Financial Aid and SAT & ACT Scores

Financial aid for college is divided into two buckets: need-based and merit-based.

Need-based aid is determined by comparing the cost of college to a family's income and/or assets. It's essentially a math equation: cost of attendance (COA) - expected family contribution (EFC) = need.

Merit-based aid is determined both by student achievement and the college's enrollment management. This kind of aid is much more nuanced than need-based aid. Colleges manage their enrollment by attracting high-achieving students with discounts and scholarships. And the achievement colleges look for is generally academic, like grades or test scores, and extracurricular, like sports.

Truth is, there is more merit-aid distributed for academic achievement than extracurricular achievement. Yes, more money is available for nerds than for jocks.

So if there is more aid for academic achievement, what is more important: GPAs or test scores?

The fact of the matter is that, even in this world of test-optional, test scores remain a major driver of financial aid.

This point was made to clear to me recently when I had the chance to pick the brain of a certified financial planner who has worked in the college funding space for over two decades.

His exact words were, "While admissions decisions are generally driven by GPA, merit-based financial aid decisions are primarily driven by test scores."

Now, this statement may be an oversimplification of the financial aid process. Nevertheless, the logic is quite sound: GPAs are hardly standardized. A 4.0 at one school is not the same as a 4.0 at every school. So using GPAs to identify stellar students is inexact. On the other hand, the SAT and ACT are highly standardized. Test scores are thus a very quick and precise way to differentiate large groups of students.

Yes, there are flaws in this logic of this last statement. Anyone who follows this blog know that we have long preached that students are more than just test scores. The movement towards test-optional is clear evidence that test scores are less important in general.

However, the fact remains that aside from test scores, there is no other apples to apples comparison of students.

And since merit-based aid is not equation driven like need-based aid, schools have to find a way to manage their enrollment and determine who gets a discount and who doesn't. Hence, test scores remain a significant factor in merit-based aid.

The future of the SAT and ACT is in doubt. Most schools are test-optional and more and more schools will become test-blind.

But for now, test scores still drive financial aid decisions. Maybe not admissions decisions, but definitely merit-based financial aid decisions.

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