Recent research indicates a trend toward increases in the share of all institution-based student aid funds going to merit aid and in merit scholarship competition among institutions. This paper presents findings of a study that surveyed 379 nonprofit bachelors'-degree-granting institutions in 1983-84 and 1991-92. Findings indicate that the less selective institutions in both the public and private sectors are far more involved in merit aid than their more prestigious counterparts. However, the revenue foregone by institutions that did engage heavily in merit competition clearly absorbed resources that could otherwise go into the educational enterprise. The costs of merit competition are clearly on the rise. A second finding is that students are rewarded for the difference between their personal SAT scores and the school's average SAT scores. In summary, merit aid compensates students for attending schools that are "beneath" them, especially in the private sector. Although white students (excluding athletes) get a proportionate share of total merit aid, they are overrepresented in the merit pool in private institutions and underrepresented at public schools. Black and Hispanic students, however, collect a disproportionate share of merit aid at public schools while losing out in the private sector. Finally, the evidence that merit aid rewards higher academic qualifications while, especially in the private sector, providing smaller awards to students from more affluent backgrounds is encouraging from both an equity and an efficiency perspective. Five tables are included. Contains seven references. (LMI)