A Shocking Look At Who is Really Getting Financial Aid At America’s Colleges

On Wednesday, news came that a watered-down bill to put a brake on the student loan rate increase finally broke through the congressional gridlock to be passed by both chambers, heading towards President Obama's desk. While the country's youngsters were waiting anxiously for this moment of relief, a report commissioned by Sallie Mae, a financial services firm in the business of student loans, attempted to answer the question in its title, "How America Pays for College." The most noteworthy of its findings is that when middle- and lower-income families must resort to debts to pay for tuition, wealthy students could comfortably use scholarships and grants, on top of the greenbacks lined up in their pockets.

In the report's data tables, we see 36% of all students surveyed with family income above $100,000 received scholarships to attend college. The average amount paid to each recipient was $10,213 in 2013, higher than the average amount paid to a student coming from a family with lower income ($8,384 for an income of $35,000-$100,000 and $7,237 for an income below $35,000). Nearly one-fifth of those wealthy students also receive grants.

An overwhelming majority (69%) of scholarships awarded to students of high-income families came from colleges, and another considerable portion came from non-profits. Two months ago, the New America Foundation issued a report with similar findings, noting that private and public universities alike have pursued wealthy students with scholarships. PolicyMic's Camille Squires eloquently wrote about this: "Awarding merit-based scholarship to a student who happens to be wealthy is not wrong ... But an inequality arises when colleges award these scholarships with ulterior motives — accessing the rest of a wealthy student's money ... at the expense of low-income students." A scholarship would not "help" a wealthy student afford college. Rather, it is given to pull the student into the college issuing the scholarship and away from competing colleges, so he or she will pay the rest of the tuition and boost the school's coffers.

Besides prestige and "the rest of a wealthy student's money" in the short-term, I believe there is an additional factor that has economically incentivized colleges to engage in this kind of behavior, namely the prospect of future alumni donations. The reduction of social mobility in America means wealthy students will likely stay wealthy after college, while poorer graduates, who face an uphill struggle to find employment, are unlikely to possess great wealth to be able to "give back" to their alma mater. Therefore colleges tend to "invest" in wealthy students to boost their endowment in the long run. In this sense a few thousand dollars now could generate a return of millions in 20 years. This practice further erodes the ladder of economic mobility, completing a vicious cycle and a downward spiral for our country's less fortunate while entrenching the old boys' network. It also turns colleges, whose mission is to be a hub for intellectual contemplation and a nourishing ground for civic virtue, into a money-making machine.

Government policies can do little about inequitable scholarships handed out by private colleges or nonprofits except indirectly, by reducing general inequality of opportunity. If everyone has a roughly equal chance to get rich and contribute later as an alumnus or alumna, then colleges would be less likely to pass over poorer students in favor of ones with more wealth at the present moment. 

Nevertheless, the Sallie Mae report indicates that a remaining 4% of scholarships given to students of high-income families came from the government itself. In other words, the government is also spending money in a regressive way to those who need it the least. As a starting point, it would seem appropriate for the federal and state governments to look into and phase out their funding of wealthy students' tuition, and devise ways to channel saved funds to aid those who are truly in need. A democracy like ours should not be in the business of helping an old boys' network. Therefore in addition, public universities run by governments should also be required by law to stop the practice of giving any forms of financial aid to wealthy students.