Clayton University: Need-Based Aid or Merit Scholarships
Clayton University's board must allocate a $6.2 million annual institutional aid budget. Option A would maintain the current need-based program, which supports 1,200 students with an average grant of $4,100; without it, 38% of recipients say they would transfer or drop out. Option B would redirect $2.5 million to merit scholarships of $10,000 each for 250 high-achieving applicants, targeting a yield rate that has fallen from 24% to 18% in three years. The board's strategic plan prioritizes both access and national reputation. Peer institutions have increased merit awards, and Clayton's discount rate is 46%, above the 41% median for its cohort. Faculty have argued that merit aid disproportionately goes to students who would enroll anyway. The board has not commissioned a study of how many current need-based recipients would enroll without aid, and the admissions office has no model of how merit awards would affect net tuition revenue.
1. Recommend one option and justify it using at least two pieces of quantitative evidence from the setup.
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I would recommend Option A, maintaining need-based aid, because the budget cannot fund both at the stated level and the retention risk is concrete. The $6.2 million budget supports 1,200 students at an average of $4,100, which is roughly $4.92 million; redirecting $2.5 million to merit awards would leave about $3.7 million for need-based aid, forcing cuts to roughly 300 recipients if grants stay constant. The 38% transfer-or-drop figure is self-reported, but even a much lower actual rate would produce more lost tuition than 250 merit awards at $10,000 could recover, especially since the yield problem is an 18% rate, not a collapse to zero. The 46% discount rate is a real concern, but it is a symptom of aid strategy, not proof that merit aid is the fix. Option A protects students already enrolled; Option B bets on students who may not come.
2. Address the strongest objection to your recommendation.
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The strongest objection is that Option A preserves a status quo that is losing competitive position: yield has fallen six points in three years, peer institutions are moving to merit aid, and a 46% discount rate suggests Clayton is discounting heavily without improving its market position. A defender of Option B could also say the 38% figure is hypothetical and that need-based aid may be subsidizing students who would enroll anyway. The response should not deny the competitive problem. Instead, it should argue that the board lacks the one number that would justify B: how much net tuition revenue 250 merit awards would actually generate. Without that, B is a $2.5 million experiment funded by reducing aid to current students. The board could pilot a smaller merit award, perhaps $500,000, and measure yield before reallocating the full amount.
3. What evidence would most change your recommendation, and why?
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The evidence that would most change my recommendation is a credible estimate of how many current need-based recipients would enroll without aid. If that number were very low, say under 10%, then the retention argument for Option A weakens and the $4,100 grants look partly inframarginal. Conversely, if a pilot showed that $10,000 merit awards raised yield among high-achieving applicants by enough to increase net tuition revenue after discounting, Option B would become defensible. I would also want the distribution of need among the 1,200 recipients: if many have small grants, cutting 300 of them might be less harmful than it appears. The key is not whether merit aid is fashionable but whether each dollar buys enrollment or retention that would not otherwise occur.