Student Loan Debt: How Colleges Favor Wealthy Students at the Expense of Low-Income Ones

College is expensive in the United States. This is an obvious fact to any ramen-fueled college student and their cash-strapped parents. Still, the cost of attending university is not felt equally by all students. The burden of college tuition is much greater for low-income students than wealthy ones, so institutions have long offered aid as a means of leveling the playing field and offering equal access to all students. But recent tuition and financial aid policies have increasingly favored wealthy students over poorer ones, only worsening the class divide that college is supposed to erase. According to a recent study done by the New America Foundation, institutions are using aid to attract wealthier students, at the severe expense of low-income students.

In his paper entitled, “Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind,” Stephen Burd focused on the oft-ignored “net price” statistic from the U.S. Department of Education — the total amount a student is expected to pay after grants and scholarships — to determine the real cost of college for low-income students. He found that at private institutions, two thirds of students whose families make less than $30,000 per year are still expected to pay more than $15,000 per year in tuition fees, even after all aid money has been distributed. At over half a family’s yearly income, this number obviously presents an enormous strain on families, and often forces students to take on heavy debt, extra jobs, or even drop out until they can afford the tuition.

This fact becomes even more staggering in the face of another one: According to the U.S. Department of Education, in the 2007-08 academic year, over $62 billion was distributed in in aid for undergraduate students. With so much money circulating, surely low-income students should not have to pay so much to attend college. The problem lies in the type of funding available and the way in which it is administered. There are two primary sources of finding available to college students: need-based aid, usually in the form of Pell Grants given by the federal government, and merit-based aid, usually given by the institutions themselves.

Students whose families make less than $30,000 per year are eligible for federal Pell Grants. These help lessen the cost of college, but certainly do not cover everything. The problem is that institutions have begun to rely solely on the federal government to pay for these low-income students, and chose to spend their own money elsewhere. This “elsewhere” is typically middle and upper class students who are given grants in the form of merit aid. Universities try to incentivize these students by offering them partial, merit-based scholarships, knowing that they will be able to afford the rest of the tuition. Burd states, “It's more profitable for schools to provide four scholarships of $5,000 each to induce affluent students who will be able to pay the balance than it is to provide a single $20,000 grant to one low-income student."

Even more concerning is the nondescript way in which colleges define “merit.” Data indicates that nearly 19% of undergrads at four-year universities are receiving merit-based aid despite scoring lower than a 700 on the SAT. Certainly not all merit money is carelessly doled out to undeserving wealthy students, and awarding merit-based scholarship to a student who happens to be wealthy is not wrong in and of itself. But an inequality arises when colleges award these scholarships with ulterior motives — accessing the rest of a wealthy student's money — and do so at the expense of low-income students. 

The reasons behind this aid system are varying. For some private institutions with small endowments, this is simply the only option. Many of these schools are simply unable to contribute to a low-income student’s federal aid, and offer scholarships to wealthier students in order to stay afloat. But for other universities, it’s not just a question of survival. According to Burd, some of the wealthiest private institutions use their abundance of funds to essentially bid for top-performing and wealthy students in order to climb up the U.S. News & World Report and increase their prestige.

This has generally been a bigger problem among private institutions, but public universities are hopping on the bandwagon as well. As costs rise for universities, they adopt this “high tuition, high aid” model, raising their tuition prices, and relying on federal money to offset the cost for low-income students. This model has been adopted by schools in states such as Pennsylvania, South Carolina, and has proven to be a failure for low-income students. Needy students in South Carolina’s public universities are facing net prices twice as high as those in North Carolina.

Universities themselves face increasing pressures to build new facilities and hire the best professors, so they cover these costs increasing tuition. But by operating this way, public and private universities alike are doing exactly what Burd’s title suggests: undermining the very reason for the Pell Grant system. It was established nearly 50 years ago as a means of eliminating some of the barriers to universal college access. Today, those barriers are only getting stronger as colleges compete for the same pool of high-achieving, wealthy students, and shut out  lower-income students in the process.

A potential solution to this problem that Burd suggests is to incentivize colleges to enroll more low-income students. Those institutions who enroll more low-income students receive more federal aid, and those who enroll fewer, but charge them more, will be asked to match some of the federal money that these students receive. Whether or not universities would respond to such a system remains to be seen, but Burd emphasizes that it is important for policymakers to be aware of this situation, and take action to ensure that college access remains equitable.

In the American tradition, college has been viewed as a great equalizer in society. The mindset has been that students from any background can have the same opportunity learn and better themselves. During the last century, college has proven to be a path to prosperity for many Americans from low-income backgrounds. Although cultural and economic tides are changing now, and the path to success may not be as clear-cut, all Americans today still deserve an equal opportunity at receiving a college education.