Private colleges are boosting aid – for the rich

August 20, 2013

One of the more alarming trends in higher-ed financing in recent years has been the startling increase in merit-based and other institutional aid for upper-middle-class and rich college students. As Stephen Burd of the New America Foundation has pointed out, there's ample evidence that colleges' "high tuition, high aid" approach — which was meant to allow for price discrimination, whereby rich students pay a lot and poor students get big breaks — has not had that effect, and has indeed resulted in schools using merit aid policies, which usually come at the expense of need-based aid. You can see exactly this happening in the remarkable increase in merit aid relative to need-based aid in recent years:


A large motivation here is to get a higher place on college-rankings lists. "Many of the colleges follow the same strategy that has been so successful for Washington University [in St. Louis]," Burd writes. "Using merit aid as part of a broader strategy to build their prestige and propel themselves up the rankings." Meanwhile, schools such as Grinnell have been quite open about another motivation: Merit aid goes to richer kids, who can pay closer to full freight than poor students eligible for need-based aid can.

But of course, merit aid does sometimes go to poor students, so the above chart doesn't prove that the changes in financial aid in recent decades have primarily benefited the rich. A new chart from Ben Miller, Clare McCann, and Ross Van der Linde at the New America Foundation, however, does show this. They look at the percentage of students in each income group receiving federal campus-based aid (which includes work-study and Perkins loans) at both public and private institutions, from 1996 to 2012:

The effects are pretty mild for public schools, but get a load of the private school data. There were some increases in the share of low-income students receiving aid until 2008, but then the share fell again. Meanwhile, the share of students with parents making $48,000 (which is around the national median household income) or more getting aid rose steadily even after the recession, and even for students whose parents made $110,000 a year or more. The changes in private school aid are primarily benefiting the upper-middle and upper classes.

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Neil Irwin · August 20, 2013