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In the parlance of financial aid, there are two primary types of free money that colleges hand out. There is “need-based” aid, which colleges determine based on your family’s ability to pay for college. And then there is “merit-based” aid, which is not tied to your family’s income but is rather a measure of your academic or athletic achievements and how much a school wants you to attend.
Most of the nation’s most selective colleges are very generous with their need-based aid. Colleges look at your FAFSA and CSS application outputs and determine, based on what you own and what you earn, how much they think you can pay for college. This amount is called your “Expected Family Contribution” (EFC), and if it is low, then most of the top colleges will cover the difference between your EFC and the cost to attend their college. For example at Dartmouth, if your family makes less than $125K per year, and you are admitted, you typically qualify for a full tuition’s worth of need-based aid, without having to take any loans. These types of programs are typical at the top schools, but not at most colleges, which cannot afford to cover full tuition even for low-income families.
(merit aid is) incredibly complex, varies year to year based on what each school’s competition did the year prior and can result in hundreds of individual awards for students
The same schools that are so generous with need-based aid, however, are typically not so giving when it comes to merit-based aid. If your family can afford to pay for college, according to the college’s formula, then they expect you to pay, regardless of how academically accomplished you are (or whether you can really afford to pay). The Ivy League, for example, does not formally offer any academic or athletic scholarships and many of the top liberal arts colleges don’t either. So, if you are aiming for a top college and have the means to pay, you should expect that you’ll have to pay. At the top 50 or so colleges, with few exceptions, the only aid you will get is based on need and not merit. There is some merit money at Northwestern, Duke, Johns Hopkins, and others, but it is very difficult to get.
But for virtually all other colleges, merit-based aid is an extremely important part of how the colleges get students to enroll, and many students receive it. This is because most colleges outside of the Top 50 need to compete for students. This is especially true at small liberal arts schools that look strikingly similar to one another, and to whom students apply in batches. As a result, colleges offer “scholarships” (merit aid) to virtually everyone who is admitted, regardless of how well-off the family is. In fact, most college aid money is used on families who don’t really need it, but who the college wants to attract with an appealing offer. This angers those in the industry who want to see all financial aid go to the families that need it most, but giving families who can pay a discount, turns out to be an effective way to fill your classroom with those who can pay “most.”
Many parents rely on merit aid to help pay for college because they cannot actually afford the EFC that the FAFSA and CSS say they can pay. The FAFSA might say that your $250K salary should be enough to cover $75K worth of college expenses every year, but that is not so easily achieved. So many families seek out schools that are generous with merit aid. The problem is that very few colleges publish their merit aid awards. The net price calculators on their websites, which indicate how much need you have at their schools, don’t include an estimate of what you’ll receive in merit aid. The reason is that the colleges practice price discrimination with their merit awards, trying to get you to enroll while still paying the highest price possible. The result is a little like pricing that resembles the airline industry with everyone on the plane having paid a different amount to fly to the same destination.
Colleges typically rely on large-enrollment management firms like EAB and Ruffalo Noel Levitz to help them craft highly specific merit aid awards for each admitted student based on their desirability to the college and likelihood to enroll. These firms use big data to predict whether you’ll enroll at a school like Lafayette with a $12,000 award, or Dickinson with an $18,000 award. It is incredibly complex, varies year to year based on what each school’s competition did the year prior, and can result in hundreds of individual awards for students. This variability is what makes it hard to predict what schools offer the most merit aid.
If gaining merit aid will play a big role in your ability to pay for college, you should embrace the ambiguity in the merit aid system. Apply regular decision to many similar colleges and universities (the ones that compete with each other and may negotiate later in the process after offers come out). Use the government-sponsored site College Navigator to see exactly how much each college pays out every year in aid and what % of students receive aid, targeting those that are the most generous. For example, per our previous example, Dickinson provides school-supplied aid to 91% of students, while Lafayette provides that kind of aid to just 59%. And most importantly, know your worth to colleges. If you have high academic stats relative to the college you’re applying to, you will have a better chance of scoring high merit aid.
