Wherever you are in the financial aid process, you’ve probably heard the term merit aid – financial aid based on students' academic and other merit rather than financial need – and its increasing popularity over the last decade or so. What you may not know, however, is the impact this trend has had on students seeking need-based aid.

According to a new report by the Education Department's National Center for Education Statistics, state and institutional financial aid for low-income students has dropped significantly as merit aid has increased. From 1995-96 to 2007-8, the proportion of merit aid recipients in the highest quartile of family income rose from 23 percent to 28 percent, while the proportion of merit aid beneficiaries from the lowest economic quartile fell to 20 percent from 23 percent. (See more statistics here.) The report also suggests that many institutions have embraced merit aid because they believe this type of award will entice middle- or high-income applicants to attend their school over others (and pay more money to the school as a whole during the time they are enrolled) instead of offering financial assistance to low-income students who truly need the funds to attend college.

What’s your stance on merit aid? Does it help more than it harms in higher education or vice versa?

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