Here's an interesting paradox: colleges are throwing around more financial aid money than ever, but somehow the families who actually need it aren't getting the bulk of it. New research reveals that a surprisingly large chunk of grant dollars is landing in the bank accounts of higher-income households, while low-income students keep hitting the same financial walls.
The Numbers Behind the Aid Explosion
College grant aid has grown dramatically over the past decade. Schools distributed roughly $83 billion in grants during the 2023-24 academic year, up from about $50 billion in 2010, according to Axios. Meanwhile, federal grant aid has actually declined during this same stretch.
This explosion reflects what the Century Foundation, a progressive policy think tank, calls the high-tuition, high-aid model. The playbook works like this: schools jack up their sticker prices to eye-watering levels, then offer grants and discounts that bring costs back down for certain students. The Century Foundation describes it as an "experiment in psychology" where astronomical prices signal prestige, and financial aid packages create the warm feeling of scoring a bargain.
The Aid Goes Where It's Needed Least
Here's where things get uncomfortable. The Century Foundation found that 56% of students from the highest-income quartile receive grants exceeding their actual financial need—meaning they're getting more aid than federal formulas say their families require. These grants come from a mix of state programs, federal sources, and the colleges themselves.
For students from the lowest-income quartile? Just 0.2% receive more aid than they need. The racial disparities are equally stark: 19% of white students receive aid beyond their calculated need, compared with only 5% of Black and Hispanic students.
The culprit behind this upside-down distribution is merit-based aid. Colleges increasingly use these awards to recruit top students and attract applicants who might not qualify for traditional need-based assistance but still want a discount. Merit aid has grown steadily as a percentage of state grant programs, according to the Century Foundation, which means fewer dollars available for families facing genuine financial hardship.
The Competition for Affluent Students
Colleges defend merit awards as essential tools for competing for high-achieving students and supporting middle-income families squeezed by rising tuition. But the Century Foundation's research suggests this strategy systematically favors affluent applicants—particularly those who can cover a larger portion of costs even after discounts.
The resource shift shows up in state funding patterns too. Students attending highly selective public colleges receive more state aid on average, while lower-income students and those at less-resourced institutions often receive less support. It's a system that concentrates resources at the top.
Sticker Shock Still Drives Students Away
Despite grant aid hitting record levels, affordability remains a massive barrier. A recent Gallup and Lumina Foundation survey found that financial concerns remain the top reason adults choose not to enroll in higher education or stop their schooling altogether. Roughly 32% of students cited cost as their reason for quitting their programs.
The problem isn't just actual costs—it's perceived costs. High sticker prices alone can scare off potential students before they even apply, even when generous aid packages might ultimately make college affordable.
A System That Needs Fixing
The irony is hard to miss: colleges are distributing more financial aid than ever, yet it's flowing disproportionately to families who need it least. As schools continue competing for students by raising prices and offering strategic discounts, affordability challenges persist—especially for low-income households who were already the most likely to be discouraged from pursuing a degree in the first place.
The high-tuition, high-aid experiment has created plenty of winners. Unfortunately, they're not the students who needed help most.