Merit-Based Scholarships and Grade Inflation in Higher Education

Abstract

Eighteen states offer merit scholarships that require students to maintain a minimum grade point average (GPA) to receive the funding. These GPA requirements have heightened concern over grade inflation. This paper measures how one merit-based scholarship affects grades and separates that effect into strategic course-taking, easier grading, and increased effort. I use a large-scale, comprehensive administrative database from Clemson University to examine South Carolina's LIFE scholarship. Students eligible for the scholarship should increase their effort, leading to higher grades. Grades of students ineligible for the scholarship should increase only as a result of grade inflation because the scholarship does not change their incentives. The grades of eligible students increase, and the bulk of the rise in grades stems from students' choosing easier courses and majors, not effort or grade inflation.

Keywords: Grade inflation, merit-based scholarships, grades

JEL Classification: I28, H71, I22