Meritorious merit programs: looking to establish effective merit scholarship programs? Heed these eight considerations.

If you're thinking about starting a new merit program or upgrading an existing one--join the crowd. Much has been written about the increase in financial aid being offered on the basis of academic ability or other talents, rather than financial need. How can you make sure that your scholarship program will be distinctive, on target, and effective?

1--BEWARE THE PERILS OF THE COMPETITION

Many IHEs (and especially faculty) believe that a competition is essential, in order to be sure the right students are selected for precious merit dollars. Usually, these competitions take place on campus and involve students taking a test or interviewing with faculty. While such competitions can provide an excellent opportunity to draw students to campus, they have the potential to backfire. Typically, there are winners and losers, and the losers can feel slighted even if they receive a scholarship, simply because they didn't win the highest possible award. Furthermore, some IHEs fail to build an engaging program for students and parents that extends beyond the competition itself, thus missing an opportunity to highlight academic programs and the campus community.

That's why institutions that believe in such competitions need to work hard to avoid such pitfalls. One way is to carefully compare the yields of students with high academic qualifications based on whether they came to the competition or not--then again, for those who did attend the competition, based on whether they received additional merit funds or not. These yield comparisons will help a college or university understand whether the competition is helping or hurting the achievement of enrollment goals.

2--AVOID ADDING HURDLES

Even if participation in a competition is not involved, some institutions require a separate application, essay, paper, etc. in order for students to be considered for a merit award. Other institutions may award a scholarship, but then require that the recipients complete paperwork with the financial aid office before the funds will be disbursed to their account. Such additional hurdles should be avoided, as they have the potential to put you at a competitive disadvantage against institutions that simply award merit funds based on the information provided on the admissions application itself.

3--USE DATA TO SET AWARD / ELIGIBILITY CRITERIA

As we have stressed in an earlier article ("Strategic Tuition Pricing & Discounting," February 2003), in order to target Financial aid funds efficiently and effectively, institutions need to use data to understand the price sensitivity of their market, and target their discounts (both merit and need-based) accordingly. Unfortunately, many IHEs fail to do the necessary analysis. Rather, they may launch a merit program just to match that of a competitor. While certainly attention must be paid to the actions of rival institutions, it is also important to understand as fully as possible the behavior of one's own applicant pool. The simplest approach to understanding the price sensitivity of your admits is to examine yields at various quality levels (based on admissions rating, or a combination of SAT and GPA, or other measure correlated to probability of enrollment), in order to identify which groups currently have particularly low yields. Then, examine how yields for students at that quality level change when different levels of grant are offered to students with different need levels. This will enable you to calculate the costs and benefits of different levels of merit scholarship. See the example below:

YIELDS FOR A PARTICULAR QUALITY LEVEL
(e.g. SAT 1150-1200; top 20% rank)

NEED [right arrow]         $0           $1000     $2000
GRANT [down arrow]

$0                     3/36 = .08
$1000                  3/28 = .11    2/10 = .20
$2000                 10/33 = .30    4/10 = .40
$3000                  4/12 = .33    9/20 = .45
Total                20/109 = .18   15/40 = .38

NEED [right arrow]      $3000         Total
GRANT [down arrow]

$0                                   3/36 = .08
$1000                 3/20 = .15     8/58 = .14
$2000                10/33 = .30    24/76 = .32
$3000                 4/10 = .40    17/42 = .40
Total                17/63 = .27   52/212 = .25

In the above example, yields for all need levels jump up significantly when $2,000 in grant aid is offered. A cost benefit analysis could be performed, therefore, to calculate expected net tuition revenue (NTR), assuming that, if all students in this quality level were offered a $2,000 grant, they would yield at 32 percent, as do the students currently receiving that level of award. The calculation below also assumes a tuition charge of $12,000.

212 total admits x 32% yield = 68 enrollees x ($12,000-$2,000 grant) = $680,000 NTR

versus current NTR calculated as follows:

(3 x $12,000) + (8 x $11,000) + (24 x $10,000) + (17 x $9,000) = $517,000 NTR

Based on this analysis, the institution could gain over $160,000 in NTR by offering a $2,000 merit award to all students in this quality band. Without such analysis, the institution runs the risk of targeting too much or too little aid and thus not maximizing the effectiveness of the merit program.

4--BUILD THE NECESSARY BUDGET

Some IHEs that start merit programs fail to adjust their financial aid budgets to reflect the cost of the program. This, in turn, forces the aid office to take funds away from other students. If previous awarding strategies were overly generous, this approach may work. However, if funds were previously being targeted efficiently, reductions in awards to accommodate the cost of a new merit strategy could jeopardize overall results. Consequently, it is important to understand the tradeoffs being made between institutional goats (e.g., the "cost" of improving the quality of the class) and adjust budget expectations accordingly, (Of course, it should be noted that--particularly for institutions that are not at capacity--it is possible that introducing a new merit program could generate more net tuition revenue, as in the example cited in #3 above. In fact, some institutions use the additional revenues generated by their merit programs to help fund their need-based programs.)

5--INTEGRATING MERIT, ENTITLEMENT, AND NEED-BASED PROGRAMS

It is not uncommon for schools with merit programs to move toward one of two extremes when students eligible for those programs also demonstrate need. One extreme is to count the full merit award toward a standard need-based package, thus eliminating any differential benefit the merit recipient might have received. The other is to allow the full merit award on top of a need-based grant, reducing only the self-help portion if necessary to avoid over-awarding. The correct approach, however, is to use data (as discussed in #3 above) to understand how much of a differential is needed to achieve enrollment goals; then package need-based aid to merit recipients accordingly.

6--AT SOME QUALITY LEVELS, IT'S NOT JUST ABOUT THE MONEY

Because so many institutions are in the merit business now, it is likely that highly qualified students will have multiple merit offers from the schools on their list. It's not surprising, then, that some colleges are beginning to link programmatic opportunities to merit funds, in order to create an even more attractive "package" of benefits. The Morehead Scholars program at the University of North Carolina at Chapel Hilt is probably the best-known example of such a package. These students receive a full four-year scholarship that includes laptop computers for all entering freshmen and a fully funded, four-year summer enrichment program. But they also have access to their own beautiful building on campus, and to a dedicated staff, including an academic adviser and a Summer Enrichment Program adviser who helps customize the Scholars' summer experiences to best reflect their personal aspirations. Finally, the connections with Morehead alumni are very strong, offering opportunities for additional mentoring and career networking.

7--REMEMBER: TIMING MATTERS

Just as being the first brochure to land in a student's mailbox can give your institution a competitive edge, early notification of merit eligibility can be important in strengthening a student's interest in your school. Although not appropriate for every institution, a growing number of schools, for example, have found it effective to guarantee in their brochures and Web sites that all admitted students meeting a set of clearly defined academic criteria will be eligible for a specific scholarship amount. This approach has been found to increase inquiries and applications as well as yield rates. On the other hand, Admissions offices should think twice before sending an actual merit offer to students who have not yet applied. This approach, while certainly early, smacks of desperation.

8--CHANGE ONE THING AT A TIME

When introducing or updating a merit program, the temptation is often to change multiple factors at once. We are certainly guilty of this ourselves: While at the University of Rochester (NY), we not only raised the level of a merit award, we also began to invite recipients to a celebration event in the same year. The changes were a success--yields increased dramatically. But here's the thing: Because we never knew which change produced the results, we bad to continue both the higher award levels and the new event into the future. The moral of this story? To be sure you can link specific changes to outcomes, be disciplined about how much you change at once.

FINALLY ...

There is no one approach to merit programs that is right for every IHE. Your program must reflect your market position (not just mimic your competitors); must recognize achievements of value to your institution and its mission; and must take into consideration the tradeoffs your school is willing to make between enrollment goals.

Kathy Kurz and Jim Scannell are partners in the enrollment management consulting firm, Scannell & Kurz, Inc. (www.scannellkurz.com).