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Wednesday, May 18, 2011

Levmore: The Rage Over Conditional Scholarships

Following up on my prior posts on merit scholarships, grading curves and the U.S. News rankings (links below): former Chicago Dean Saul Levmore weighs in on The Rage Over Conditional Scholarships:

There are, however, at least two points missing from the current news coverage.  The first concerns the strategy of schools that engage in the criticized plan. Imagine an elite law school that offers $x/year for three years to an applicant, though the x will vary according to the student’s need and the school’s own calculation of its need and its competition. Schools are aware of the US News rankings and the impact of inducing high-number applicants to attend.  Occasionally, schools offer $y for one year, figuring that summer jobs and other things might help pay for later years., but three-year scholarships are common at elite law schools. Loans are, of course, also in the picture. But what about a school, often not a super-elite and well-endowed one, that offers $x per year, conditional on a 3.2 GPA? Put bluntly, the student will lose the scholarship if the student is not near the top of the class. My interpretation of this strategy is that it does not so much set out to fool customers as it tries to deal with the problem of transfers. The strategy might as well be described as follows: We will discount your first year tuition by $x, and then if you earn good grades you will be tempted to transfer to a higher ranked school. (Some schools lose a significant percentage of their top students this way.) We want to keep you for your second and third years, and so we will offer you a scholarship to stay with us rather than to transfer away. But instead of being so crass, and waiting for you to threaten to transfer, we will save transaction costs for both of us, and promise a scholarship if you have the sort of grades that facilitates transferring. Put this way, I think the strategy much less likely to raise objections.

Second, this interpretation of what is going on in the market explains, if that is the right word, why the elite schools do not offer similar, contingent scholarships. It is not just that, if they did so, risk averse students would accept unconditional offers, which they could surely garner in the present competitive environment, but also that the elite schools are less fearful that a large number of students will transfer out after the first year. Note that the scholarship itself discourages transfers. A scholarship recipient who transfers from any school, but even an elite school, will lose the scholarship from the first school and be unlikely to gain a scholarship at the new school. This is because the student is “less valuable” to the second school inasmuch as the rankings do not incorporate information about the GPAs of incoming transfers. It is only those incoming, first year numbers that are oh-so-important. Regulators and well meaning organizations should probably stay clear of this subject, unless they are sure of what they are doing.

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Real graduate programs have always had minimum grade requirements attached to financial assistance awards. Why should law schools be different? If a student is not performing at the top of his or her class, why should that student be receiving "merit" aid? Merit means merit, doesn't it?

Posted by: jmike | May 18, 2011 6:17:12 AM

The problem isn't requiring an objective minimum grade to retain scholarships. The problem is forcing an arbitrary first year curve that all but ensures that a portion of those on scholarship will loose their scholarship. That is wrong.

Posted by: Anon | May 18, 2011 11:18:34 AM