; but it does make it more difficult for them to get the financial aid that could enable success. And especially with the fate of affirmative action so uncertain, need-based aid is a race-neutral way to address current and historical inequities in the education system.

“Closing the Gap 2020” is a necessary change that will help Arkansas build the qualified workforce it needs. Other states in the region should follow suit.