[Excerpt] It is well known that test scores are correlated with students’ socio-economic backgrounds. Hence, to the extent that colleges are successful in “buying” higher test-score students, one should expect that their enrollment of students from families in the lower tails of the family income distribution should decline. However, somewhat surprisingly, there have been no efforts to test if this is occurring.
Our paper presents such a test. While institutional-level data on the dollar amounts of merit scholarships offered by colleges and universities are not available, data are available on the number of National Merit Scholarship (NMS) winners attending an institution on scholarships that have been funded by the institution itself, rather than the National Merit Scholarship Corporation (NMSC). These institutional scholarships are awarded to high-test-score students only if they attend the institution. Our research strategy was to estimate whether an increase in the number of recipients of these scholarships at an institution is associated with a decline in the number of students from lower- and lower-middle-income families attending the institution, while holding other factors constant. We measured the number of these students by the number of Pell Grant recipients attending the institution.
The second section of our paper briefly describes the National Merit Scholarship and the federal Pell Grant programs. Next, we describe our analytical approach, followed by our empirical findings and some brief concluding remarks.