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In our Undermining Pell series, we have shown how the nation’s public colleges and universities have steadily become less affordable for low-income students.

In our first report, we found that about one-third of these institutions charged students from families making $30,000 or less an average net price of $10,000 or more in the 2010–11 academic year.¹ Now we are reporting that, for the first time, more than half of these institutions are charging that much.

Our finding that public four-year colleges, which have historically given low-income and working-class students a leg up, are becoming less accessible and affordable should set off alarm bells throughout higher education and among federal and state policymakers. Instead of reducing inequality, too many of these schools are reinforcing it.

To be sure, a significant number of public colleges and universities are staying true to their mission by keeping their prices low and/or providing generous amounts of need-based aid to the substantial number of low-income students they enroll. These schools are run by leaders like Nancy Cantor, the chancellor of Rutgers University at Newark, and Matthew Holland, the former president of Utah Valley University, who believe that public institutions should value inclusiveness over exclusivity.

But, unfortunately, for every Rutgers-Newark and Utah Valley, there are more public universities like Temple University that have lost track of their historic mission while worshipping at the altar of the U.S. News rankings and pursuing greater prestige. Many of these schools spend tens of millions of dollars lavishing scholarships on upper-middle income, mostly white students from the suburbs or other states, while students with the most financial need are charged a hefty price.

Public four-year colleges, which have historically given low-income and working-class students a leg up, are becoming less accessible and affordable should set off alarm bells.

That’s not to say that the leaders of these institutions are the only ones at fault. When it comes to the increasing privatization of public higher education, there is much blame to go around — from governors and state legislators who have slashed funding for higher education to business-minded trustees who too often have little regard for the public mission of the schools.

So what can be done to reverse course and put an end to the merit-aid arms race?

The University of Kentucky’s plan to scale back its use of merit aid may be instructive. University officials came to their decision as the state of Kentucky was finalizing a performance-based funding plan that will provide a significant premium to its public universities for graduating low-income and minority students. As a result, reinvesting in need-based aid and getting more of these students to graduate promised a substantial pay-off for the school.

According to a report from the Center for Law and Social Policy (CLASP), more than two-thirds of states employ or are planning to employ some form of performance-based funding in financing their public colleges, but “only a few states have tied a significant percentage of state funding to outcomes.”² Without enough funding on the line, schools may have little incentive to change their practices. In addition, performance-based plans that reward universities only for retaining and graduating students or that don’t have strong enough “equity measures” may inadvertently discourage schools from enrolling low-income students who are more at risk of dropping out than more-affluent students.

Therefore, as the CLASP report emphasizes, any “equity measures” that are included in performance-based plans need to be strong enough—and tied to enough money—that they can “counteract the strength of the incentives to increase selectivity.”³ The Kentucky plans seems to fit the bill and to offer a model for other states.⁴ But expecting all states to pursue such measures on their own—or even to recognize the need for such action—isn’t realistic.

That’s where the federal government should step in and provide incentives to states to design such plans. We’re not ready to suggest what those incentives should be just yet. We agree with CLASP that more study is needed to determine what kinds would be most effective.

Expecting all states to pursue such measures on their own—or even to recognize to recognize the need for such action—isn’t realistic.

That’s one possible approach to combating the problems identified in this report.

At �鶹������ý, we have also offered a much more ambitious approach. In our 2016 report Starting from Scratch, we proposed replacing the country’s federal financial aid system—Pell Grants, federal loans, and higher education tax credits—with a new federal-state partnership program that would eliminate unmet financial need for all students. Instead, the price students would pay would be limited to their Expected Family Contribution, the amount the government determines a household can afford to contribute toward the education of their children. Federal, state, and institutional funds would make up the difference between students’ EFC and the net price at the participating institution.⁵

A third possibility is a new proposal that would keep the current system but create a cutoff for federal financial aid for colleges that cover, on average, less than half of the financial need of federal financial aid recipients. This would be an extreme approach, but one that is worth examining if it is the only way to force these institutions to stop undermining national college access goals. Since this plan is aimed at improving colleges’ practices rather than punishing them, schools that miss the cutoff would have at least two years to come into compliance. This hammer-like approach may have, among the three proposals, the greatest chance of moving forward since it would surely be attractive to fiscally conservative policymakers who are looking for ways to reduce federal spending.

Regardless of which approach policymakers take, it is absolutely vital they act to put the brakes on the merit-aid arms race, which has done great harm to the college aspirations of low-income and working-class students.

For the good of the country, we must do all we can to ensure that colleges live up to their commitments to serve as engines of opportunity, rather than as perpetuators of inequality.