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Why rich students get more financial aid than poor ones

Anna Helhoski
NerdWallet

Colleges are increasingly spending more to woo affluent students with scholarships based solely on academic or other achievements, experts say. And it’s leaving those who need aid the most with fewer resources to afford college.

Students in the highest 25% income range received a greater amount of non-federal financial aid ($11,300) on average compared with all other income levels, including those in the lowest 25% income range ($7,500), according to a 2019 report on non-federal aid by the National Center for Education Statistics.

Here’s why colleges are giving more aid to wealthier students and how students with financial need can maximize available options.

Dollar bills in New York.

Colleges want wealthier students: Affluent students get more school aid compared with students with financial need because colleges are actively pursuing them, experts say. Schools are offering non-need-based merit aid in order to attract students with wealth, especially if they’re high-performing.

It’s a race for prestige, says Martin Van Der Werf, associate director of editorial and postsecondary policy at the Georgetown University Center on Education and the Workforce.

“Better prepared students, higher graduation rates and a better chance of attracting students who will later give back to the college – that’s the reward system that’s in place,” says Van Der Werf, adding that there’s no similar reward system for helping low-income students.

Colleges tend to choose students who will boost their rankings, and rich students often have characteristics that fit the bill.

Another factor in rankings is college completion — national data show students from low-income schools are slightly less likely to graduate compared with students at high-income schools.

Schools are competing: In an effort to compete with one another, private and public colleges are adopting a “high tuition, high aid” model, says Stephen Burd, senior writer and editor of higher education at New America, a nonprofit, nonpartisan think tank.

“It makes it more and more expensive for the people who don’t get money, leaving them with more unmet need,” Burd says.

You expect to see a high price tag at private colleges, but now public colleges are getting in the game by raising costs and working to attract out-of-state students who pay more to attend.

“It is derailing public higher education and why we have a public higher education system to begin with,” he adds.

Financial aid budgets are limited: Families depend on financial aid to help meet college costs — aid like scholarships and grants covers about one-third of college costs, according to Sallie Mae’s most recent “How America Pays for College” report.

But there’s only so much money to go around when it comes to a college’s financial aid budget, and schools must make choices about how that money is spent.

From 2014 to 2017, non-need aid, or merit aid, among colleges grew 37%, compared with need-based aid, which grew 21%, according to a 2020 New America report that examines financial aid among 339 schools. These schools increased their non-need aid from $2.2 billion to nearly $3 billion over this time period.

Some colleges are trying to give as much as they can to students, especially Pell Grant recipients, argues Robert Kelchen, associate professor of higher education at Seton Hall University in South Orange, New Jersey.

How to get more aid for college: In lieu of sweeping change among all colleges to increase need-based aid, low-income students can still maximize financial aid that is available. Here’s how.

Since most aid is first come, first served, submit the FAFSA as close to the start date as possible (Oct. 1 each year). Complete the CSS Profile, too, if your college asks for it.

Accept any Pell Grant money and work-study aid.

Look for scholarships, some of which are need-based. Try the U.S. Department of Labor’s Scholarships Search Tool.

If you need a loan, borrow no more than 10% of projected after-tax monthly income in your first year out of school. Take out subsidized federal student loans first.

Appeal to your college if your financial situation has changed.