Th e Incidence of Financial Aid: How Colleges Respond to Merit Scholarship Programs

Th is paper examines how colleges respond to the introduction of broad merit aid programs. Previous research has emphasized the impact of merit aid on enrollment, student choices, and post -matriculation outcomes. Yet much less is known about how state -implemented merit aid programs a ff ect colleges' fi nancial decisions. To explore impacts, college fi nancial data that spans from 1986-87 to 2009-10 is used and includes tuition and fees, expenditures on students, institutional grants, Pell grants disbursed, and other revenue sources. Results suggest that colleges do not capture merit scholarships through signi fi cant increases in published tuition prices. Instead, colleges increase expenditures on students following the introduction of merit aid programs.