The Effects of Institutional Merit-Based Aid On the Enrollment Decisions of Needy Students

Abstract

Recently, both states and institutions have implemented merit-based financial aid packages to compete for the best students. This analysis explores the adoption of a merit-based aid program at the University of Oregon to assess the impact of merit-based aid in needy-student financial aid packages. Using a unique empirical approach in which the decisions of University of Oregon applicants to apply for federal financial aid and/or enroll at the University of Oregon are modeled jointly, results indicate that $1000 in merit-based aid increases the probability of enrollment by 6.8%. However, while the effect of merit-based aid is found to be positive, the results suggest that the effect may be overstated without controlling for the potential correlation of merit-based aid with the error term.