Why Are Colleges Handing Out Financial Aid to Wealthy Students?

It’s simple cause and effect: As state funding for public higher education has dropped over the past decades, student tuition has risen an almost equal amount. But where the equation gets more complicated is inside some college admissions offices, where “merit-based,” not need-based tuition aid, is increasingly directed to the wealthiest kids.

In their recent report, “Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind,” researchers from the non-partisan New America Foundation conclude “times have changed.” It used to be that financial aid was used to make college more accessible for low-income and working-class students. In that way higher education, and the better-paid jobs that follow a college degree, could truly be a path to the middle-class for students and their families.

These days, especially at private colleges, but also at public universities in Illinois, New Jersey, Ohio, South Carolina, and Vermont especially, schools are using financial aid “to buy students who could already afford to attend without the help,” according to the report. In some cases, it may be that institutions are trying to lure the smartest students to boost their ratings in the famous U.S. News and World Report national rankings. In others, it may be that administrators have figured it’s more profitable to offer, say, four scholarships of $5,000 to students who can pay the balance, than one $20,000 grant to a poor student.

Either way, it means more poor students are expected to pay skyrocketing prices to get a degree. And that means they either don’t go to college—or they sign the paperwork for loan after loan after loan. Already, two out of three college graduates in America leave school with student loan debt, averaging $26,600 each last year.

“The time has come for policymakers to take notice,” assert the report’s authors. “Federal action is needed to ensure that colleges continue to provide a gateway to opportunity, rather than perpetuating inequality by limiting college access to only those who are rich enough to be able to afford it.”

In the days ahead, this means Congress should stop the doubling of student loan interest rates in July. (Urge your Senator to take action today.) But in the longer term, it means federal lawmakers must reinvest in Pell Grants for the country’s poorest students. This year, the most any student can get from Pell is $5,500, just $11 more than the max in 1976. (Meanwhile, during those years, the cost of college has soared by 600 percent.) With that in mind, NEA has called on Congress to increase the value of Pell Grants—because college must be more affordable and accessible to all. It’s a matter of national welfare: This country is expected to need 22 million more college-educated workers by 2018, and is likely to fall short by 3 million.

The report also shows that one bright spot for the nation’s poorest students, its Pell Grant recipients, remains the California State University (CSU) system. Four of the top 12 least expensive public colleges for poor students are CSU campuses: Dominguez Hills where the net price is an average $1,076 per Pell Grant recipient per year, followed by Fullerton, Los Angeles, and Fresno. (These are students whose families live below the federal poverty line—for a family of four that means earning less than $30,000 a year.)

Members of the California Faculty Association demonstrate for lower tuition and fees.

Within the CSU system, both students and members of the California Faculty Association (CFA) have fought a hard fight for lower tuition and fees. In rallies and public statements, they have called on state policymakers, boards of trustees, and institutional administrators to stay true to the promise of the CSU system, whose historic mission “is to reach students who might otherwise not be able to afford to get a college degree,” said CFA President Lillian Taiz recently.

Between 2002 and 2012, CSU tuition increased from $1,428 to $5,472 (a 238 percent increase), with CFA members protesting every hike. Then last year, union members and students fought side-by-side for the successful passage of Proposition 30, which created more state funds for higher education and froze the cost of tuition. And now, the governor’s proposed state budget begins a reinvestment (to the tune of $123 million) in California’s public colleges and universities. “This budget proposal is the first step in restoring a prosperous future for California,” said Taiz.

But in most places, the profound change in the way colleges spend their aid dollars, up to $30 billion last year, has gone unnoticed by the public —and not by accident. “The higher education lobby has done its part to try to keep the public and policymakers in the dark—fighting tooth and nail against any and all government efforts to shine a light on their institutional aid practices,” the report’s authors write.

Increasing Pell isn’t enough, so the authors call on Congress to offer financial bonuses to the public institutions that enroll a substantial number of poor students (and graduate them), and also to require private schools to match Pell Grant funds with their own financial aid dollars. These institutions, they write, “[must] live up to their commitment to serve as engines of opportunity, rather than as perpetuators of inequality.”

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  • Robby with Bellevue University

    Good article! I think this article brings attention to a growing trend in higher education: Rising tuition threatens to put college out of reach for many lower- and middle-class students. It is imperative that institutions implement innovative, flexible, and affordable solutions that lower tuition costs and make higher education more accessible.

    Robby with Bellevue University

  • Tom

    I agree that this is a great article. The negative effects that are mentioned are inevitable in these times when educational institutions are increasingly driven towards acting like corporations rather than insitutions built for the public good. Making money and the public interest are only occasionally the same thing.

  • Jas

    I have to agree with you Tom. But in defence of these institutions, I think they have been pushed onto the slope of privatisation, and they couldn’t get off even if they wanted to!

  • Chris

    While I agree the Pell Grants need to keep up far better, I disagree with the implication that merit based scholarships are only given to the wealthy and also with the implication that these should be removed so the poorest students can get this aid. Merit based scholarships are given regardless of income so those eligible for pell grants are also getting the merit scholarships. Our children have two teachers for parents. With two teacher incomes they are eligible for $0 in aid and ineligible for need based private scholarships. I have just watched poorer students receive so much scholarship money they were discussing returning some because they received more than they need to pay. Yes, lets get better funding for Pell grants but lets not turn everything into a need based scholarship. The middle class already gets hit hard and are not eligible for what the poorest people can access–don’t take away one of only forms of financial assistance that the middle class students are eligible to receive.