Aid Lets Smaller Colleges Ask, Why Pay for Ivy League Retail?

- New York Times 01/02/2006 01:57 AM

January 1, 2006

Aid Lets Smaller Colleges Ask, Why Pay for Ivy League Retail?
By ALAN FINDER

MEADVILLE, Pa. - Lindsey Mackney's choice of colleges came down to two very different places: Boston University, with its urban appeal
and lively youth culture, or Allegheny College, a small, friendly liberal arts institution here in the rolling hills of northwest Pennsylvania.

But in the end, Ms. Mackney said, the decision was simple. Boston, where tuition is now $31,530 a year, offered her no financial aid, while
Allegheny awarded her a $50,000 merit scholarship, or $12,500 a year. That amounts to nearly a 50 percent discount of Allegheny's $26,650
tuition.

Squeezed on one side by state universities, whose tuition is a tiny fraction of what private colleges charge, and on the other by elite private
institutions like Yale, Princeton or Amherst, private liberal arts colleges like Allegheny are routinely offering merit aid to students these days.
Such scholarships are particularly pervasive in the Midwest, where many liberal arts colleges award them to as many as half or even three-
quarters of their students.

The grants are not based on the traditional rationale of a family's financial need, but on academic achievement and the desire of colleges that are
not among the nation's most prestigious to recruit high-achieving students. Sometimes, too, less elite colleges award merit aid simply to fill
their freshman classes.

The result is a college pricing system that can feel as varied, or even mysterious, as buying airplane seats, with students sometimes shopping
for the best deal. University officials, defending the era of $30,000-a-year tuitions, speak of a "sticker price" and "discount price" and note that
many students do not pay close to the full costs of tuition.

"I call it a designer education at a discount price," said Margaret L. Drugovich, vice president of admission and financial aid at Ohio Wesleyan
University in Delaware, Ohio. "People have come to expect it."

So prevalent has the practice become that over the last decade, the amount of money granted in merit scholarships nationally grew to $7.3
billion in 2004 from $1.2 billion in 1994, said Kenneth E. Redd, director of research and policy analysis at the National Association of Student
Financial Aid Administrators.

The amount of need-based assistance has also grown, though at a slower rate. Need-based grants, including those from private universities and
from the state and federal governments, increased to $39.1 billion in 2004 from $18.6 billion in 1994, a 110 percent increase, Mr. Redd said.

Officials at midlevel liberal arts colleges say that as tuition costs rise, they have to use merit scholarships and other aggressive strategies, like
waiving admission fees or paying partial airfare for some applicants' campus visits, to hold on to their precarious niche in American higher
education.

The most prestigious private universities and colleges, which are swamped in applicants, seldom offer such aid.

Some private colleges and universities ranked just below the dozen or so most selective institutions offer it only on a limited basis. These
institutions, large and small, tend to use merit aid to try to lure very talented students, which can enhance the statistical profile of their freshman
class, on measures like average SAT scores, in the hope that this will move them up in college ranking guides.

But for less elite institutions, merit aid has become a critical tool to thrive and, in some cases, to survive, particularly as the rising cost of
college has strained middle-class and even upper-middle-class families.

"They have to do this because the competitive pressures are just so enormous," said Robert A. Sevier, senior vice president of Stamats
Communications, a marketing company in Cedar Rapids, Iowa, that works with colleges and universities. "Some schools have never recruited
before - they only had to admit. Now they need to know how to recruit."

Still, while merit aid may be a valuable recruiting tool, it also carries financial burdens. Colleges have to make up the income they forgo
through merit scholarships, which can amount to millions of dollars a year. Typically, college presidents use alumni donations and interest
from endowments to offset the merit aid offered to students.

But most small liberal arts colleges do not have vast endowments. The challenge for college administrators is to balance the competitive
advantages of awarding merit aid with the long-term risks it imposes.

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Aid Lets Smaller Colleges Ask, Why Pay for Ivy League Retail? - New York Times 01/02/2006 01:57 AM

"If you go too far in that direction, you end up without enough resources to have a good faculty and to do all the things you want to do,"
Richard J. Cook, the president of Allegheny College, said. "If you discount too much, you're on your way toward oblivion."

Critics of merit scholarships, including some admissions directors and the Lumina Foundation, which works to expand access to higher
education, argue that the explosion of merit aid has limited the growth in financial assistance available to students who are most in need. But
other educators disagree.

"In a lot of instances, the money for merit scholarships comes from a different source than the money for need-based grants," said Mr. Redd of
the aid administrators' group. Many private colleges have raised money separately for merit scholarships, and some states have designated
lottery revenue for merit aid. "A lot of this is new money, so to speak," he said.

Merit aid is essentially a deep discount meant to narrow the gap between the cost of a private liberal arts education, where tuition alone can
cost from $25,000 to $32,000 a year, and the tuition at public universities, which generally ranges from $4,000 to $9,000 for in-state students.

Such scholarships enable admissions officials to shape a freshman class, offering incentives to attract students who are interested in majoring in
less popular disciplines or in playing in the orchestra or who are from different parts of the country. It can also be an incentive for parents who
are hesitant to spend large sums to send a child to a private college that is not among the most elite.

"Private colleges from a branding standpoint own the word expensive," said John T. Lawlor, the founder of the Lawlor Group, a marketing firm
in Minneapolis that advises many liberal arts colleges. "Overcoming the price of attending is a perceived obstacle."

At Allegheny, about 75 percent of the college's 2,000 students receive some kind of financial aid, with about two-thirds getting need-based
assistance and three-quarters receiving merit scholarships (many students receive both), W. Scott Friedhoff, Allegheny's vice president for
enrollment, said.

At Lafayette College in Easton, Pa., in contrast, about 15 percent of the students are granted merit aid.

At Ohio Wesleyan, 95 percent of the students are on scholarships, with about 40 percent of them based solely on merit, said Dr. Drugovich, the
vice president of admission and financial aid.

At Denison University in Granville, Ohio, 95 percent of incoming freshmen also have scholarships; university officials declined to disclose
what proportion of the aid was based on financial need or merit.

"You can't just sit back and hope that the students come," said Perry Robinson, vice president and director of admissions at Denison. "You
have to be constantly creative in what you do."

At Juniata College, a liberal arts institution with 1,400 students in Huntingdon, Pa., about 75 percent of the students receive merit aid, with an
equal number also getting need-based assistance; many students are awarded both kinds of scholarships, Michelle Bartol, the dean of
enrollment, said.

The scholarships have helped Juniata attract more and better students. But they carry a steep price. Juniata's discount rate - the amount of
potential income it forgoes by offering students merit and need-based assistance - is nearly 50 percent, Ms. Bartol said. The average rate for
liberal arts colleges is about 25 percent, said Mr. Sevier, the consultant from Iowa.

The reason Juniata decided to grant merit aid, despite its high cost, was simple. "The program was established because, quite frankly, we were
not full in the early 90's," Ms. Bartol said.

Allegheny grants $23 million a year in need-based and merit scholarships. With an annual operating budget of about $75 million, Allegheny
has a discount rate of about 30 percent.

The college has experienced a surge in interest from high school seniors in recent years, in part because of merit aid, but also because it has
found a way to differentiate itself from other liberal arts colleges. Allegheny promotes itself as a place that encourages unusual combinations of
skills and interests, like a religion major who might also want to do research in molecular biology. Applications increased to 3,540 for this
academic year from 2,439 in 2003.

Allegheny plans to reduce the amount of merit aid it offers, said Dr. Cook, the college president. Some other colleges are also beginning to
rethink the amount of merit scholarships they offer.

"It is a huge financial commitment," Ms. Bartol of Juniata College said. "It's one we are attempting to address."

While the idea of diminishing or even eliminating merit aid has some appeal for college presidents struggling with the bottom line, very few
would be willing to take the competitive risks involved in doing so on their own. "It would reduce your ability to recruit and shape the class,"
Dr. Cook said.

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Aid Lets Smaller Colleges Ask, Why Pay for Ivy League Retail? - New York Times 01/02/2006 01:57 AM

Mr. Lawlor, the consultant in Minneapolis, described merit aid as "a temporary Band-Aid right now."

"We have to find bigger and better solutions for the future," he said.

The ability of colleges to act collectively to curb what many officials describe as an arms race in merit aid is limited, too, by federal antitrust
laws. If colleges were to decide in unison to reduce or do away with merit aid, their action could be viewed as restraining competition.

Students are less ambivalent about merit assistance, of course. Of about 20 Allegheny students interviewed as they prepared for finals in mid-
December, all but one or two said they had been given a merit scholarship and that it had been a factor in their decision to enroll at the college.

Stephen Quinn said he had chosen Allegheny over two other liberal arts colleges because it gave him the most money, $9,000 a year.

Joe Schaefer's choice came down to Allegheny or Penn State. He said he selected Allegheny because it offered him the chance to play football
and granted him $10,000 a year in merit aid.

Many students also said they had been attracted by Allegheny's modest size and the opportunity to get to know professors well. "I knew I
wanted to go somewhere where you would know everyone, that was close-knit," said Ms. Mackney, who is a sophomore from Arizona.

The comfort of a small college was not the decisive factor in selecting Allegheny over Boston University, however. Her $50,000 merit
scholarship was.

"Ultimately," Ms. Mackney said, "I came here because of the financial aid package."

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