Conclusion

In recent years, some public university officials have acknowledged that their institutions have been on a treacherous course—leaving low-income and working-class students in the lurch while using their financial aid to pursue wealthier students.

In 2017, the University of Kentucky announced that it planned to significantly scale back its use of merit aid and make need-based aid the predominant form of assistance it provides. At the time, the university was spending 90 percent of its institutional aid dollars on students who lacked financial need. Meanwhile, the school was filling an average of just 54 percent of the need of its student aid recipients.

University officials said that while heavy use of non–need-based aid helped the school attract top students, it was driving down retention and completion rates. Financially needy students were dropping out because they were being left with too much unmet need. Insufficient financial aid packages “were the single most important factor” preventing students from completing their degrees, Tim Tracy, the university’s then-provost said.

Similarly, when Ann Cudd became the provost at the University of Pittsburgh in 2018, she was alarmed that the school was meeting only a little more than half of the financial need of its low-income and working-class students. Since then, she has reallocated merit-aid money to create two new programs, one that matches dollar-for-dollar students’ Pell Grants, which go to the lowest-income students; and another that aims to reduce the unmet need of those financially needy students who have the biggest funding gaps and are in danger of dropping out.

“Higher education is coming to a real crisis point in terms of not being able to serve the goal of social mobility,” Cudd, who has done research on income inequality in higher education, told Inside Higher Ed.

These examples are heartening, showing that there are still leaders in public higher education who recognize the essential role their institutions have historically played. And they understand the tremendous financial burden many of the schools are placing on low-income and working-class students by spending tens of millions of dollars lavishing tuition discounts and scholarships on upper middle-income and wealthy, mostly white students whose families can generally afford to pay full freight.

There is a chance that many more public university leaders will recognize the need to change their schools’ ways. But that is extremely unlikely, considering all of the pressures to keep ratcheting up non–need-based aid spending.

Public higher education has clearly reached the crisis point that Cudd referenced. Nearly half of the public universities examined cover less than 65 percent of the financial need of their student aid recipients and about one in five cover less than 55 percent. Those numbers are appalling.

That is why federal intervention is needed to rein in the enrollment management industry and put the brakes on the merit-aid arms race for good.

The federal government clearly has an extremely compelling interest in curbing these harmful practices. It spends tens of billions of dollars annually through the federal Pell Grant program trying to keep college accessible and affordable for low-income students.

But the Pell Grant program has a major design flaw. It makes no demands on the colleges that receive the funds to do their part in helping these students.

The federal campus-based aid programs—the Supplemental Educational Opportunity Grant program (SEOG) and Federal Work-Study—are many magnitudes smaller than the Pell Grant program. But they do not contain its design flaw. They require colleges to at least partially match the money they receive from these programs.

Congress should not continue to allow colleges that are undermining the federal government’s national college access goals to continue receiving funds from these programs.

In the months ahead, the author of this report will further develop this proposal. Perhaps the leaders of public universities and change their ways before then. But don't hold your breath.