What Are the Trade-offs of Meritocratic College Admissions?

May 03, 2022

Oksana Leukhina, economist and research officer

What does society gain and what does it lose with a meritocratic college admissions system? Research at the St. Louis Fed suggests that loosening certain constraints in admission standards and higher-education funding could boost entry and graduation rates and post-graduation earnings.

In a June 2021 Timely Topics Podcast episode, St. Louis Fed economist and Research Officer Oksana Leukhina discussed her research on how college admissions have affected efficiency, inequality and intergenerational income.

“The question is what did we gain and what did we give up by accepting more meritocracy in college admissions over time and by accepting the system where the stratification across college types is quite high,” she said.

Leukhina noted that U.S. universities became increasingly meritocratic by the mid-20th century.

“By 1960 or so, it turned out that academic achievement became more important at predicting who goes to college,” she noted. “So compared to family income, academic accomplishment became more important.”

As it currently stands, America’s higher education system is different from most of the world’s, with developed countries like Germany allowing any high school graduate to enroll in a public university, she observed.

She noted that a research model of student decision-making shows that the meritocratic admissions system is more efficient; students with higher learning ability gain more by attending higher-ranking schools, where the quality of instruction is higher. Yet, one concern with such a system is that we may promote more income inequality and possibly propagate income persistence across generations, she said.

“In the data, if you look at high school GPA, it’s going to positively correlate with family income,” she said. “So with more emphasis put on high school performance, which happens with meritocratic admissions system, students from wealthier families would be taking those limited spots in higher-ranking universities.”

Leukhina used this student decision-making model to investigate the possible effects of a less meritocratic admission system—that is, how much efficiency would be lost and how effective such a system would be at reducing inequality. The model considered the alternative of open admissions, expanded borrowing limits and increased college capacity.

“This is not a practical policy we can implement, but we can ask just for the purpose of identifying those students that are hurt the most by the current system,” she pointed out.

In this hypothetical example, Leukhina found that the effects were dramatic.

“College entry and graduation rates increase dramatically. Earnings go up by 16%, OK, so this is just to give you the magnitude of these [financial and admission] constraints,” she said.

And the beneficiaries of the removed constraints were medium- and high-learning ability students who come from low-income families, she noted.

While a significant change to admission standards and financial ability is not practical, the findings suggest that admission and capacity constraints are really limiting for many students, Leukhina explained.

Changes could include deemphasizing measures like extracurricular activities, which can be expensive for low-income families, and improving the quality of lower-ranking universities, she noted.

Leukhina discussed her research in detail in the Timely Topics Podcast episode.

This blog offers relevant commentary, analysis, research and data from our economists and other St. Louis Fed experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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