The University of Texas at Austin will phase out its Nationa

The University of Texas at Austin will phase out its National Merit Scholarship program starting next year so it can use the money for need-based scholarships. Read the Wall Street Journal article University of Texas Drops Merit Program for Need-Based Aid by Tom Benning (pdf). https://bbaddins.schoolcraft.edu/addins/econ202v2/docs/mod02MeritProgram.pdf

What is the opportunity cost of offering merit aid?

Solution

Initially the National merit scholarship was been provided which will now be replaced by need-based scholarship. The opportunity cost of need-based merit aid is the National merit scholarship in direct terms. In indirect terms there were many hidden opportunity cost also associated with it like the competitive growth the students used to have while competeing for the merit, difficulties now faced by middle class students.