In response to middle-class anxiety about college costs, states have dramatically increased funding for "merit-based" scholarships. Georgia’s HOPE program (Helping Outstanding Pupils Educationally), begun in 1993, is the model. HOPE covers tuition, fees and book expenses for any high-school graduate earning a B average.
David Mustard, who spoke here last week, and co-authors have written a series of papers asking in effect, Is HOPE a virtue? Predictably, high-school GPAs increased markedly after 1993 with a pronounced spike at B. SAT scores, however, did not increase so grade inflation, not academic improvement, appears to be the cause. Once in college students must maintain a B average to keep their scholarship – the program is rather lax on how many or what courses must be taken however. The result is that scholarship students take fewer classes, take easier classes and when the going gets tough they withdraw more often. Apparently HOPE comes at the expense of fortitude.
HOPE increases the number of students enrolled in GA colleges only modestly and the bulk of the increase comes from students who are induced by the cash to stay in GA, instead of going to school in another state, rather than from students who, without HOPE, would never have gone to college. What do the students do with the cash they save on tuition? Cornwell and Mustard (2002) find that car registrations increase significantly with county scholarships!
Bottom line: HOPE is neither charitable nor prudent. The bullk of the money is a simple transfer to students and their parents. To the extent that HOPE has incentive effects these appear to reduce not increase educational effort and achievement.